Indonesia's recently signed agreement with the International Monetary Fund (IMF) should bolster confidence in an economy where, despite a high level of political instability, economic growth has been surprisingly resilient this year.

The US$5 billion IMF programme for Indonesia stalled last December, when the fund postponed a US$400 million disbursement. The new agreement stipulates fiscal reforms, clearing the way for resumption of a loan programme and the securing of a crucial debt restructuring agreement.

Caution

Observers have welcomed Indonesia back into the IMF fold, but a senior US official has joined a chorus of voices cautioning against over-optimism. "The IMF agreement concluded not long ago is a very useful document. The provisions in this agreement and the implementation of them probably can be more difficult than negotiating them," Assistant Secretary of State for East Asia and Pacific Affairs, James Kelly, told a press conference.

Before the agreement with the IMF, the Indonesian economy shrugged off negative political factors that weakened the rupiah, pushed up inflation and forced the central bank to hike interest rates to prop up the currency. At the same time, the world downturn continued, prompting a general fall in activity across East Asia. Yet the economy still managed to turn in a fairly respectable growth performance, placing Indonesia towards the top end of the regional growth league.

Short, secure terms

Australia's export credit agency, Export Finance and Insurance Corporation (EFIC) nevertheless says it continues - cautiously - to extend modest levels of short-term cover subject to its usual underwriting criteria. The agency recommends that exporters seek short, secure payment terms such as cash against documents, documents against payment and documentary credits for periods up to 90 days, particularly for new buyers.

EFIC also suggests that documentary credits should preferably be from larger, more stable banks and says it has a "very limited appetite for open account risk" which it reserves for those buyers in export-oriented industries with an established record of trading with its clients.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.