Fri, 14 Feb 2003

Top economist backs IMF's continued role in Indonesia

The Jakarta Post, Jakarta

Adding weight to the prolonged debate over the International Monetary Fund (IMF)'s role in the country, noted economists said that Indonesia still needed the Fund to help ensure continued confidence from creditors and investors in the country's economy.

Emil Salim, a respected economist at the University of Indonesia, told reporters on Thursday Indonesia remained in need of such a role as the country's credit rating remained poor.

"Our credit rating such as the one issued by S&P still hovers at CCC (below investment grade).

"So, we need an (credible) institution that can provide a guarantee ... Much like a reference, and such a reference is currently given by the IMF," Emil said.

He added that the IMF was acting as an insurer for creditors and investors, whenever Indonesia needed financial support, either for debt rescheduling or asking for new loans. As such it has proven to be crucial given the country's huge debts, Emil added.

Currently, the country's sovereign debts stand at around US$72.9 billion.

And to avoid being trapped by financial disaster, seeking debt rescheduling would be of great importance for the country so that it could maintain fiscal stability. According to Emil, it is for this reason that the IMF's role was so critical.

For instance, the country's creditors grouped in the Paris Club and London Club have so far been willing to grant Indonesia debt rescheduling facilities, mostly because of the IMF.

"If we want to free ourselves from the IMF, please offer some alternatives as to how to deal with this guarantee problem," Emil said.

While the Paris Club applies to government-to-government debts, the London Club refers to the government's debts owed to international private creditors.

Emil's remarks constitute the latest twist in the long- standing controversy over the IMF's role in the country. Currently, Indonesia is entering the final year of the IMF- sponsored economic reform program, which began in 1999. After being extended for another year, the IMF assistance program is scheduled for completion by the end of this year.

So far, the reaction over this has been mixed.

On one side, prominent figures -- including the outspoken Minister for National Development Planning Kwik Kian Gie and the People's Consultative Assembly Speaker Amin Rais, have insisted that Indonesia would be better off without the IMF.

They have demanded the program be ended even before its termination period as they claim it could at times be harmful to the country's economy. Free from the Fund the country would be more independent in determining its economic policies, they argued.

On the other side, however, many economists, who have been gaining more and more support lately, have voiced doubts that the country could maintain its reform momentum without the IMF closely watching its back.

It's been proven, even with the support of the IMF, the country's key reform program has not always gone smoothly.

What's more important, however, it would be hard for the government to convince its creditors and foreign investors that it was still committed to continued economic reform.

Economist Muhammad Ikhsan earlier said foreign investors would prefer the IMF's existence to monitor the implementation of reform.

"With the IMF around, Indonesia would be more disciplined in its reform implementation. That would give a boost to foreign investors' confidence on the country," Muhammad has said.