Extending IMF program<\/p>\n
If securing another debt rescheduling package is the primary
\nmotive behind the Indonesian government's request for the
\nInternational Monetary Fund (IMF) to extend its program for one
\nyear, reform efforts in the country will never be able to achieve
\nthe level capable of generating sustainable economic recovery
\neven after 2003.<\/p>\n
True, debt rescheduling alone is already a compelling reason.
\nThe government may default on its US$74 billion foreign debts if
\nit cannot get another rescheduling deal from the Paris Club of
\nsovereign creditors at least for debt principals maturing between
\nApril 2002 and March 2004. Since the Paris Club deal is tied to a
\nborrower's conformity with IMF programs, the government needs to
\nextend the IMF facility, which is scheduled to expire in December
\n2002, at least for another year.<\/p>\n
However, a one-year extension would not be effective for
\nbuilding stronger foundations for sustainable recovery if the
\ngovernment and the House of Representatives did not augment their
\ncooperation in grasping the nettle of reform.<\/p>\n
Indonesia has been the worst performer among the three IMF
\n'patients' in East Asia -- Thailand and S. Korea are the other
\ntwo -- since it has often backtracked on its reform commitments.
\nMany reforms and structural efforts prescribed under the IMF
\nprograms since November 1997 have fallen behind schedule.
\nConsequently, market confidence in the economy has never been
\nrestored. Worse still, policy reversals have often nullified the
\npositive impact of previous reforms, which were taken at great
\npains.<\/p>\n
The first IMF program, involving $12 billion in bailout funds,
\nwas abruptly ended in December 1999, and was replaced with a new
\nthree-year program in January 2000 under then president
\nAbdurrahman Wahid. This $5-billion program was then expected to
\nrun much better, assuming that, as the first democratically-
\nelected president since 1955, Abdurrahman would be more capable
\nof mustering political support for painful reform measures.<\/p>\n
However, Abdurrahman was able to properly lead the nation and
\ngovern the country only for a few months until the first quarter
\nof 2000. His leadership had become increasingly erratic since
\nApril 2000 as he was facing an impeachment process and was
\nembroiled in political squabbles with the House of
\nRepresentatives.<\/p>\n
The reform process was stifled amid his heightened
\nconfrontation with the House and policy consistency and
\ncontinuity were impaired by his misguided penchant for tinkering
\nwith his cabinet. Worse still, while Abdurrahman was preoccupied
\nwith his battle with the House, his latest chief economic
\nminister, Rizal Ramli, chose to pick a fight with the IMF,
\nblaming the multilateral agency's too pushy attitude for many of
\nthe problems the country was encountering.<\/p>\n
The IMF decided to cancel its program in December 2000, as
\nmost reform measures fell behind schedule and some good policies
\ntaken previously were reversed. The IMF vote of no confidence
\nfurther damaged market sentiment, causing the economy to bleed
\nmore profusely as the rupiah fell steadily from 7,500 to the
\nAmerican dollar in January 2000 to 10,500-11,000 in the first
\nhalf of this year, and the central bank had to impose a credit
\ncrunch to cope with inflationary pressures from imports. Almost
\none year was lost until the program was restored in August soon
\nafter the election of President Megawati Soekarnoputri to replace
\nAbdurrahman in late July.<\/p>\n
Admittedly, reform is far more difficult in Indonesia than
\nThailand and South Korea as painful measures have to be pursued
\nat a time when the nation is facing complications from the
\ntransition from 30 years of authoritarian and centralized
\ngovernment to democracy and regional autonomy. It is certainly
\nnot easy to topple the vested interests, which had benefited
\ngreatly from the old system, and which still command great
\nresources to fight for their power and privileges.<\/p>\n
But it is precisely because of these formidable challenges
\nthat the government needs a credible international supervisor of
\nits reform programs. As we have often asserted in this column,
\nthe IMF involvement in the country is required not so much for
\nits loans as for the international endorsement it lends to the
\ngovernment's program.<\/p>\n
The Paris Club's insistence that debt rescheduling must be
\nbased on conformity with IMF programs is prompted by the
\nempirical evidence that governments in countries suffering severe
\neconomic crises are often too weak to manage painful measures
\nwithout international support and oversight.<\/p>\n
Therefore, the House, which has often criticized the IMF for
\nwhat it sees as excessive intervention in Indonesia's
\nsovereignty, should support the government's request for an
\nextension of the IMF program. Despite its shortcomings, IMF
\ninvolvement is required to maintain international creditors'
\ncommitment to the country. The current IMF program could be the
\nlast chance for the country to secure a sustainable economic
\nrecovery.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/extending-imf-program-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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