Jakarta urged not to cut ties with IMF

International economic advisers say Indonesia must continue relations with international bodies to retain credibility for its reforms.

Prominent international economic advisers yesterday called on Indonesia not to sever ties with the InternationalMonetary Fund (IMF), even if pressure for reform is upsetting Jakarta.

Mr Nobuo Matsunaga, Japan’s former ambassador to the United Nations, told reporters after an international advisory panel meeting with Indonesian economic ministers that continued links with the IMF lent credibility to the reform measures being undertaken.

“In the international community, we find today some kind of suspicion or concern about the economic performance of this country,” he said.

“Relations with the IMF and other international institutions will be extremely crucial. We sincerely hope solutions will be worked out for that.”

Echoing similar sentiments was Mr Paul Volcker, the former US Federal Reserve chairman.

He said: “We believe it is a difficult process to have someone looking over your shoulder all the time.

“But for the moment, Indonesia is in that situation where it needs to nurture confidence … and cooperation with international institutions is an important factor in sustaining and encouraging that kind of confidence.”

The two are part of an international advisory panel that includes Senior Minister Lee Kuan Yew.

Their comments yesterday took place against a backdrop of worsening ties between the Indonesian government and the IMF.

Senior Economics Minister Rizal Ramli last week lashed out at the world body after the IMF suspended aid over Jakarta’s foot-dragging on economic reforms.

The IMF and other major donors have also been particularly nervous about the impact of the new autonomy laws which went into effect last month. The laws give regions wide-ranging powers, including the ability to borrow directly.

Mr Ramli, who is due to fly to Washington this week to meet IMF managing director Stanley Fischer, had complained that the IMF was pushing the government too hard on some issues.

He said some matters were difficult to address as quickly as the IMF wanted given that the country was struggling to switch to democracy after decades of authoritarian rule.

The senior economics minister yesterday described the panel’s advice as “fruitful” but maintained that “we still have differences with the IMF”.

The new agreement with the IMF is less important for the money – about US$400 million (S$700 million) in loans – than the impact it will have on Jakarta’s economic links with the rest of the world.

Without a deal, confidence in the Indonesian economy will ebb lower.

Also, vital debt rescheduling with the Paris Club of official creditors would be blocked.

Summarising the discussions between the advisory panel and ministers, Mr Volcker said domestic and foreign investors were worried about the Indonesian economy, which crawled back after a battering during the 1997 financial crisis.

He said: “The Indonesian economy and the confidence afforded in Indonesia … is still fragile.”

According to Mr Matsunaga, besides carrying on with economic reform, the key to economic recovery lies in stability in the sprawling archipelago.

“Political stabilisation is important for growth,” he said.

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