There have been some economists who have argued that exiting the existing IMF programme while simultaneously devising a new economic strategy puts Indonesia's macro-economic stability at risk. They also argue that without the IMF, the government could stray from maintaining economically prudent policies. Furthermore, Indonesia could also forfeit some US$3 billion worth of a debt rescheduling facility next year from lenders grouped under the Paris and London Clubs if it does not renew the IMF programme. And without such facilities, foreign investors could get spooked, and that in turn could put pressure on the rupiah and force interest rates to rise again.

But many Indonesians seem convinced that five years after the multilateral lending institution signed its first Letter of Intent with Jakarta, it may indeed be time for the country to go its own way. Certainly, there is no denying that over the past five years, the IMF's support has allowed Indonesia to not only rebuild its devastated economy but to also emerge from a long-drawn-out political crisis. Since Suharto's fall in May 1998, the Fund has seen the country through three presidents and has worked with at least five chief economics ministers. To its credit, throughout this time the Fund has kept to its central economic message of the need for Indonesia to practise fiscal sustainability and financial prudence.

But for Indonesia to move on from dealing effectively with a financial crisis to putting in place a long-term economic development strategy, there is a case to be made for cutting ties with the IMF when the current programme ends in December. It must be remembered that the IMF is a crisis-driven supra-national agency whose key mission is to provide crisis-hit countries with emergency financial assistance. Truth be told, the Fund is neither geared nor mandated to play the role of formulating and implementing a long-term economic growth strategy. Its policies are specifically targeted at helping crisis-hit countries rebuild their foreign reserves and restore macroeconomic stability. On both these counts, its mission in Indonesia has been completed, given that the country's foreign reserves now stand at US$32 billion – even higher than before the crisis – and macroeconomic stability has been attained, as reflected by falling interest rates and a strengthening currency, despite ongoing security concerns in the country.

Indonesia now needs to build on these achievements by devising a broad economic blueprint that leverages on its own strengths. Such a blueprint should encompass re-attracting foreign direct investment flows into the country; reviving the mass-production manufacturing base given its cost-competitiveness vis-a-vis its regional neighbours; and developing local SMEs which can leverage on the country's wealth of natural resources.

Domestic investment

To attain sustained gross domestic growth of 6 per cent or higher, the country needs to boost domestic investment, as private consumption – which has fuelled economic growth over the past two years – cannot continue to expand at the same rate for much longer without new capacity. And as part of its push on regional autonomy and development of the provinces, the government should encourage private domestic investments to build up infrastructure.

Indonesia has sufficient foreign reserves to prevent another economic meltdown and enough experience to recognise potential problems early. Moreover, as the World Bank and the Asian Development Bank will still play a crucial role in the country, external creditors can sleep soundly knowing their interests will be looked after. So by going it alone and developing its own economic development paradigm, the government could gain a crucial psychological edge and Indonesians will regain their self-confidence.