The policy recommendations issued by the Indonesian Economists Association at the end of its 15th National Congress on Tuesday were surprisingly sensible, especially with regard to its policy advice for after the International Monetary Fund program ends later this year.
One would have expected revolutionary, political recommendations, given the heated debate about the role of the IMF and other international creditors in Indonesia, and the strong anti-IMF stance promoted by several leaders of the association.
But the association's recommendations turned out to be economically realistic and politically sensible, not only with regard to Indonesia's future relations with the IMF but also to the policy directives it wants the government to follow after exiting the IMF program.
The organization did not call for immediate repayment of Indonesia's debts to the IMF far ahead of their installment schedules, as several staunch IMF detractors have demanded at the risk of weakening our international reserve position.
The economists only demanded that the government stop submitting a quarterly letter of intent (LoI) on its reform commitments to the IMF, as it has been doing since the 1997 economic crisis.
The letters of intent and their supplementary memorandum on detailed policy measures were reviewed by the IMF before it disbursed its loans.
It was these quarterly reviews that irritated many politicians and analysts, because the policy dialog that preceded the drawing up of the LoI was often acrimonious and the IMF was generally perceived as acting magisterial. The differences of views which took place during the reviews, and the politically unfeasible scheduling of several reform measures at once, stung national pride and the dignity of officials and politicians.
Terminating the quarterly LoI would allow the government to make its own policies without any interference from the IMF, with the consequence that the country would no longer be entitled to special loans from the IMF or the debt rescheduling facility from the Paris Club of sovereign creditors.
Almost all analysts, including those from the IMF and the World Bank, share the view that Indonesia can manage without new loans from the IMF or debt rescheduling from the Paris Club, given the country's strengthening macroeconomic stability, stronger fiscal position and high level of international reserves.
The greatest concern is whether the government will have the political will and ability to maintain its reform commitment without any international oversight from the IMF.
The Indonesian Economists Association is quite right in insisting on full authority for the government to decide on its policies. Both the IMF and most other multilateral development agencies also have increasingly realized that only homegrown reforms with the support of a national political consensus are sustainable.
But this is precisely the biggest challenge for the government, including the legislative and judicial branches, in view of the poor record of their policy performance and the still dismal standard of governance in the country.
The government has significantly improved its policy performance over the past two years but it needs to do more to maintain market confidence, especially after the IMF program ends later this year.
But here again we are encouraged by the association's recommendations on the policy framework the government should adopt. The policy advice in the association's six-page statement read very much like the ninth LoI and its supplementary memorandum the government submitted to the IMF last month.
The association's views will hopefully have a strong influence over the economic strategy the government designs and announces when President Megawati Soekarnoputri unveils the 2004 state budget draft next month.
The government should devise a credible reform framework on which the market can anchor its perceptions and expectations for the economy. Since this framework will replace the LoI as, it should also outline specific and time-bound measures to maintain market confidence.
The government faces great challenges ahead because the end of the IMF program will not spare Indonesia's policy performance from the spotlight of international oversight. IMF oversight will instead be replaced by the more vigorous supervision of the international market.