Bailout bungle

Bailout bungle

If the banks reopen in Jakarta today (May 18, 1998) and resume clearing foreign exchange transactions which have been suspended since last week's rioting, then at least the International Monetary Fund will be physically able to hand over the next tranche of its bailout package, due for delivery this week.

Never mind that the IMF's staff have fled Jakarta and will not be returning until the situation calms down, so making a mockery of any attempt to be monitoring how its money is used. Nor that President Soeharto's administration has given up any pretense of observing the terms of the IMF package, by reimposing the fuel and food subsidies the abolition of which was one of the main causes of the recent unrest.

At this stage, it will be enough of an achievement for the country to simply make its payment on schedule. As the dust settles over the rubble of burnt-out buildings in Jakarta, the IMF's reputation is likely to emerge as one of the principal victims of last week's mayhem. Even before the rioting, questions were being asked about the U.S.-based body's prescriptions for solving the regional financial crises.

Respected academics such as Harvard University's Jeffrey Sachs have accused the IMF of blindly applying a one-size-fits-all economic program without making any effort to tailor it to the causes of the present economic woes. They argue that the IMF's favorite formula of high interest rates and forcing open markets, which worked well in South America, is of little relevance in Asia where the problem is one of irresponsible bank lending and unviable state monopolies.

There are even suggestions that the IMF's medicine has exacerbated the extent of the crisis, by squeezing liquidity out of the banking system and forcing open markets which are too weak to cope with foreign competition. Such accusations are not entirely fair. In Thailand and South Korea, the medicine has worked tolerably well. In Indonesia, the problem is primarily political and the IMF can hardly be blamed for Soeharto's mismanagement.

But, whatever the reality, it will now be difficult to rebut the increasing perception that the IMF has failed in Asia. Malaysia's Prime Minister Dr. Mahathir Mohamad explicitly blamed its action for provoking the rioting in Jakarta. Although the U.S. continued to loyally defend the IMF Sunday, it is probably only a matter of time before other Western nations, such as Australia, break ranks and push for alternative remedies.

In any event, even the IMF can hardly describe as a success a program that is partly responsible for such bloodshed and one which cannot now even be implemented.

-- South China Morning Post, Hong Kong