Mega says RI still needs IMF to restore confidence
The Jakarta Post, Jakarta
While claiming that macroeconomic indicators have improved during her first year in office, President Megawati Soekarnoputri stressed the need to maintain the role of the International Monetary Fund (IMF) to revive confidence in the economy.
"In this difficult transition time, we need that cooperation (with the IMF) to cultivate trust in the macro economy and monetary (condition)," she said on Thursday in her progress report speech delivered on the first day of the 10-day Annual Session of the People's Consultative Assembly (MPR).
The statement came amid mounting opposition to the IMF program here including from Megawati confidante Kwik Kian Gie, the State Minister of National Development Planning, and other leading politicians who have argued that the IMF recommended-policies often sacrifice the nation's interests.
Indonesia is currently tied with the IMF under a three-year US$5 billion loan program. In exchange for the IMF money, the government must implement various economic reform programs. The IMF role here was supposed to finish by the end of this year, but the government extended it for another year in a bid to secure a sovereign debt rescheduling facility from the Paris Club of creditor nations.
Megawati said that the success in obtaining the rescheduling facility would help ease the country's debt burden and help create fiscal stability, which in turn would also promote macro economic growth and monetary stability.
"... the government is putting top priority on the achievement of macro economic and monetary stability," she said, pointing out that such a condition was crucial to revive confidence in the economy.
Megawati made an immediate impact when she was elected as the country's fifth president in July 2001, by mending ties with the IMF that were strained during the 21-month government of her predecessor Abdurrahman Wahid.
In her speech, she said that macro economic and monetary conditions had been improving during the past 12 months, pointing out a stronger rupiah, lower inflation, and the state budget deficit moving within a safe limit.
Nevertheless, despite this progress, Megawati admitted that many problems remained a threat to the economy including the banking sector which has yet to fully recover, slow progress in the recovery of the real sector, and huge public debt.
While exports have yet to pick up from its slump, investments have so far failed to perform, depriving the country's ailing economy of its main growth movers.
Foreign direct investment (FDI) approvals tumbled 42 percent to $2.52 billion in the first six months this year from $4.31 billion a year ago, the latest data shows. Exports also posted a 6.7 percent drop during the period compared to the previous year.
Adding to the problems is the fact that the state budget remains heavily weighed down by $134 billion in foreign and domestic debts.
Of the total, around $66 billion comes from domestic debts, as a consequence of bailing out the banking sector during the 1990s financial crisis.
Covering interest payments for those debts has limited the budget's allocation for development spending, which could have generated economic activities to push for higher economic growth.
Other problems revolve around the slower-than-expected progress in the sale of assets held by the Indonesian Bank Restructuring Agency (IBRA) as well as attempts to restructure the banking sector.
The privatization program of state-owned enterprises has so far also failed to show encouraging signs. Of the targeted Rp 6.5 trillion in proceeds for 2002, the government had only managed to rake in around Rp 2.2 trillion so far.