Indonesia will shortly pay off its entire debt to the IMF.

Indonesia will have completed its repaying of all debts, totalling $3.2 billion, to the International Monetary Fund (IMF) within a week’s time said Bank Indonesia (BI) governor Burhanuddin Abdullah. The central bank notified the IMF of its intentions on the 5th, hoping to shortly join Brazil and Argentina as a country which had freed itself of IMF debt this year. Said the governor:

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 undergoing treatment.

We expect this will provide more room for Indonesia’s economy to grow with more confidence and in a healthier fashion without being burdened by IMF debt.

Previously in June the central bank had paid off $3.7 billion of Indonesia’s then approximately $7 billion in debt to the IMF, following President Susilo Bambang Yudhoyono’s request to settle the debt within the next two years. The IMF actually does not require re-payment until 2010.

The deputy governor of BI, Hartadi, explained that the earlier debt repayment was possible due to Indonesia’s strong foreign exchange reserves position, standing at $42 billion.

The planned re-payment will save the country some $500,000 in interest payments this year, which were expected to reach $22 million.

Finance Minister Sri Mulyani Indrawati, who was the first to propose repaying the IMF debt ahead of schedule, said recently that Indonesia could save at least $100 million in total interest payments by 2010.

Sri Mulyani, who is a former IMF executive director, had argued for the earlier debt re-payment because of the increasing burden of servicing, and considering that the money only functioned as a stand-by loan strengthening Indonesia’s foreign exchange reserves.

Between 1997 and 2003, the IMF provided some $25 billion in loans to help Indonesia rescue its failing banking system, rehabilitate its economy by restructuring private and government debt, and strengthen its foreign exchange reserves.

Much resentment arose however as the loan conditions required the government to implement a number of austerity measures under IMF supervision, including the privatization of state firms and the reduction of subsidies. Many nationalist-populist politicians and public figures saw these steps as harming the nation’s interests.

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.

However, on the sobering side, Indonesia still has to pay 63.5 trillion rupiah, or $6.9 billion, in interest this year on its outstanding foreign, non-IMF, debt, which totals $61 billion.

October 12th.

The total amount of SDR 2.153.915.825, equivalent to $3,181,742,918, (USD/SDR = 1,47719) was paid off today.