Global Policy Forum

By Harry Suhartono

Indonesia said on Thursday it would consider allowing a $5 billion loan programme with the International Monetary Fund to lapse when it expires later this year as protests mounted over the cutting back of subsidies. Mahendra Siregar, a senior adviser to Indonesia's chief economics minister, told Reuters that a team of senior officials would be set up to consider the implications of not renewing the loan.

The IMF programme prescribes tough fiscal austerity measures and critics say it hurts millions of the country's poor. But jettisoning it could hit the state budget as it would then be harder for Jakarta to reschedule its huge $70 billion public foreign debt.

Students and workers clashed with police outside the presidential palace in Jakarta on Thursday in the first violence in four days of protests against increases in fuel and electricity prices, a bid to cut budget subsidies as part of the IMF-led economic reforms.

In 1998, widespread riots over price rises, which also came after IMF-prescribed austerity measures, were one of the key factors that led to the resignation of Indonesian strongman Suharto. However, the demonstrations so far this week look likely to fall well short of that outcome.

Nevertheless the government of President Megawati Sukarnoputri appears to be taking no chances. "The team will study the impacts of not extending the IMF programme, what should be done to help ensure economic stability after it expires late this year," said Siregar.

He said the setting up of the team, to be coordinated by the economics ministry, was among subjects discussed during a cabinet meeting earlier this week.

Siregar declined to give further details including whether the move indicated the government would not extend the current IMF's $5 billion loan programme as demanded by some quarters, including by members of the MPR, the country's highest legislative body.

The MPR last year issued a decree requiring the government not to extend the current IMF programme when it expires late this year. The decree was non-binding but failure to adhere could have a negative political impact on the current administration, particularly ahead of general elections in 2004.

Meanwhile David Nellor, the Fund's senior resident representative in Jakarta, on Thursday denied reports that a team from the Fund would visit the country this week to review the country's economic reforms.

"I do not have a firm schedule yet but at this stage it would not be happening in the immediate (future), like in the next (few) days or anything like that," Nellor told Reuters.

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