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Tuesday, February 14, 2006

Early IMF debt repayment 'good for Indonesia'

The government will go ahead with its plans to repay Indonesia's debts to the International Monetary Fund (IMF) ahead of schedule, the finance minister said, citing a preliminary study from the central bank that showed the country was financially capable of doing so and the benefits that would result.

"Bank Indonesia (BI) has concluded that from the administrative point of view -- comparing our obligations to pay the loan interest and provide enough funds to repay the loans while maintaining the security of our foreign exchange reserves -- early repayment would be more beneficial to us," Finance Minister Sri Mulyani Indrawati said during a hearing Monday with the House of Representatives' finance commission.

Indonesia's outstanding debts to the IMF currently amount to $7.8 billion. The debts, which are managed by BI, take the form of standby loans to support Indonesia's forex reserves.

Between 1997 and 2003, the IMF provided some $25 billion in loans to Indonesia to help rescue ailing banks and restructure the country's debts in exchange for the implementation of a number of tough economic reform programs, including the privatization of state firms and the cutting of government subsidy spending on fuels and other commodities.

Public criticism was harsh, however, with many commentators questioning the benefits of the reforms, while the standby nature of the outstanding debts was slammed for placing unnecessary pressure on the budget.

Mulyani, a former IMF director, said that the government's main reason for wanting to speed up the repayments was rising borrowing costs.

"The interest rate has risen to 4.58 percent from 4.31 percent since last year's third quarter in line with the recent hike in U.S. Treasury bill yields. This is also plus a margin of 1.08 percent," she said.

Mulyani also said that Brazil and Argentina had recently repaid in full their debts to the IMF, raising concerns that Indonesia, which after Turkey was now the Fund's second largest debtor, and virtually its largest income contributor, which could be considered unfair given Indonesia's status as a developing country.

Mulyani further said that the government was confident about its financial capacity to fulfill the plan, saying that foreign direct investment was expected to rise in the coming years, adding increased revenues to the state coffers.
She declined, however, to elaborate on the repayment details or time frame pending further consultation with BI.

Source:
The Jakarta Post, Jakarta

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