Urip Hudiono, Jakarta – Within a week, Indonesia will finish repaying all its debts to the International Monetary Fund (IMF), ending an eight-year, up-and-down relationship with the global financial agency.
The central bank notified the IMF of the payment plan Thursday, Bank Indonesia (BI) Governor Burhanuddin Abdullah said, adding that the process is expected to be wrapped up within the next five days.
"As of today we no longer have any more debts to the IMF. We are now a regular member, and no longer a 'sick' member receiving treatment," he told a media briefing after BI's Board of Governors meeting. "We expect this will provide more room for Indonesia's economy to grow with more confidence and in a healthier fashion without being burdened by the IMF debt."
Indonesia will pay the remaining US$3.2 billion of its principle and interest to the Fund, Deputy Governor Hartadi A. Sarwono said.
The central bank repaid $3.7 billion of Indonesia's then approximately $7 billion in remaining debt to the Washington-based financial agency in June, following President Susilo Bambang Yudhoyono's request to settle the debt within the next two years. The IMF debt does not actually come due until 2010.
Hartadi explained that the earlier debt repayment was feasible in light of Indonesia's foreign exchange reserves, which have recently strengthened to $42.3 billion on sound macroeconomic conditions. The repayment will save the country some $500,000 from this year's interest payments, which were expected to reach $22 million.
Finance Minister Sri Mulyani Indrawati, who first proposed repaying the IMF debt ahead of schedule, said recently that Indonesia could save at least $100 million in interest payments by 2010.
Sri Mulyani, a former IMF executive director, had argued for the earlier debt repayment considering the debt's increasing funding costs, while the money only functioned as a standby loan to strengthen Indonesia's foreign exchange reserves. Indonesia still has to pay Rp 63.5 trillion ($6.9 billion) in interest this year on its $61 billion in foreign debts, which may make the significance of the IMF debt repayment questionable except as a matter of national pride.
Indonesia's relationship with the IMF has always been politically sensitive, but the country may now be able to close those books. It joins Brazil and Argentina, which also paid off their debts this year.
Between 1997 and 2003, the IMF provided some $25 billion in loans to help Indonesia rescue its banking system, rehabilitate its economy by restructuring private and government debt, and strengthen its foreign exchange reserves.
Criticism quickly arose, however, as the loan program called for the government to implement a number of tough economic reforms under IMF supervision, including the privatization of state firms and the reduction of subsidies. Many nationalists saw these steps as damaging the nation's interests without significantly improving the economy.
Foreign debt costs have always been criticized, too, for siphoning off funds that could have been used to improve people's welfare.
The government, under public pressure, eventually terminated its program with the IMF at the end of 2003, but still remained under the Fund's "post-program monitoring" to assess the government's own reform targets.