Tsunami has little impact on the Indonesian economy

On the sidelines of the Special Leaders' Meeting on the Aftermath of the Earthquake and Tsunami in Jakarta on Thursday, the International Monetary Fund's Managing Director Rodrigo de Sato talked with The Jakarta Post's Riyadi Suparno and Urip Hudiono on the impact of the disaster on the country's economy.

Question: What is the IMF's assessment of the impact of the tsunami disaster on the Indonesian economy?

Answer: From an economic point of view, we have not appreciated the impact of the disaster -- up until this moment. But all of this is temporary, it is still very early. Right now, we do not see signs of great destruction in growth prospects for the economy.

We see the economy as being on a very important growth path; we see the government with a very important reform agenda. The Indonesian economy has increased its reliability and has reduced its liabilities in recent years -- and all of that is going to pay off now.

Of course, that can be misleading, because what I think is relevant is the impact on the regions and the economic sectors that are affected.

An analysis of the impact of the tsunami on the overall economy of Indonesia would probably say that it was not very disruptive (economically). But that could be misleading. The question is in place, even if it is not in the overall balance very big, it could be extremely big for the area, which I think it is.

Maybe it is not so much in terms of GDP (gross domestic product) because the area has oil and gas resources that have not been affected -- but it could be very destructive in terms of fisheries and agriculture.

So I do not think this is a problem in which aggregate numbers of the GDP are relevant, but it is more a question of microeconomics and microsocial problems. And that, of course, is very important.

And how would this affect Indonesia's budgetary position?

Of course there will be very important needs for the budget to allocate funds for: reconstructing infrastructure and taking care of such social needs as health and water-supply facilities.

In that respect, we believe that the actual pledges of different bilateral donors to Indonesia are going to be very important in terms of volume and could certainly balance financial needs.

That is why we advise the Indonesian government to contemplate all options and we have offered our own options of financing if they are needed.

But it would be too early to assess that. What is important now is to assess the damage, and to get as many commitments as possible from the international community -- and guarantee the transparent and efficient use of those resources.

What is also important is that we are here to help and advise in technical assistance and that the government knows this.

So the IMF will only provide technical assistance, such as help in managing the balance of payments?

We do not provide grants, but we can work with donors to get concessional lending, which are less expensive than in the market. But I want to emphasize that this is up to the government. If the government sees a need, we will contemplate, with speed, fulfilling it.

Many creditor countries are now proposing a debt moratorium, but the best way would be pursuing it through the Paris Club, which would involve the IMF. How does the IMF see this?

The Paris Club is a club of creditors and the IMF is not part of it. We assist the Paris Club technically, when it asks us to do so.

So, it would be up to the Paris Club creditors to ask us what they want us to do -- if they want us to evaluate needs or plan schemes.

It's not prefixed that we have to be involved. If the Paris Club decides to ask us, we will oblige. But if they do not ask us, then we will not be involved. It is a question for them to decide, not us.

So there is no requisite of the Fund to be involved in any Paris Club decision.

It is the usual thing in the circumstances, these are probably very different circumstances from others.

When Indonesia negotiated with the Paris Club some debt restructuring, that was another circumstance and not the same as we are envisioning now.

I would not have anticipated that we would be involved, but if we are, we will of course help to do as much as we can.

Some NGOs are saying that a debt moratorium is not enough, and are demanding debt relief. What is the IMF's comment on that?

First of all, we are not the creditors, so we have nothing to respond to. It would be up to the creditors to decide.

The disaster is such an important problem -- although we are still saying that it is not a problem that will disrupt the whole economy -- but such an important problem for the area, such a costly problem humanly and socially.

We believe it needs a substantial amount of grants, and probably also concessional financing or a moratorium. There has to be a mixture of things, depending very much on the actual needs, which are still being evaluated.

So it's too early to make a clear recipe as to what is going to be needed. What is important is that we have different tools that we can use, and that they are all available: new financing, refinancing, grants. And we insist that grants should be a very important part of it all.