IMF gave wrong remedy for RI<\/p>\n
By Patrick Schwarz<\/p>\n
SEMARANG (JP): News about high finance normally goes unnoticed
\nby ordinary citizens, as it is, at best, negligible information
\nconcerning a privileged elite from the greedy world of
\ncapitalism.<\/p>\n
But a recent Dow Jones Newswires release, printed in the Asian
\nWall Street Journal of Feb. 12, 1999, quoting a statement of the
\nInternational Monetary Fund's Hubert Neiss after a recent visit
\nto Jakarta that \"Indonesia must keep interest rates high until
\nthe rupiah stabilizes\", deserves full attention.<\/p>\n
However, the arrogance with which the IMF enforces its
\nmisguided advice on economies in trouble, and the billions of
\ndollars wasted in the process, is hard to swallow for ordinary
\npeople like me. And especially so for the millions of out of work
\nIndonesians going through enormously trying times.<\/p>\n
The rupiah has reached a condition that can be likened to a
\npatriarch on a respirator. Most of his bodily organs, as well as
\nparts of the brain, have ceased to function. Being an archetypal
\nIndonesian, he has a large extended family who love him dearly
\nand cannot believe they are about to lose their provider. They
\nare also poor.<\/p>\n
The doctor, the IMF, wants to keep him hooked up and alive at
\nany cost. Respirators are used to keep very sick people alive in
\nthe developed world. They are also very expensive. And the doctor
\nexpects the family, already heavily in debt, to run up even
\nhigher debts. So high, in fact, that two, maybe three generations
\nto come will live in total dependence to the doctor.<\/p>\n
This remedy of high interest rates will not work. It will only
\ncause generations of Indonesians immeasurable hardship, as if
\ntheir present lot was not hard enough. Why? The following is an
\nexplanation based examples from where I come from: the grassroots
\nsmall business arena.<\/p>\n
A close acquaintance of mine owns a small factory. Like many
\nyoung entrepreneurs everywhere, he is not really a savvy manager,
\nwith negligible technical and marketing skills. His performance
\nleaves a bit to be desired. With the onset of the crisis, the
\nlocal market has all but vanished for him, and the few overseas
\nclients he retains deal with him more out of compassion and
\ncuriosity than a desire for a real business relationship.<\/p>\n
Yet financially he is still doing rather well. Under a
\ncontroversial assistance scheme of the Ministry of Cooperatives
\nand Small Enterprises (The Jakarta Post described this scheme in
\ndetail in its Feb. 12 editorial), he obtained a subsidized loan
\nwith 18 percent preferential interest. He does not really need
\nthe money.<\/p>\n
So he deposited most of it at the going market rate, which is
\nwell over 40 percent. This keeps him quite comfortable, and there
\nis no reason why he should go to the trouble of improving his
\nfactory's efficiency and production quality to become
\ninternationally competitive. The IMF's funding of this scheme, by
\nthe way, adds a whopping US$2.1 billion onto the country's debt.<\/p>\n
Several other acquaintances have closed shop altogether and
\nsent their workers back to the villages. They moved roughly half
\nof the fortunes they made during the speculative \"boom\" years
\noverseas into safe, hard currencies, and keep the other half in
\nhigh-interest rupiah deposits.<\/p>\n
It is quite logical: 45 percent on not even a very large sum
\nbeefs up ones monthly income rather nicely. Between golfing
\nholidays on Australia's Gold Coast, they casually play the
\ncurrency markets via their handphones. They are understandably
\nquite happy with their lot and have no longing for this situation
\nto change. That the banks are bleeding to death and the economy
\nhas come to a grinding halt and the country is falling ever
\ndeeper into debt is of little concern to them.<\/p>\n
Shortly before former president Soeharto's downfall, there was
\na hot debate over the introduction of a currency board.
\nUnfortunately, Soeharto was not able to pound it through any
\nmore. The argument went that it would only serve as a bailout
\nchute for the presidential cronies' fortunes, and that Indonesia
\ncould not afford such a currency board. While the former argument
\nwas probably all too true, as to the latter: What can Indonesia
\nafford today?<\/p>\n
It seems that most economists, along with the authorities,
\nrefuse to see just how serious the predicament of the Indonesian
\neconomy has become, and the good doctor IMF is taking full
\nadvantage of the situation to sell his resuscitation equipment.
