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