Joanne Collins, Bali – Indonesia's government said on Tuesday it wanted an end to IMF funding this year, seeking to break a financial lifeline in place since the Asian financial crisis savaged the country five years ago.

"Our course remains, with your support, to restore financial normalcy and end the IMF programme at the end of this year," chief economics minister Dorodjatun Kuntjoro-Jakti told an annual meeting of donors on the resort island of Bali.

A $5 billion loan pact with the International Monetary Fund expires at the end of the year, and there has been confusion over whether Indonesia would seek another agreement, which allows for periodic disbursements in exchange for economic reforms.

Dorodjatun's comments came one day after the government caved in to nationwide protests and rolled back its most recent price increases on key utilities such as fuel and electricity – a key plank of economic reforms agreed with the IMF.

Asked at an evening news conference if Indonesia did not want another programme, Dorodjatun would only say Jakarta wanted no more IMF loans when the current pact expired.

He said a task force would be set up soon to study the implications of foregoing additional IMF funds from 2004. "We would really like to be forthright with the remaining letter of intent [pact] this year in the hope we will end IMF funding by the end of 2003," Dorodjatun said at the end of the first day of talks with donors, including senior IMF officials.

The IMF hinted Jakarta would need to knuckle down and accelerate economic reforms first.

Indonesia ready for IMF exit?

Market players, however, said Indonesia's improving foreign exchange reserves, more stable currency and rosier budget deficit position might have given the government the confidence to consider breaking away from IMF assistance.

Japan, Indonesia's single biggest creditor nation, also said it would not be too concerned if Jakarta left the IMF programme.

"What we really hope is that they carry out economic reforms as much as possible and as smoothly as possible at this moment, so they can create an economic situation which enables them to graduate from the IMF programme," Hiroshi Ogushi, a senior official at the Japanese embassy in Jakarta, told reporters.

Despite the price backdown, Jakarta's donors under the Consultative Group on Indonesia (CGI) signaled they would give the nation the $2.65 billion aid it wanted for 2003.

The protests had threatened Indonesia's economic progress, Finance Minister Boediono said in a speech.

Donors are expected to announce the aid pledges, which will help plug this year's government budget deficit, on Wednesday.

The IMF programme prescribes tough fiscal austerity measures and critics say it hurts millions of poor.

Daniel Citrin, IMF senior adviser Asia and Pacific Department, said the Fund shared Jakarta's wish that Indonesia complete its economic recovery soon.

"But this will require that Indonesia redouble its efforts in the implementation of the reform agenda," he said.

In 1998, widespread riots over price rises, which also came after separate IMF-prescribed measures, were one of the key factors that led to the downfall of Indonesian strongman Suharto.

The country's highest legislative body – packed with politicians critical of the IMF and jostling for position ahead of general elections in 2004 – issued a non-binding decree last year requiring the government not to extend the IMF pact.

Debt rescheduling critical

One key issue for Indonesia in weighing future IMF support is debt rescheduling via the Paris Club of official creditors.

Without an IMF pact, Jakarta could still be eligible for debt rescheduling from the Paris Club of official creditors, which in April last year agreed to roll over some $5.4 billion of sovereign debt. But any rescheduling would depend on a Paris Club economic assessment. Indonesia has some $70 billion in public foreign debt.

Michael Spencer, chief Asia economist at Deutsche Bank in Hong Kong, said Indonesia's standby loans could rally if no IMF programme meant no further debt restructurings.

"It would be marginally negative for Indonesia not to have an IMF programme as the market may see a risk of the government slipping on policy implementation," Spencer added.

Aside from the question of whether Indonesia is moving fast enough on economic and other reforms the donor meeting will focus on rebuilding strife-torn Aceh province and supporting Bali following the bombings in which at least 193 people were killed.