Tom Wright, Jakarta – The International Monetary Fund said it approves of Indonesia's plans to end its current IMF lending program when it runs out this year.

But it urged the country to continue to push through reforms aimed at weeding out corruption – and enticing back foreign investment – after the fund's $5 billion program finishes at the end of 2003.

"The country is now at a point where, upon the expiration of the current IMF-supported program at end-2003, it may be possible to forgo another arrangement with the IMF," Daniel Citrin, senior adviser to the fund's Asia Pacific department, told the latest edition of IMFSurvey.

Indonesia is the last Asian country to graduate from the IMF's lending program. Both Thailand and South Korea – which also got large bailout packages following the 1997-98 Asian crisis – stopped borrowing around three years ago. Indonesia's government, although slow at first to push through reforms – which the IMF demands in return for money – has won praise from the fund over the past year.

Jakarta has made progress in stabilizing its economy – including curbing inflation and reducing rates – and getting its banking sector back on its feet through sales to foreign investors, the IMF's Citrin said.

Still, the country needs to strengthen the investment climate if it wants to create jobs and reduce poverty, he added. Without foreign investment, Indonesia's economy will continue to grow at about 3%-4% annually, below its potential of 6%. "Indonesia needs to do a lot more to strengthen the investment climate." The country must push through legal reform and anti-corruption measures after the fund leaves town next year, and make sure its labor regulations don't deter investors, Citrin said.

Building up a credible reform program without the fund will also be crucial to the government's efforts to manage its finances, analysts say.

Without an IMF program, Indonesia will have to find other sources of funds to repay public debt coming due from 2004. Until now, the fund has been able to ask official creditors under the Paris Club of lenders to roll over debt. But the Paris Club has said it will only do this if Indonesia has an IMF reform program in place.

Indonesia has said it will ask foreign multilateral donors such as the World Bank for more loans, but also plans to issue local and international bonds to private investors.