Indonesia, which received billions of dollars in rescue funds from the International Monetary Fund more than a decade ago, is now turning to become a lender to the fund, marking an era for the country as “independent financially.”
President Susilo Bambang Yudhoyono expressed his pride over the country’s pledge to the fund.
“Now Indonesia can take a bolder stance with the IMF, as its debt has been repaid in 2005,” Yudhoyono said at the State Palace on Tuesday after holding a meeting with the fund’s managing director, Christine Lagarde. He added that Southeast Asia’s largest economy was “now independent financially.”
Hatta Rajasa, the coordinating minister for the economy, said Indonesia would provide $1 billion to the fund, with the money coming from the central bank, via its foreign-exchange reserves.
“It will be in a form of foreign exchange from the BI [Bank Indonesia] funds. It will not be taken from the state budget,” Hatta said at the presidential palace.
Indonesia’s international reserves stood at $106.5 billion at the end of June, falling by almost $5 billion from $111.5 billion in May, according to data from the central bank’s website.
The pledge is part of a commitment made at last month’s meeting of the Group of 20 nations, including Indonesia, to support the IMF, which needs $430 billion to help countries facing financial difficulties. Malaysia has committed $4 billion and the Philippines $1 billion.
Bank Indonesia governor Darmin Nasution, who accompanied Yudhoyono in the meeting, said the central bank would purchase bonds issued by the IMF, without providing details on the mechanism of the bond purchase.
He described the money as the fund’s “second-line defense” and that it would remain in Indonesia’s reserves.
Still, some economists, analysts and Indonesian lawmakers were mixed in their response to the country’s commitment.
Destry Damayanti, chief economist at Bank Mandiri, the country’s biggest lender by assets, said the government’s move should be welcomed.
“In today’s economic uncertainty, the government needs to diversify its investment portfolio and seek safer instruments,” she noted, adding that being an international lender, the IMF was rated AAA by rating agencies, implying that the default risk is almost zero.
Meanwhile, Sasmita Hadinegoro, chairman of the Economic and State Budget Foundation (LPKEN), a private think tank, called on the Indonesian people to reject the government pledge to the IMF, warning that the move would do more harm than good to the country.
I Gusti Agung Rai Wirajaya, a lawmaker from the opposition Indonesian Democratic Party of Struggle (PDI-P), said his party had questions about the government’s decision.
“This is weird,” he said, adding that his party would propose an inquiry into the issue.
The IMF currently has $436 billion in funds, and the loan from Indonesia would only be used if the amount fell to $100 billion, Darmin said.
“Only if it touches $100 billion would [Indonesia’s money] be used. So, it is a very small probability that [the IMF] will use the fund,” he noted.
Lagarde told a press conference after her meeting with Yudhoyono that the IMF would not allocate funds from Indonesia to any specific region.
“They’re not allocated to a particular region of the world. It’s not like it was a big pot of money that is available for Europe,” Lagarde said.
“IMF has 188 members and in case of serious economic crisis, no one is immune, and my concern is that I have to be able to respond to the needs of low-income countries, middle-income countries or emerging as well as advanced. IMF is here for everyone,” she added.
Indonesia’s $1 billion pledge to the fund is equivalent to one-eighth of the country’s $8 billion in foreign-exchange earnings from foreign tourist arrivals this year.
Indonesia, along with Thailand, found itself under IMF guidance during the 1997-98 Asian financial crisis after its banking system all but collapsed. Indonesia’s economy contracted and inflation skyrocketed, leaving many Indonesian companies on the brink of bankruptcy.
The IMF arranged billions of dollars in funding to the country, and the IMF guidance only ended in 2006.
Source : The Jakarta Globe (11.07.12)