Timely parting ways with IMF<\/p>\n
Arya B. Gaduh, Centre for Strategic and International Studies (CSIS),
\nJakarta, abgaduh@csis.or.id<\/p>\n
Last Thursday a coalition of economists reportedly stated that
\nIndonesia's economic growth would return to the pre-crisis level,
\nif only we would part with the International Monetary Fund (IMF)
\nimmediately. Their scenario predicted a 6 percent to 7 percent
\npost-IMF growth in 2005, and total domestic revenue of Rp 524
\ntrillion in the next three years.<\/p>\n
With such numbers, no sensible economist would want the IMF
\nconsultants around. So, now that we have the economic
\njustification, it's time send them packing, right?<\/p>\n
Alas, the devil is in the details. Even without discussing the
\nplausibility of the numbers, a careful scrutiny of the plan
\n(Media Indonesia, Feb. 27-Feb. 28, March 1) suggests two
\nimportant omissions. These omissions put into question the
\neffectiveness of the economic argument, and hence, the conclusion
\nthat the IMF must go immediately.<\/p>\n
For one, there is no such thing as a free lunch. Yet, the
\nplan's description of the post-IMF earnings -- increased revenue
\nfrom taxation, natural resources, etc. -- falls short of
\nmentioning the price tags for each initiative. Without the price
\ntags, there is no way to know whether the scenario, which calls
\nfor a bigger government, is realistic or sustainable under our
\npost-IMF, post-Paris Club, liquidity (and budget) constraints.<\/p>\n
The plan's second omission -- a crucial one, as it is the
\nraison d'etre for the scenario -- would have stood as a
\nconvincing argument against IMF involvement.<\/p>\n
Its authors argued that the IMF programs had effectively
\nstraitjacketed Indonesia's policymakers, disabling them from
\nimplementing what was necessary for an accelerated growth. After
\nsuch a bold assertion, one would next expect a set of innovative
\npolicy recommendations that would have been ruled out by the IMF
\nprograms.<\/p>\n
No such recommendations were provided. Aside from the debt
\nrestructuring recommendation -- a financial engineering effort
\nthat is unlikely to solve problems -- most of their
\nrecommendations can be found in the IMF's letter of intent (LOI)
\nat one time or another.<\/p>\n
Why, then, have we not seen these policies implemented?
\nPerhaps, it's a matter of price.<\/p>\n
The more important reason, however, which suggests the second
\nproblem with their argument, is the fact that a strong government
\nis elusive in our post-Soeharto era.<\/p>\n
Their scenario's weakest aspect is its assumptions. Its
\nsuccess is conveniently based on assumptions of "a strong
\ngovernment" and "democratic consolidation". This is wishful
\nthinking -- at least, until the next change of government. The
\nrecent fuel and electricity subsidies debacle suggests that
\n"strong government" is currently an oxymoron.<\/p>\n
Always insecure about its political support, the government of
\nMegawati Soekarnoputri will avoid making more unpopular decisions
\nin this election year, despite their necessity.<\/p>\n
With this political reality, the real cost of leaving the IMF
\nprogram now (instead of, say, after the elections next year) is
\nthe government's economic credibility.<\/p>\n
Domestically, the IMF can often act as a "scapegoat" that
\nallows policymakers to make difficult, yet necessary, rational
\neconomic decisions in an election year. Internationally, its
\npresence is perceived by investors as a reasonable restraint to
\nthe government's tendency towards populist, yet economically
\nunsound, policies throughout the election year.<\/p>\n
This aspect, investor confidence, is critical for growth. Most
\nother macroeconomic indicators have shown healthy growth.<\/p>\n
If the immediate departure of the IMF is perceived as the
\ndeparture of prudence, we risk further delays in improving
\ninvestment. This will have a negative effect on growth.<\/p>\n
As such, the straitjacket argument does not hold water. On the
\ncontrary, the IMF actually extends the range of policies
\navailable to our weak, and some might add incompetent,
\ngovernment. We still the IMF -- both as a technical assistant and
\na policy instrument.<\/p>\n
Self-reliance is a noble idea. Yet we need to acknowledge our
\nstrengths and weaknesses, and work on our weaknesses by any means
\n-- including the use of foreign instruments like the IMF, if
\nnecessary. True, we should not let the IMF overstay its welcome;
\nyet, sending it home when we can still make use of it is, well,
\nwasteful.<\/p>\n
A decision on the timely parting with the IMF must be based on
\nan analysis founded, neither on wishful thinking nor political
\nexpediency, but on economic and political realities.<\/p>",
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