\nHad the currency board been introduced back then, there would
\nhave been a chance to revive the patient.<\/p>\n
Small businesses like mine that contribute small, but real,
\nhard currency, income to the country's coffers and keep a fair
\namount of Indonesians employed, would have had a solid base to
\nwork from. They would not have to change price lists on an almost
\ndaily basis according to the ups and mostly downs of the rupiah
\nand, at least for a while, until the inflation caught up with us,
\nwe would have been internationally competitive.<\/p>\n
But this would have been enough to at least restart the real
\nsector of the economy. Today we wonder why exports are further
\ndown -- despite a cheap currency and the cheapest labor anywhere.<\/p>\n
A rumor making the rounds in the German expatriate community
\nhas it that Mercedes Benz is going to assemble their top of the
\nline S-series in Indonesia, and that the vehicles will be sold at
\na cool Rp 1 billion a piece. Yes, in the middle of this crisis.
\nThis is dismissed as \"bottom-of-the-beer-mug talk\". But another,
\nmore sober, rumor has it that the production capacity for the
\nentire first year has already been sold, and that Porsche sports
\ncars intend to follow suit.<\/p>\n
In stark contrast, a friend of mine from Switzerland has just
\nbeen touring slums in and around Jakarta in preparation for a new
\nmovie he is producing about war and poverty. To get the right
\nfeel, he came to Indonesia to be able to look eye to eye with
\nvirtual misery.<\/p>\n
As absurd as such contrasts are, they tell us that there is
\nstill a lot of money idling in Indonesia. But under the IMF's own
\nselfish remedy, such money cannot be mobilized. The policy of
\nhigh interest rates will encourage those entrepreneurs that do
\nhave the funds available to keep them offshore or use them
\nspeculatively, meaning unproductively for the real economy.<\/p>\n
What the Indonesian economy and the Indonesian people need is
\nto start producing again. Not soon, now. Extreme care must be
\ntaken when tapping onto capital market funding. Rogue speculators
\nmust be strictly kept at bay. Trying to patch up the economy with
\nfunds and deals in the capital markets is just not going to do
\nthe trick. Indonesia does not have enough clout to play with the
\nsharks of the global capital markets. Trying to do so will only
\nopen its flank to further abuse.<\/p>\n
A true remedy can only come from the grassroots level. People
\nlike you and me doing business together again, meaning exchanging
\ngoods and services for money. In my case this means being able to
\nbuy from Indonesia again and getting quality, internationally
\ncompetitive prices and timely deliveries, and in return
\ncompensate Indonesia with badly needed hard currency.<\/p>\n
To be able to do that, we need an even playing field, and
\nmoneys have to be lured out of speculative cycles. Entrepreneurs
\nwith funds need an environment that makes it attractive to invest
\nin production again, and the knowledge that the initial pain of
\nbringing production up to international standards will be highly
\nlucrative.<\/p>\n
But there is just no way we can achieve this with the IMF's
\nill conceived high-interest policy. Interest rates must come down
\nimmediately. Even at the risk that the rupiah will drop through
\nthe floor. This will only be temporary. Just like the family with
\nthe old man on a respirator, there is a time when we all must
\nlearn when to let go. Let the rupiah go. It may be steep and
\npainful at the beginning, and cause equally steep inflation. But
\neventually the bereaved new generation will recover and be glad
\nthat the debt accrued on the respirator was negligible.<\/p>\n
Likewise, the rupiah will eventually find itself again in tune
\nwith the real market forces and will gain strength as real
\nproductivity increases. Indonesia will have succeeded in bringing
\nabout a new beginning. In line with the political changes and
\nstructural reforms taking place, and the emergence of a
\ndemocracy, Indonesians will be able to develop their true
\npotential sooner than most people think.<\/p>\n
The writer is a businessman based in Semarang.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/imf-gave-wrong-remedy-for-ri-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }