Awaiting new IMF money
Awaiting new IMF money
The government and the International Monetary Fund (IMF) team
in Jakarta are scheduled to wrap up their review of the
Indonesian economic situation and the implementation of the
reform package this week, making way for the IMF board in
Washington to approve the country's next aid disbursement in the
first half of next month.
Although both negotiating teams have said the discussions have
run smoothly over the past 10 days, many politicians and some
analysts have accused the IMF of promoting its own "secret"
agenda by deliberately delaying the US$1 billion disbursement,
originally scheduled for this month.
What many have not realized is that the current assessment,
which should have been a routine one, was made much more complex
by a change in circumstances. The macroeconomic strategy devised
in early April has been overtaken by events last month, including
the replacement of the Soeharto administration by President B.J.
Habibie on May 21. The massive riots in Medan, Jakarta and
several other provincial cities which caused extensive damage to
businesses and distribution networks, along with the huge capital
flight and further fall in the rupiah's exchange rate have forced
the redrawing of the country's macroeconomic targets and a
readjustment of its reform programs.
The targets of inflation, exchange rate, budget deficit and
other fiscal and monetary aggregates for the current fiscal year
have to be revised.
More importantly, new programs have to be devised to rebuild
the distribution system, so that supplies of essential
commodities are available at affordable prices. Social spending
needs to be expanded to provide scholarships for children, basic
medicines and health services for families and public works jobs
for the unemployed. More concerted efforts are needed to quickly
address the problems of the banking sector which have been
exacerbated by a steep rise in interest rates and the steady fall
of the rupiah.
We have noticed that Cabinet ministers have been promising in
recent weeks to subsidize everything from education, fertilizer
and small-business credits to rice, wheat flour, electricity and
medicines, even as the rupiah continues to weaken.
Reconciling these programs into a macroeconomic framework that
preserves stability and prevents hyperinflation is indeed a
daunting and time-consuming task. The fear of hyperinflation, a
ballooning budget deficit and continued social unrest must be
addressed within a framework of strict fiscal discipline.
It is important and quite encouraging to note that the IMF has
been greatly impressed with the government's performance in
executing reform measures agreed to in mid-January and revised in
early April. This is greatly commendable, given the previous
backtrackings on the part of the Soeharto administration in
November, January and March. The IMF's flexibility in regard to
expanded subsidy spendings reflects its understanding of the dire
economic situation the nation is now facing and the good rapport
it now has with the government.
Needless to say, the IMF's vote of confidence is a crucial
component in the efforts to lead our economy out of the economic
crisis. It is catalyst and opinion leader for all other donors to
the $43 billion bailout fund to Indonesia.
With IMF backing, we can rest assured that new aid from the
World Bank, the Asian Development Bank and other countries will
soon flow into the country again. Such aid hopefully will
accelerate the process of reestablishing market confidence in the
economy and reinvigorate the rupiah. A stable rupiah is a
prerequisite not only to economic reform but also to the overall
political reform which is now underway.