Troubles ahead as IMF suspends aid

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)