Waiting for IMF aid<\/p>\n
We will not be surprised to find out sometime later this week
\nor early next month that the reform measures to be prescribed by
\nthe International Monetary Fund-led team as the condition for its
\nfinancial aid to Indonesia, will not differ greatly from what
\ndomestic private-sector analysts, and even several members of the
\ncabinet, have often recommended in the past. The most significant
\ndifference may be that domestic analysts do not have the
\nresources and clout to mobilize a huge sum of financial aid to
\nsupport their advice as IMF does.<\/p>\n
Hence, we think, the highest commendation should be given to
\nthe official, or whoever he may be, who has succeeded in
\nconvincing President Soeharto to agree on calling in IMF as the
\nappropriate macroeconomic doctor with a high international
\nreputation. IMF's involvement in the management of the currency
\ncrisis will surely strengthen the hands of the domestic reformers
\nwho had so far failed to convince the government to take the
\nnecessary measures before the problem assumed the critical
\nproportion the nation is now facing.<\/p>\n
There are several great benefits in having IMF involvement.
\nThis multilateral institution owns huge resources and has the
\ncapability to act as the catalyst to convince other donors to
\njoin in the financial aid it intends to package. For instance,
\nIMF pledged only about US$4 billion of the $17.2 billion aid
\npackage to Thailand concluded in August. The other $13.2 billion
\nwas contributed by other multilateral institutions and sovereign
\ndonors who joined because they knew that the aid implementation
\nwould be closely supervised by IMF.<\/p>\n
Another benefit, which is quite crucial in view of the crisis
\nof international confidence in Indonesia's economy, is that IMF
\nparticipation will lend international endorsement to the reform
\nmeasures to be taken to cope with the financial crisis.<\/p>\n
The consequence, though, is that the government will have to
\nswallow its pride and behave magnanimously in accepting the fact
\nthat IMF will call many of the shots on the reform measures and
\nthat the government's performance will constantly be under direct
\nIMF surveillance.<\/p>\n
We think the government, as one of the world's largest
\nsovereign debtors, must have known that the IMF approach is not
\nfundamentally different from one member country to another.
\nThough its policy advice is not "one size fits all", as IMF must
\ntake into account the different levels of development and
\ndifferent magnitude of economic problems, the onus of its
\nmacroeconomic policy prescription focuses on the broad areas of
\nfiscal prudence, highly competitive market condition, sound
\nfinancial system and good governance in its broadest sense.<\/p>\n
This means that fiscal deficit, if any, should gradually be
\nabolished and subsidies minimized. Businesses should be subject
\nto a level-playing field, market distortions such as monopolies
\nand preferential tax treatment should be removed. Unsound banks
\nshould be merged or liquidated. As these reforms require
\nsacrifices on the part of the common people, they often cause
\npolitical instability in countries where the government is not in
\na strong enough political position to take all the bitter
\nmedicine. Thailand's current political turmoil is a vivid
\nexample.<\/p>\n
No wonder, governments call in IMF only if they are compelled
\nby a crisis they cannot handle by themselves.<\/p>\n
But as our economic condition was not as dire as Thailand, we
\nare more fortunate in that not many of the reform measures asked
\nfor by IMF are highly politically sensitive, to the degree that
\nthey impose the risk of political instability. Moreover, what the
\ngovernment is asking from IMF is a kind of preemptive bailout.<\/p>\n
We surmise that IMF will not be persistent in calling for the
\nabolishment of monopolies in rice and the removal of oil fuel
\nsubsidies. But the monopolies in sugar, wheat flour, clove,
\nsoybean, and market distortions in several other commodities such
\nas cooking oil, will likely be included in the reform package.
\nThe liquidation of insolvent banks will have to be speeded up
\nirrespective of the political clout of their owners. Numerous
\nrules which are biased against exports will have to go. Trade and
\nbureaucratic reforms, transparency of policy making and the
\nawarding of concessions or contracts, which have all often been
\ncommented on by the World Bank in its annual reports on
\nIndonesia, will also likely be in the agenda.<\/p>\n
Such grandiose and commercially dubious projects as passenger
\njet development and the national (Timor) car program have to be
\npostponed or shelved.<\/p>\n
But we should keep in mind that the mere conclusion of an IMF
\nfinancial package would not automatically lead our economy out of
\nthe woods. The standby loan agreed on will be disbursed quarterly
\nand each disbursement will depend on government performance in
\nimplementing the conditions. This means the willingness and
\ncapacity of the broader political system to pursue the reform
\npackage.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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