Argentina woes carry lessons for IMF in Indonesia
Argentina woes carry lessons for IMF in Indonesia
Berni K. Moestafa
The Jakarta Post
Jakarta
Argentina teetering into economic chaos right under the nose
of the International Monetary Fund (IMF) hammers home some
lessons for Indonesia on how it should work with the fund,
experts said.
Former finance minister Bambang Sudibyo said Argentina was yet
another illustration of the failure of the IMF's antidote for
sick economies.
"The IMF should learn from its experience in Argentina ... the
monetary approach only doesn't work," Bambang told The Jakarta
Post over the weekend.
He said the IMF should give some leeway for the government to
implement its own policy mix of fiscal and structural reform
measures.
Wide spread unrest broke out in Argentina last week as the
country's jittery economy descended into near collapse following
the IMF's decision to suspend a bailout package to the country.
The fund withheld US$1.3 billion in loans as the Argentinean
government failed to meet targets under the so-named zero-deficit
law.
In attempting to meet the targets, the government introduced
austerity measures, angering a public buckled under years of
economic hardship.
Violent unrest, looting and the opposition turning down a
power-sharing deal forced President Fernando de la Rua to resign.
He left behind an economy with a tough choice of either
devaluing the peso or defaulting on $132 billion in debts.
With all this unraveling while the country was implementing
the IMF's prescribed reforms drew criticism against the
institution.
The IMF denounced such charges and instead heaped the blame on
the Argentinean government for failing to meet reform targets.
Bambang said the Indonesian government should consider methods
other than those under the IMF to achieve macroeconomic
stability.
Curbing inflation and defending the rupiah through monetary
policies only was inadequate and thus ineffective, he said.
Other factors easily push up inflation, and these were outside
the reach of monetary policies, he explained.
For instance, he said, security problems disrupting the
distribution of goods add to inflation pressure.
But while the IMF's monetary policies were ineffective they
also drained much needed capital supply to industries.
The government invited the IMF in late 1997 to help pull
Indonesia out of the financial crisis.
Its task is to provide bridging funds to the government, which
is facing a liquidity crisis.
It still provides these funds, but they are tied to reform
conditions set out under a letter of intent (LoI).
Bambang said the government should simplify the LoI, or
develop its own reform program without making them LoI loan
preconditions.
Elsewhere, economist Dradjad Wibowo said the fiasco the IMF
left behind in Argentina again underscored the fund's weaknesses.
"It is time to reconsider the three principles of the
Washington consensus on which the IMF works," he said.
That consensus, made with creditor countries and the World
Bank in the late 1980s, allows the fund to provide assistance
only to countries that are open market oriented.
It comprises three principles -- macroeconomic stability,
trade and investment liberalization -- and privatization.
In Argentina, macroeconomic stability meant a zero deficit
budget, which in practice shifted the burden onto the public.
Trade liberalization made the unemployment rate surge as more
firms went bankrupt, while reckless privatization and state asset
sales had severely cut Argentina's ability to raise funds for
debt payments.
Dradjad suggested the IMF include the principle of social
justice into its program.