New reform package
New reform package
The government, after more than two months of delay, has
finally drawn its new reform agenda for implementation under the
International Monetary Fund's three-year extended facility to
help the country cope with its economic crisis.
The reform package, as stipulated in its seventh letter of
intent the government sent to the IMF executive board last week,
constitutes the continuation of measures carried over from the
previous reform agreement plus new items that are planned to be
completed within the next few months.
The reform agenda still focuses on the core areas which
greatly influence macroeconomic stability such as financial
sector reform, privatization of state companies, asset recovery,
fiscal decentralization, legal reform and public-sector
governance. It also lists quantitative fiscal and monetary
targets that have to be achieved until the next review period
later in the first quarter of next year.
Some of the specific policy actions included in the new agenda
are the divestment of state-owned Bank Tabungan Negara and Bank
BNI, strategic sales of Indosat telecommunications company and
Indofarma pharmaceutical firm, the resolution of big debtors and
the sharing of losses of emergency liquidity credits between the
government and the central bank.
Also prominent in the reform measures is the revision of the
bill on an anti-corruption commission, which will be designed as
an important instrument in the struggle against graft in light of
building good governance.
The new reform agreement that is expected to be approved by
the IMF executive board in December as a precondition to the
disbursement of the next tranche of the IMF loan facility,
conforms with the new IMF guidelines on conditionality.
The new guidelines, which were announced in September,
emphasizes national ownership of sound economic and financial
policies and adequate administrative capacity of a member
country. The main principle of this directive is that the member
country (in this case, Indonesia) has the primary responsibility
for the selection, design and implementation of its reform
measures. Its main objective is to demonstrate that Indonesia is
sufficiently committed to implement the programs consistent with
its administrative capacity and the political consensus it can
gain.
The new reform agenda therefore is not as elaborate as the 53-
point letter of intent signed last December because the new
document focuses on the IMF's core areas of responsibility:
Rectifying Indonesia's balance of payments problems without
resorting to measures that could be destructive of its national
prosperity, and to achieve medium-term external viability while
enhancing sustainable economic growth.
Since a reform agreement with the IMF confers a kind of good
housekeeping seal signaling its economic endorsement for
Indonesian creditors, it will at least help support the
government in its forthcoming negotiations with the international
donor community (Consultative Group on Indonesia) later in
January.
The next annual meeting with the CGI will be much more
important as the government will have to ask for more soft
credits in the form of program loans to finance its Rp 10.50
trillion (US$1.1 billion) pump-priming package. The additional
fiscal stimulus is sorely needed to cope with the devastating
impact of the Oct. 12 Bali bombings.
One cannot, however, pin too high of expectations on the new
agreement with the IMF in so far as the bid to regain foreign
investor confidence is concerned. A continuing program with the
IMF only indicates Indonesia's commitment to execute much needed-
reforms to deal with its economic woes.
Most important to investors, especially to the process of
restoring market confidence is the actual implementation of the
commitment. Unfortunately, Indonesia has lagged behind with
regard to many of its reform commitments due in part to the
complications it is facing in its transition from an
authoritarian government to a democratic one and from a
centralized administration to regional autonomy.
The core macroeconomic objectives of the reform agenda
nonetheless remain achievable provided that the government, with
full support of the House of Representatives, increases the
momentum of its structural measures.