Parting ways with the IMF is strongly justified: Rizal

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."