Troubles ahead as IMF suspends aid

JAKARTA (JP): A delay in the disbursement of International Monetary Fund aid to Indonesia would have a serious impact on the economy because confidence would drop, according to a noted economist.

"The impact on the economy will be tremendous because confidence will tumble," Pande Raja Silalahi, an economist at the prestigious private think-tank Center for Strategic and International Studies (CSIS), told The Jakarta Post at the weekend.

Pande was commenting on reports that the IMF had decided to postpone its review of the country's economic programs which automatically delay the next tranche aid disbursement.

The Fund delayed the review due to a government failure in resolving the East Timor violence and the Bank Bali scandal.

The IMF was supposed to review the economic programs in the middle of this month, to be followed by a US$460 million aid disbursement in October.

Bank Indonesia Governor said last week at a hearing session with the House of Representatives commission VIII on banking and finance, that a one to two month aid suspension would not have a serious impact on the central bank's foreign exchange reserves.

"A one or two month suspension will not have a (serious) impact," he told parliament.

He said that the current amount of gross forex reserves, at around $27 billion in August, was "sufficient."

But Pande said that it's not the amount of the IMF money that counts, it's the impact on domestic and international confidence.

"Don't count the money, but the confidence that comes along with it (the IMF money)," he said.

Pande pointed out as an example that many business transactions would also be delayed following the suspension of the IMF aid.

"Importers will have difficulties in ensuring their overseas trading partners," he said.

The IMF is organizing a $46 billion bailout to help finance Indonesia's economic reform programs, in which the Fund contributed some $12.3 billion. More than $10 billion has been disbursed.

The rupiah and the stock market was badly hit last week due to the East Timor riots and the Bank Bali scandal on fears that the multilateral donors would suspend their aid to the country.

The World Bank has also threatened to withhold its aid for the country amid the "humanitarian disaster" in East Timor and stalled progress in resolving the Bank Bali scandal.

The Bank said last week that the $5.9 billion in aid pledged in July by donors grouped under at the Consultative Group on Indonesia was linked to a peaceful political resolution in East Timor.

Hundreds of people have been killed and thousands have left East Timor due to violence by prointegration militiamen allegedly backed up by the Indonesian military. The violence escalated after 78.5 percent of the East Timorese people chose independence in a referendum organized by the United Nations.

But Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita warned last week in New Zealand that it wasn't appropriate to use international financial institutions to pursue political goals, such as an easing of violence in East Timor.

The slow resolution to the Bank Bali scandal which revolves around the illegal transfer of US$80 million from the bank to a private firm linked to Habibie's inner circle has also irked the IMF and the World Bank.

IMF first deputy managing director Stanley Fischer expressed disappointment last week over signs of the government stalling on its promise to get to the bottom of the scandal. (rei)