Are we to kiss the IMF goodbye?<\/p>\n
Ari A. Perdana
\nCentre for Strategic and
\nInternational Studies (CSIS)
\nJakarta
\nAri_Perdana@csis.or.id
\nFaculty of Economics, University of Indonesia<\/p>\n
The IMF assistance program in Indonesia is entering its final
\nyear. Signed in 1998, the contract initially expired last year,
\nbut the government decided to extend it for another year. So far,
\nthe government is still unsure whether or not to once again
\nextend the contract. Politically, it will not be a popular
\ndecision for the government to keep the IMF program, given strong
\nopposition against such an idea.<\/p>\n
The opponents of the extension argue that the presence of the
\nIMF has not helped much to bring the country out of the economic
\ncrisis. It has even cost the country more. It was indicated by
\nthe fact that during five years under the IMF program, the
\neconomy has only been growing at 3 percent to 4 percent per year.
\nStructural recovery has been very slow, and foreign investors'
\nconfidence has yet to fully recover.<\/p>\n
Such argument may be true. Maybe not as well. Nevertheless, we
\nare not in the condition to prove that had the IMF not come to
\nIndonesia, back in 1997, the country's economic performance would
\nhave been better than at present. But there is something missing
\nin the logic here. Asking for IMF assistance is one thing, but
\nbeing committed to the settled agreement is another thing. Many
\ntimes the IMF delayed the loan disbursement because the
\ngovernment failed to perform some policy actions or failed to
\nachieve the indicative targets.<\/p>\n
Hence, it is irrelevant to debate how the economy would
\nperform with or without the IMF. We can only evaluate how serious
\nthe government is in undertaking the economic reform. University
\nof Indonesia's economist Chatib Basri once illustrated the
\nsituation when Abdurrahman Wahid was the president, and Rizal
\nRamli was the chief economic minister, the relationship between
\nthe government and the IMF was at its lowest point. Many policies
\noutlined in the Letter of Intent (LoI) were not performed, and
\nthe IMF delayed its loan disbursement for more than a year. That
\nmeans, during the period, the role of the IMF in the Indonesian
\neconomy was not significant. Still the economic performance was
\nnot much different with the present.<\/p>\n
The illustration suggests that the presence of the IMF is only
\na secondary factor for the economic performance. The primary
\nfactor is the seriousness of the government. But while the main
\nproblem lies on the secondary factor, oddly the secondary factor
\nis the one to blame.<\/p>\n
Of course, it is now more productive to discuss whether the
\ngovernment should or should not end its program with the IMF. An
\nobvious answer is yes, it should. Otherwise, that means that we
\nhave yet to solve our domestic economic problems. The question is
\nhow and when should the IMF assistance be ended.<\/p>\n
It is basically not a difficult task to end the IMF
\nassistance. It takes only a political decision. The harder part
\nis to prepare the \"exit strategy\": The post-IMF economic reform
\nagenda. So far, there is no clear exit strategy being socialized
\nby the government. The one articulated was only some possible
\nrelationship between Indonesia and the IMF and foreign donors
\nafter the program ends. Not a comprehensive economic reform
\nblueprint.<\/p>\n
It is not to say that the IMF is free from any sins. Many of
\nits policy prescriptions have been bad, or at least questionable.
\nMost of the problems arisen since the IMF failed to understand
\nthe socio-political situation in Indonesia that have distorted
\neconomic theories from the reality. For example, the closure of
\n16 banks in 1997. A good policy on paper, but because it was
\ntaken at a time when the economic crisis started to become a
\npolitical one, the effect was a serious deterioration of public
\nconfidence in the domestic banking sector. As a result, banking
\nsector recovery became more difficult.<\/p>\n
However, a devil's advocate -- as some people call it -- it
\nmay be, one important role of the IMF for the country is making
\nsure that the government is on track on economic reform.
\nPractically, it is the only institution that could \"step on the
\ngovernment's toes\", quoting economist Faisal Basri's term, to be
\ncommitted to the economic reform agenda. In the lack of a strong,
\ncredible government and a consolidated civil society in which the
\ncheck-and-balance mechanism is well-functioning, sometimes
\nexternal pressure is needed to push for economic reform.<\/p>\n
Looking back to the 1997-1998 era, it was the IMF that became
\npowerful instruments to strip the rent-seeking power of
\nSoeharto's oligarchy. Through the LoIs, the monopoly powers of
\nthe cronies were reduced, the notorious clove marketing agency
\n(BPPC) was eliminated, the ridiculous national car project was
\nstopped, and the off-budget expenditures were made transparent.
\nAt a level, those made Soeharto angry and called for the
\nrejection of the IMF, arguing that the LoIs were too liberal and
\nagainst the Constitution.<\/p>\n
We could stop now and think, what would it be had Soeharto
\nreally sent the IMF home at that time? But again, that would be
\nan unproductive discussion. What is relevant now is answering
\nthis two following questions. Is there any clear agenda of the
\npost-IMF economic reform? Is there any guarantee that those
\nagendas would be consistently implemented?<\/p>\n
If the answer to both questions is yes, then we can easily
\nkiss the IMF assistance goodbye.<\/p>",
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