Parting ways with the IMF is strongly justified: Rizal
A'an Suryana, The Jakarta Post, Jakarta
Former chief economics minister Rizal Ramli said Monday that ending the International Monetary Fund (IMF) program this year would be the best option for Indonesia's economic recovery.
Speaking at a seminar hosted by The Jakarta Post, Rizal said Indonesia's economy required greater flexibility and room to maneuver to achieve high growth. This could not be achieved with the limitations of the current IMF program.
In addition, there were no strong financial and economic reasons that justified extending the program, Rizal said.
IMF loans were no longer needed as Indonesia still had foreign exchange reserves of about US$33 billion, he said.
When the country paid its $9 billion debt to the IMF, there would still be more than $23 billion in foreign exchange reserves, an amount that would be enough for Indonesia to service imports for about seven months, said Rizal.
"The loans from the IMF are useless and add more burden on the government. The government never uses it, but it must continue to pay interest on the loan."
Rizal ruled out concerns that foreign investors may avoid Indonesia if it parted from the IMF.
He said the investment climate in Indonesia was not determined by the IMF but by domestic political stability and legal framework.
The plunge in foreign investment since the 1997 financial crisis was mainly due to Indonesia's domestic political instability and messy legal framework, Rizal said.
Having learned this lesson, Indonesia should not hesitate to abandon the program, he said.
"It is only a myth that has been developed by the IMF that, without the IMF, foreign investment will not flow into Indonesia."
Regarding creditor confidence in Indonesia, Rizal admitted that some creditors did consider the IMF's position when making lending decisions to Indonesia, but the actual influence of the IMF was limited.
"Every lender, whether they be private or public, has its own strategic and economic interests in Indonesia. For example, when I was coordinating minister of the economy, I signed loan agreements with the World Bank, Japan and the Asian development Bank (ADB) despite ongoing disagreements with the IMF over the content of the Letters of Intent," Rizal said in a paper presented at the seminar.
After parting with the IMF, Rizal suggested a number of measures to boost investor confidence and secure access to foreign financing as well as maximizing revenue from domestic resources.
He suggested the government engage in strategic negotiations with the country's main creditors, including the World Bank, the ADB, Japan, the U.S. and European countries, to get the best deal from each of them by using Indonesia's considerable leverage.
Domestically, Rizal suggested the government reform the tax system to increase fiscal autonomy and reduce dependence on foreign borrowings.
Tax reform could be pursued through, among other things, increasing the number of taxpayers from two million now to 2.9 million within seven months, reducing nominal income taxes but increasing tax collection and introducing a tax amnesty, Rizal said.
The government must make better use of public funds by increasing transparency of its use, especially public money deposited in Account 69 and the investment fund account, Rizal said.
Account 69 is where the government deposits money collected from the sale of oil if sales exceed targets set in the state budget. The account currently holds Rp 18 trillion (US$2 billion).
Rizal said the investment fund account, holding funds from the interest rate difference between the government's overseas borrowing and second-tier lending at higher rates to banks or state-owned companies, contained Rp 21 trillion. On top of that, the government has another Rp 27 trillion left over from previous years' budget.
"These resources should be put to work in the form of public investment to accelerate recovery."