Reports from Indonesia say the government is set to drastically scale down its five year link with the International Monetary Fund. Jakarta will leave the IMF umbrella, but retain a partial relationship with the international lender with what's called post-programme monitoring. The partial relationship means Indonesia could pay off IMF loans over the rest of the decade.

Presenter/Interviewer: Graeme Dobell

Speakers: Dr Chris Manning, Australian National University

Manning: The pressures are quite substantial and I think most likely the post-programme monitoring option will be the one that they take, that is they go out of the IMF programme, but still have a continued relationship with the IMF in terms of regular assessments of their programmes, albeit programmes that the Indonesian government have worked out themselves.

Dobell: How big an impact is that if they turn away from the IMF, they're then committed to pay back of billions of dollars out to 2010. What sort of impact does that have on the Indonesian economy?

Manning: Carefully scheduled I don't think it's going to have a big macroeconomic impact. It will mean that the government will have to focus more attention on some of the privatisation programmes, it will mean I think more attention to exports and to issues that relate to making sure that economic growth doesn't dip too low.

Dobell: And not able to blame the IMF for hard decisions anymore, the IMF has been a very handy boogeyman for the Indonesian government for nearly five years now?

Manning: Yeah there's a fairly good chance I think that Indonesia will take ownership of their reform programmes, that vigorous debates within cabinet will probably support the Minister of Finance against some of the more interventionist or perhaps what you might call populist ministers, and that Indonesia will more or less keep on the same track it's been on now. And perhaps in the medium term indeed we might see some more positive developments, some sense that ok, now we've really got to take some steps to increase economic performance, and they'll be an increasing group of people who will support that.

Dobell: Without the IMF in the ring though, does that mean that protectionist sentiments, nationalist sentiments, and the interests of politicians looking to be elected will actually have a greater impact on the way Indonesia thinks about its economy?

Manning: I think those debates will become more visible, more open, more public and it's quite likely that some of those nationalist sentiments will prevail in the shorter term. But in the medium term some of those mistakes will hit the economy hard. I mean the Indonesian economy is basically open, it's porous, you can't extend protection very far, everyone knows there's very little capital has come back and if doesn't come back from overseas, either Chinese or foreign, the economy is not going to grow beyond about three to four per cent. That means education is not going to improve a lot, and health the same, that some of the really endemic problems are not going to be solved.

Dobell: Without the IMF do you see Indonesia bumping along that poor economic performance road, only getting three or four per cent, more subject to shocks?

Manning: Probably short term those debates may well be one with people who by sort of the Rizal Ramli camp who want less involvement with the international community. Though I should point out that the debates are not over basic ideological differences in economic strategy. Rizal Ramli is not a protectionist in the sense of you know he's going to put tariffs up to 100 per cent on most consumer goods. He's not going to do that and he's never suggested he should do that, but what he's wanted is an Indonesian development programme that is decided by Indonesians, that is implemented by Indonesians, that's not dependent entirely on foreign advice and foreign capital. Since there's been very little investment coming in anyway that's not really a radical departure from what's been going on in the past several years.