IMF vs Indonesia, a dangerous game?<\/p>\n
The disagreement between Indonesia and the IMF has come to
\nresemble a cat-and-mouse game, with Indonesia looking to
\nstabilize the rupiah without becoming ensnared in its commitment
\nto reform and loosing out on the US$43 billion bailout cheese!<\/p>\n
Steps toward stabilizing the rupiah began with the
\nannouncement about introducing a currency board system. However,
\nthe government did not reveal detailed information on the
\nmechanics and finance of the proposed system, or on how it
\nintended to use IMF rescue funds.<\/p>\n
The IMF and financial markets were led to believe that a
\nsignificant portion of loans granted by the international
\ncommunity were going to be used to support a currency board. In
\nthe face of existing economic and financial realities, it is
\npossible that minimum foreign exchange reserves of US$60 billion
\nto $70 billion would be required to support such a system.<\/p>\n
Failing to restore public confidence in the rupiah while
\nholding insufficient foreign exchange reserves would lead to a
\ncollapse of the exchange rate. Since all rupiah in circulation
\nmust be fully backed by foreign exchange reserves, depletion of
\nthose reserves would theoretically mean that no rupiah could
\nremain in circulation. Indonesia would then have to revert to a
\nbarter economy, which is simply unthinkable.<\/p>\n
When the idea of a currency board was first floated, its
\nproponents must have known that implementation without IMF
\nsupport would be impossible. It can only be assumed that the real
\npurpose of the currency board announcement was to test the
\nreaction of the IMF.<\/p>\n
Indonesia then reconfirmed its commitment to the 50 point IMF
\nreform plan, but suggested implementing a watered down version of
\nthe original currency board plan. This set of reforms and
\ncurrency stabilization measures has become known as IMF-Plus.
\nAgain, public information about this system has been very vague.<\/p>\n
An IMF-Plus system which grants unrestricted access to dollars
\nat an unrealistic exchange rate is out of the question. Selective
\nU.S. dollar access and strict monitoring and enforcement would be
\nrequired for this system to succeed.<\/p>\n
While many still advocate a currency board system, stalemate
\nhas been reached in the cat and mouse game.<\/p>\n
The IMF, by delaying discussion of the reform program until
\nApril, has effectively withheld the next $3 billion installment
\nof assistance, which was originally due on March 15.<\/p>\n
A spanner was thrown in the works by Indonesia's rather
\nbelated assertion that the IMF package was not in line with the
\n\"family principles\" of economic management stipulated under
\nArticle 33 of the Constitution and that introducing the reforms
\nwould undermine national dignity.<\/p>\n
Then a further twist was added to the tale when a central bank
\nteam canceled a stop-over in Buenos Aires last week, which had
\nbeen planned to follow meetings with Chilean officials in
\nSantiago.<\/p>\n
Although Argentina has run a currency board system since 1991
\nand has often been held up as role model for Indonesia, closer
\nscrutiny of her economy reveals severe economic problems and an
\novervalued, albeit stable currency. Perhaps an insight into these
\ntroubles prompted the Indonesian delegation to abandon notions of
\nusing Argentina as a model and cancel their Buenos Aires visit.<\/p>\n
No matter how unpalatable the reform measures may appear,
\nIndonesia and the IMF must put the rescue package back on track
\nif any further deterioration in the situation is to be avoided.<\/p>\n
Both parties must avoid turning the issue into a
\nconfrontation, since the concessions which must be made now will
\nbe immeasurably less costly than reconstructing a collapsed
\nIndonesian economy in the future.<\/p>\n
JOSEPH LOUIS SPARTZ<\/p>\n
Jakarta<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/imf-vs-indonesia-a-dangerous-game-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }