Indonesia and the IMF

CPDS Home Contact Ideas for Indonesia

Some documents on an IMF website on Indonesia

A program of decentralization of political and economic power has been adopted under Governance and Fiscal Balance Laws of 1999 after a long period of autocratic rule. This reflects a demand by local communities for more control over their affairs and that resource rich regions want access to the resources pie. Decentralization potentially allows better provision of services, and more efficient taxation and spending which should increase the prosperity of all regions. There is a need for careful sequencing of financial decentralization to ensure that finance follows the assignment of functions (Ahmed E and Mansoor A Indonesia: Managing Decentralization, IMF, WP/02/136, August 2002)

Fiscal policy has remained prudent though the deficit has expanded slightly. Measures to increase revenues will be taken. In monetary policy, falling inflation now allows interest rates to decline. Plans for bank resolution and divestiture of IBRA banks are proceeding. The sale of the state bank (Mandiri) is to proceed.  Reforms to normalize the relationships between the central bank and government are proceeding. IBRA asset sales are continuing. Part privatization of Indosat has been undertaken.  A new bankruptcy law has been submitted to parliament. An anti-corruption commission is to be established. The business and regulatory environment for SMEs has been reviewed. Impediments to restructuring non-performing loabs will be removed, and banks encouraged to lend further to SMEs (Indonesia: Letter of Intent (June 11, 2002) - outlining policies Indonesia intends to follow in the context of its request for IMF financial assistance)

China has a credible strategy for reform of its financial system. Lessons from 1990s suggests that Financial and Macro-economic stability requires fiscal and monetary controls whose principles include (a) elimination of quasi-fiscal lending (b) defining and limiting the state's role in the financial system - especially limiting state guarantees (c) reliable and timely information - to clarify the difference between illiquidity and insolvency (d) clear rules on accessing central bank credit lines and (e) central bank autonomy. Developing instruments for control of money supply is important, as is a reliable judicial system, reliable legal frameworks, transparency and clear institutional responsibilities  (Ingves S. (IMF) 'Meeting the Challenges for the Chinese Financial Sector: What Have We Learned from Other Countries?', Second China Financial Forum, Beijing, May 15-16, 2002)