New IMF loan shows confidence in RI reform program: Experts

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."