A more flexible IMF

The International Monetary Fund appears to have finally recognized the folly of its earlier attempts to impose a one-size-fits-all program on the very different problems faced by Asian economies. The immediate effect is to clear one obstacle from Indonesia's road towards recovery.

The fund's third revised agreement with Jakarta marks a radical departure from its usual approach of pressing nothing but austerity upon client governments. Evidently shaken by the riots that followed the last attempt to end food and fuel subsidies, the IMF is now allowing these to continue at three times the previously agreed level, along with considerable social spending.

Had the fund moved in this way earlier, the death toll during last month's violence might have been avoided: that will have to be left for historians to judge. The important thing now is to recognize the numerous other problems which Indonesia must still resolve.

The new agreement's credibility with the markets is low, as shown by the renewed drop in the value of the rupiah yesterday. It may only be a matter of time before a fourth revision becomes inevitable.

Until the ethnic Chinese community can be persuaded that it is safe to return and play their economic role -- and until some semblance of normal life resumes -- any economic forecasts must be treated as guesswork. Other challenges still lie ahead, including reforming the banking sector and an agreement on restructuring foreign debt.

The biggest task is political change. President Bacharuddin Habibie is expected to address this on Monday by announcing the date of a special session of Indonesia's parliament to consider constitutional reform.

The President has made clear that he wants to delay change. But, until he recognizes that there can be no long-term stability without political reform, Indonesia's battered economy stands little hope of staging any significant recovery.

-- The South China Morning Post