RI, IMF need to find compromise<\/p>\n
Indonesia has branded the International Monetary Fund (IMF)
\nreforms unconstitutional after the Fund announced a delay in the
\nnext installment of loans. University of Indonesia economist Sri
\nMulyani Indrawati , discusses possible impacts of the rift.<\/p>\n
Question: On Sunday, President Soeharto said that parts of the
\nIMF reform package were not in line with Article 33 of the
\nConstitution, which stipulates that Indonesia's economy should be
\nbased on family principles. Why did he make this statement two
\nmonths after he himself signed a letter of intent confirming an
\nintention to carry out the reforms?<\/p>\n
Mulyani: I don't know what the President meant, but recent
\nstatements by government officials have suggested that they are
\nconcerned that the reform measures, which are intended to help
\nlift the country out of crisis, have demanded too much at too
\ngreat a social cost. They are therefore looking for a bargaining
\nposition from which to renegotiate terms with the IMF.<\/p>\n
I'm sure that the IMF will be willing to make adjustments to
\nthe reforms if negotiations proceed constructively and requests
\nare backed up by data showing that the reforms have placed heavy
\nburdens on society.<\/p>\n
However, from the statements, I myself found it difficult to
\ndistinguish whether the intention was to protect the whole of
\nIndonesian society, or merely certain vested-interest groups.
\nReforms implemented since agreement was reached with the IMF on
\nJan. 15 have indicated that the government has been influenced
\nmore strongly by vested-interest groups than by society at large,
\nas measures pertaining to clove trading and the automotive
\nbusiness have shown.<\/p>\n
Q: Which parts of the 50-point reform package do you think are
\nnot in line with the 1945 Constitution?<\/p>\n
M: Some of the points relating to structural adjustment,
\nparticularly those which require removal of barriers to foreign
\ninvestment. The same applies to commitments to abolish market
\ndistorting policies such as the National Logistic Agency (Bulog)
\nmonopoly on basic foodstuffs.<\/p>\n
The government has viewed these measures as an attempt to
\nintroduce liberal market mechanisms into the Indonesian economy,
\nbut in fact Indonesia's economy is in some respects less
\nregulated than that of the United States. For example, in
\nIndonesia a company can control a market share of up to 90
\npercent and a business group can operate upstream and downstream
\nmanufacturing activities without any government restrictions.<\/p>\n
In comparison, Microsoft has difficulty introducing new
\nsoftware if it has the potential to gain control of a majority
\nshare in the highly regulated United States market.<\/p>\n
Q: An IMF delegation is expected in Jakarta this weekend. Do you
\nthink a compromise will be reached?<\/p>\n
M: A compromise is essential. Indonesia's economy cannot afford
\nuncertainty for much longer. Indonesian negotiators must be given
\nfull authority to make decisions for the interests of Indonesian
\nsociety, and not just for certain vested-interest groups. I am
\nsure that the IMF will be flexible and consent to adjustment in
\ninvestment, trade and privatization reforms if the Indonesian
\nnegotiators back up their request with data on the social impact
\nof the transition. But the IMF will never yield on reforms to
\ncorrect government policies responsible for market distortions
\nand discrimination.<\/p>\n
If the negotiators press to preserve market distorting
\npractices, unfair policies and the interests of politically
\ninfluential businessmen, it will be a folly. It will be obvious
\nthat they are not representing the interests of the entire
\nIndonesian nation.<\/p>\n
Q: What will happen if the IMF decides to delay disbursement of
\nthe second tranche of aid for Indonesia?<\/p>\n
M: I fear that all other multilateral and bilateral funds will
\nalso be closed to Indonesia because the agreement entered into
\nwith the IMF symbolizes the internationally agreed rules of the
\ngame. If the IMF withholds the aid it will confirm that Indonesia
\nis unwilling to meet the expectations of the international
\ncommunity.<\/p>\n
Furthermore, foreign private investors will also shun
\nIndonesia. If the IMF, a large international institution, cannot
\nsucceed in securing government cooperation, what hope do
\nindividual investors have.<\/p>\n
Q: There is some pressure on Indonesia to adopt a currency board
\nsystem to stabilize exchange rates. Can it be done without IMF
\nsupport?<\/p>\n
M: Indonesia will never be able to adopt a currency board without
\nIMF support. Moreover, Indonesia's economic and market structures
\ncould not support such a system. Confidence in the rupiah will
\nnot be restored merely by introducing legislation on currency
\nconvertibility, it also requires prudent management of the
\neconomy.<\/p>\n
A feasible alternative is to reintroduce a floating exchange
\nrate system with a set intervention band. This could succeed with
\nsupport from the IMF, the Group of Seven (G-7) industrial nations
\nand certain foreign central banks.<\/p>\n
Q: What are the prospects for the Indonesian economy this year?<\/p>\n
M: Bleak. This year's gross domestic product (GDP) is likely to
\nshow negative growth, inflation may exceed 50 percent and
\nunemployment will increase. (riz)<\/p>",
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