Shoeb Kagda, Jakarta – As emerging market assets lose their shine in the current global environment, Indonesia faces an uphill task in implementing its privatisation programme, but not going ahead with it would prove more detrimental for the country in the long term, said the International Monetary Fund's senior resident representative yesterday.

Speaking to a select group of reporters, David Nellor noted that President Megawati Sukarnoputri's government will have to make tough commercial judgements on whether to sell these assets at a lower price under current depressed market conditions or allow them to "rust" over time.

"It's important that some privatisation moves forward quickly," he said. "Timeliness is crucial and getting the first one done is always difficult." Apart from the long-term economic dividend the country will reap by privatising its state-owned enterprises, such a move will also send a strong signal to investors that the government remained committed to its goals and as such would boost international confidence in Indonesia.

Answering a question on whether the IMF would suspend its aid package to Indonesia if the government failed to meet the target of raising 6.5 trillion rupiah (S$1.17 billion) for this year, Mr Nellor said the IMF would see how the situation played out. "Privatisation is an important element of the IMF's programme and the government's Budget ... but it is not the sole reason for us to suspend the programme," he noted.

Mr Nellor added that while the IMF's recovery programme for Indonesia was not in danger of collapsing if the government did not push ahead with its privatisation programme aggressively, not doing so now would, however, diminish its effectiveness. "I don't think that failure of the privatisation programme means that the IMF programme collapses, but it means that the economy would grow more slowly over time and that would diminish the IMF's programme for Indonesia," said Mr Nellor.

Given that the government needs the receipts from its privatisation programme to reduce its Budget deficit, the government will be forced to cut development spending to balance the Budget if these receipts are not forthcoming, leading to harmful consequences.

As such, the government needs to educate both Parliament and society at large on the long-term benefits of privatisation and display the political will to override vested interest groups, which have up to now blocked some privatisation deals. "The issue is the sale of state assets versus a reduction in development spending," said Mr Nellor. "This is a political judgement that the government will have to make at the end of the day."