A lesson from Argentina

Don't cry for me, Argentina. This is the song that appropriately paints the ups and downs and patriotism of the legendary Eva Peron.

Argentina was assaulted by unrest last week after the country became bankrupt due to its economic recession. The main cause was the huge foreign debt, amounting to US$ 132 billion.

Today the state of the country in the southern part of the American continent is worse than Indonesia's, so the new government has taken a drastic decision by stopping loan repayments and by issuing the "argentino", a new currency alongside the peso and the US dollar.

This Latin American country has some similarities with Indonesia. Both have been clients of the International Monetary Fund (IMF) for the past four years. There has been a rapid succession of presidents in both countries because they were considered to be incapable of solving their country's crisis.

Both countries are also going through a crisis caused by the huge amount of loan debt. However, the structure of the debts is slightly different.

Indonesia's situation is indeed better than Argentina's. Indonesia's debt is much smaller -- only half of Argentina's -- while our economy is far larger. Pegging the exchange value of the peso equal to that of the US dollar apparently did not do much to help the hemorrhaging economy. If its currency exchange rate were as free as Indonesia's, probably the collapse of Argentina's economy would have been earlier.

Besides, Indonesia has far more natural resources compared with Argentina.

Fiscal and monetary tightening have always been the IMF's classical move whenever it assists in the economic recovery of any country, although the results have yet to be clearly seen. Argentina has served as an example by becoming the victim of the IMF's failure.

-- Bisnis Indonesia, Jakarta