RI could leave IMF program before the end of 2003: ING

A'an Suryana, The Jakarta Post, Jakarta

Indonesia does not need to wait until the end of 2003 to free itself from the International Monetary Fund (IMF) economic program as long as the government can maintain the country's current positive progress in the macroeconomic area, an international securities firm has said.

"Indonesia could graduate at least in the third or fourth quarter of next year if the current bright macroeconomic picture can be maintained," Laksono Widodo, an analyst at securities firm ING Securities, told The Jakarta Post on Monday.

A benefit Indonesia would get from ending its dependency on the IMF is an improvement to the country's sovereign rating.

"By ending ties with the IMF, RI could be more independent and self-reliant to pursue its own economic policies," said Laksono.

In a country report on Indonesia, ING Securities said that Moody's sovereign rating for Indonesia of B3 was still six notches below the pre-crisis rating of Baa3. S&P's rating is either 8 or 13 notches below the pre-crisis level, the report added.

The current IMF program will expire at the end of this year. The three-year program was supposed to end in November this year, but the government extended the program for another year in a bid to secure a rescheduling facility from the Paris Club of creditor nations for some US$5.4 billion in sovereign debts maturing in 2002 and 2003.

Under the three-year program, the IMF provides some $5 billion in a loan facility, but in return the government must implement certain economic reform measures. The fund disburses the loan in tranches, which goes into the central bank coffers to help replenish the country's foreign exchange reserves.

There has been growing calls for the government to quickly end the IMF program here, with some arguing that the program is dangerous to the country.

Other experts have said the government might have to extend the IMF program again if it wants to obtain another debt rescheduling facility from the Paris Club for 2004 and beyond. This facility is deemed crucial to ease the pressure on the state budget, heavily burdened by the huge cost of the government bank bailout program during the late 1990s.

Indonesia could graduate from the IMF program and still obtain the fund's support at the Paris Club forum only if the government can prove that the country has been making significant progress in the economic reform program and has made a strong commitment to continue the reform process even without the direct involvement of the fund, some experts have said. One indicator of progress is an improvement in macroeconomic indicators, and another is the return of foreign investment here. South Korea and Thailand, two regional crisis-hit economies that have successfully graduated from the IMF, have been able to deliver this kind of progress.

While Indonesia can be proud of its improvement in the macroeconomic picture, it is lagging in the area of direct foreign investment, which, according to the Investment Coordinating Board (BKPM), plunged by 42 percent during the first half of this year compared to the same period last year, due mainly to various uncertainties at home.