RI faces obstacles after IMF exit

RI faces obstacles after IMF exit

The Jakarta Post, Jakarta

The International Monetary Fund has concluded its high-profile
role in designing the country's economic reform program over six
years with the announcement late last week of its last loan
tranche.

Graduating from the IMF program leaves the country with
enormous challenges ahead, notably due to pressure from
nationalist and populist politicians, which could put at risk the
sustainability of the government's economic reform agenda.

Even when the IMF program -- with its strict economic targets
and tough measures -- was in force, the government had to
sometimes bow to the pressure, with delays in reducing the costly
fuel subsidy and slow progress in the privatization program as
examples.

The risk of a slowdown in the reform drive will be even
greater next year, particularly with the general and presidential
elections, a protracted seven-month process. The continuity of
the reform agenda is crucial to help revive investor confidence.

"Judging from the (election) participants, it's hard to say
that there will be a single majority winner. And if that's the
case, more compromises are likely to prevail," Pande Radja
Silalahi of the Centre for Strategic and International Studies
(CSIS) said.

The IMF approved on Friday the final US$505 million tranche
for Indonesia, the final portion of a $5.3 billion lending
program, which was an extension of a previous similar program
requested by the government in the wake of the 1997-1998 regional
financial crisis.

Without the presence of an IMF-sponsored reform program, the
country would have no longer been eligible for the Paris Club
debt rescheduling facility, posing a greater burden on the state
budget.

Indonesia's relations with the IMF have not been smooth. Four
governments had to deal with strong public opposition to the
reform program prescribed by the fund. In fact, the country's
former authoritarian leader Soeharto had to step down after 32
years in power after he raised fuel prices and closed down banks
as recommended by the IMF.

The country is now set to enter the first year of a dialog
program designed for those newly graduated from the IMF lending
program, called the post-program monitoring (PPM).

The government has drawn up economic action targets in the
white paper, to support its decision not to extend the IMF's
special program. It covers three main goals; to retain and
continue pursuing macroeconomic and fiscal consolidation;
continue the finance sector reform drive; increase investment,
export and employment opportunities -- all are drawn up into
certain policies and targets to be met by until the end of next
year.

Experts have said that all the targets will remain just that
if the country fails to manage the elections in a democratic and
peaceful manner.

While the elections will be closely watched to help measure
investor confidence, of more importance, however, is the economic
direction the next government will take.

"Whoever wins, what's important is how to consistently pursue
the reform program -- with or without the IMF program. So, it is
important for the government not to make too many compromises.

"Admittedly, that will be very difficult, but it should at
least be at a minimum," Pande said.

Meanwhile, Chatib Basri of the Institute for Economics and
Financial Research, School of Economics, University of Indonesia
(LPEM-UI), highlighted the importance of strong leadership on the
part of the next government.

"It's very important to have strong coordination within the
government, which would send positive signals to investors," he
said.

Equally important, Chatib added, was clear-cut, time-bound
economic policies as well as a clear measure to gauge the
government's discipline in meeting the targets.