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INDONESIA CLEARS ALL DEBTS TO IMF


Wednesday October 11, 2006

On Monday, 9 October, Media Indonesia, - a paper normally very critical of government policies, - carried an unusually supportive editorial. In fact, Media called on all Indonesians to celebrate and be particularly proud, since this week regained its pride and honour now that the country finally repaid all its debts to the International Monetary Fund. 

This week, remitted US$ 3.2 billion to IMF, the second installment reimbursing its total debts, - some 4 years earlier than the 2010 due date.  Bank Governor, Burhanuddin Abdullah, told the press that remittance was made on Thursday 5 October, but that it would take some 5 days to process. This means that from this week on, is clear of all debts to the international organization. 

In June this year, Bank remitted the first installment of US$ 3.75 billion, promising to repay the second installment in 2007. But instead, all of ’s debts to IMF have now been settled this week, following President Susilo Bambang Yudhoyono's request to settle the debt within the next two years. 

The government decided to pay the last $3.2 billion of its debt to IMF ahead of the 2010 due date because of the strong position of foreign reserves and an estimated $13.2 billion current account surplus. In addition, foreign exchange reserves at the end of the third quarter of 2006 stood at $42.3 billion, reported Reuters as quoted by Indonesia’s Trade and Investment News published by the Coordinating Ministry for the Economy. 

With the settlement of these debts, will be back to its position as a regular member of the IMF, Vice President Jusut Kalla later told reporters. 

Meanwhile, President Susilo Bambang Yudhoyono had positive words to say on the economy, noting on Friday that the Rupiah was at a favourable level for exports and that national debts would continue to decline. 

Indonesia’s foreign debts to decline rapidly as economy strengthens 

The country's debt to GDP ratio would likely drop to around 40% this year, the President said, from almost 50% last year and 80% in the year 2000. Earlier the President said that he wishes to maintain national debt level at around 35% of GDP. 

Further, President Yudhoyono commented that new banking rules issued on Thursday should also strengthen the sector, as reported by Reuters. The President’s remarks came as the Jakarta Stock Exchange composite index hit a record high last Friday. 

Meanwhile, the Jakarta Post reported Bank Indonesia Governor, Burhanudin Abdullah as saying last week,  that :"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,"  "We expect this will provide more room for 's economy to grow with more confidence and in a healthier fashion without being burdened by the IMF debt." 

The Central Bank repaid $3.7 billion of 's then approximately $7 billion in remaining debt to the Washington-based financial agency in June. 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 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 '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 matter of national pride.  

 

Indonesia's relationship with the IMF has always been politically sensitive, writes the Jakarta Post, but the country may now be able to close those books. It joins and , which also paid off their debts this year, continues the Jakarta Post report.   

Between 1997 and 2003, (at the height of the Asian economic crisis) IMF provided some $25 billion in loans to help Indonesia rescue its banking system, rehabilitate its economy by restructuring private and government debts, 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, writes Jakarta Post.

Media Indonesia editorial meanwhile, was of the opinion that IMF had turned out not to be a saviour but instead brought calamities to countries the organization was said to be saving. Strong criticisms not only came from civil societies but was similarly launched by 2001 Nobel Prize winner, economist Joseph Stiglitz. 

It remains a fact, says Media Indonesia that countries treated by IMF suffered longer from the economic crisis, whilst those not treated by IMF recovered much faster.

(Sources: Trade and Investment News, Reuters, Jakarta Post, Media )  (Tuti Sunario)