IMF: Setting the record straight<\/p>\n
Despite measures taken and assurances given by the government,
\nthe market has not responded in a positive manner to the steps
\ntaken so far to ease the current economic crisis. Economist Mari
\nPangestu of the Centre for Strategic and International Studies
\nlooks at the crisis' possible underlying causes.<\/p>\n
JAKARTA (JP): Let's set the record straight on the role of the
\nInternational Monetary Fund (IMF) in the current Indonesian
\neconomic crisis. The first IMF package was intended to shore up
\nthe decline in market confidence, which saw the rupiah drop from
\nRp 3,000 to Rp 4,000 (how high that seems now) from mid-September
\nto the first week of October.<\/p>\n
The package's US$43 billion -- much more than expected -- and
\nthe agreement itself appeared to restore confidence, with the
\nrupiah strengthening to the Rp 3,200 to Rp 3,500 level. The
\nreforms, while not taking action on some of the country's \"sacred
\ncows\", was at that time still viewed positively. The market was
\nstill apparently giving it the benefit of the doubt.<\/p>\n
However, the confidence crisis became progressively worse in
\nNovember as it became evident that it was business as usual with
\nexceptions being made, such as resurrecting a liquidated bank
\nand unshelving canceled projects.<\/p>\n
The crisis of confidence worsened due to a perception that the
\ngovernment was not managing the crisis effectively. The rupiah
\nresumed its fall from Rp 4,000 to Rp 6,000 against the U.S.
\ndollar. The market's negative reaction to the draft budget
\noutlined by President Soeharto on Jan. 6, which brought the
\nrupiah to below the Rp 10,000 level, should not be seen as a
\nturning point in the confidence crisis. It was only yet another
\nsignal of the erosion of confidence in the government's ability
\nto lead, and of the deepening crisis in the banking and private
\nsectors.<\/p>\n
While one can debate some specifics of the IMF policy, the
\nmain problem, it would appear, was not the IMF or the medicine it
\ndoled out, but the patient who did not fully swallow the
\nmedicine.<\/p>\n
Again we went to the IMF a second time for the same reasons --
\nto restore confidence -- and this time the reform package was
\nundoubtedly comprehensive with its specifics announced publicly.
\nThe reforms included items on the wish list of market analysts,
\neconomists and probably parts of our own public -- they were not
\nforced IMF conditions in that sense. Most important, the import
\nmonopolies, cartels and national programs that could no longer be
\nsubsidized were all included in the package.<\/p>\n
Still the market has not responded positively. Should we be
\nsurprised? No, since the cause of the confidence crisis -- the
\nissue of implementation and credibility of a crisis management
\nteam -- has not been resolved.<\/p>\n
The statements that have followed the announcement and the
\ncredibility of the new dream team were questioned by the market
\neven before reform implementation has been able to start. This
\ntime the market does not want to give it the benefit of the
\ndoubt.<\/p>\n
Once again market reaction was not positive when the
\ngovernment tried to clarify the leadership issue over the last
\ntwo days.<\/p>\n
The crisis of confidence has been perpetuated because the
\npatient appears not to be willing to take the medicine and wants
\nto play doctor when the situation has already become dire.<\/p>\n
This is about what we should do ourselves domestically to
\nrestore confidence. Without this, it does not matter what form
\nthe IMF medicine comes in to heal our economy. The issue is also
\nnot about how the funds from the package have been spent because
\nonly a small amount has been used to stabilize the rupiah and the
\nfunds will not be forthcoming if the patient does not take the
\nmedicine.<\/p>\n
Furthermore, if we are able to restore confidence -- including
\nrestoring the government's credibility -- and implement the IMF
\nreforms, we may not need all of the funds. Mexico only used half
\nof the funds it borrowed.<\/p>\n
Let us not blame the IMF, globalization or speculators. Let us
\nbegin by looking closer to home.<\/p>",
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