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.