New IMF loan shows confidence in RI reform program: Experts
Dadan Wijaksana, The Jakarta Post, Jakarta
In spite of the lukewarm reaction from the financial market, recent approval from the International Monetary Fund (IMF) to disburse its latest loan tranche to Indonesia reflects the Fund's continued confidence on the country's economy, experts said.
The approval shows that the country's economic reform program being carried out under close supervision of the IMF was on track, StanChart economist Fauzi Ichsan said on Monday.
"That is still good news as it means we're moving in the right direction," Fauzi told The Jakarta Post.
Late last week, the IMF approved a fresh loan worth US$469 million to Indonesia to bring its total lending to about $3.5 billion under the current $5 billion loan program for the country. The approval was made possible after the IMF board of executives endorsed the country's new economic reform programs and targets.
But that failed to draw attention from the financial market, as seen in the performance of the rupiah. On Monday, the local currency closed unchanged at Rp 8,905 against the U.S. dollar compared to Friday's closing.
"It had little impact on the market because everybody is focusing on the ongoing war. That's what mostly is driving the rupiah's movement at the moment," Fauzi said.
Currency analyst Pardi Kendi shared Fauzi's views that the approval would have little impact on the rupiah as the IMF is currently no longer the factor weighting on the market's confidence.
"The day-to-day developments in the Iraq war have been the dominant force driving the rupiah, and will remain so in the near future. The IMF approval will do little to support the rupiah," Pardi told the post.
However, the two were of the opinion that the lukewarm reaction to the loan approval did not negate the message behind it.
It should carry the message that Indonesia needs to speed up efforts in improving the domestic investment climate, which has been the main obstacle in generating economic growth, Fauzi said.
The IMF, while noting continued stability in the country's macro-economic indicators -- such as the exchange rate, inflation and Bank Indonesia's interest rates -- also stressed the need for further reform especially in the legal and judicial area.
"Sustained efforts for further reform will be necessary in the context of the 2003 program to lay the basis for more rapid economic growth," Anne Krueger, IMF first deputy managing director said, when the approval was announced.
The IMF loan program is tied to the government's commitment in implementing its economic structural reforms.
The IMF program was started in 2000 after the country was hit by the financial crisis in late 1990s with Indonesia planning not to renew the program when it expires at the end of this year.
She added that Indonesia needed to reinforce its financial system.
"Strengthening the financial sector is a central element of the program ... further steps are required to strengthen monitoring, governance and accountability of state banks as they prepare for divestment."