Mark Egan, Washington – The International Monetary Fund on Thursday approved a $365 million loan payment to Indonesia under the nation's $4.8 billion loan and urged the nation to undertake further economic reforms.
The latest payment was initially set for September, but was delayed by slow government progress on meeting some economic reform targets. Since then, bomb attacks in Bali on October 12 killed at least 184 people and raised questions about security and political stability that could affect investment. The bombing is also expected to damage the nation's vital tourism industry for some time to come.
"Indonesia has made continued progress in program implementation since the last review. Macroeconomic developments in 2002 have been favorable, with steady economic growth, moderating inflation and a strengthening balance of payments," IMF First Deputy Managing Director Anne Krueger said in a statement. "However, the economic outlook has deteriorated as a result of the recent terrorist attack in Bali. The attack poses new challenges, which must be met, on the economic front, through the continued firm implementation of the government's reform program," she added.
Krueger said that the recently approved 2003 budget struck the right balance between the need for further fiscal consolidation to reduce the public debt and providing support for the economy in the aftermath of the Bali attack. "The prudent conduct of monetary policy has contributed to a further decline in inflation, which is expected to reach single digits by the end of the year," Krueger said.
The IMF's No. 2 official added that, "A continued cautious monetary stance will be important to ensure that the program's inflation objectives are met." Krueger said it was important that the Indonesia Bank Restructuring Agency press ahead with the sale of remaining assets and to collect payment from cooperating debtors.
The powerful agency, set up in the aftermath of the economic crisis that hit in the late 1990s, is in charge of selling assets worth some 600 trillion rupiah when taken over from debtors, although many of the values have plunged. Krueger also called for a sustained effort on the government's privatization program.
She also said that faster progress in implementing legal and judicial reforms and establishing the rule of law is critical to stamp out corruption and improve the investment climate, which continues to suffer from the widespread perception of judicial corruption.
"Establishment of the Anti-Corruption Commission, ongoing reform of the commercial court and revisions to the bankruptcy law will be important milestones in this effort," she said.