Beware renewed crisis

Beware renewed crisis

The last few days have certainly seen Indonesia in a very
downcast condition, unnerved by the spate of grave warnings from
its loyal international supporters that their traditionally
fulsome assistance could stop if the government does not set its
act straight.

Chief economics minister Rizal Ramli, who is now making the
rounds of the country's strongest international allies in
Washington -- the International Monetary Fund and the World Bank
-- seems to be getting a cool reception. The two multilateral
agencies have expressed their utter disappointment with the
government's capricious commitment to implementing sorely needed
reform measures by refusing to publicly disclose anything
substantial about their talks with Rizal.

Earlier over the weekend, President Abdurrahman Wahid was
treated to a strong warning from his international advisers that
his reform program remained impeded by cronyism, pervasive
corruption, partisan politics and special interests. But instead
of starting to seriously lead the nation and manage the
government, the President decided to go off on another
international junket, this time lasting more than two weeks.

Rubbing salt into the wound, the World Bank, which normally
sugarcoats its criticism of the government, sternly warns of a
new crisis in the country. It bluntly pointed out in a report on
Friday that it would cease all new lending to Indonesia if the
government's collaboration with the IMF broke down and the bank
and corporate restructuring programs stalled. This warning
followed an earlier harsh reprimand of the country when the World
Bank decided to slash its loan pledges from about US$1.3 billion
a year to a mere $400 million starting next year.

Under the current climate of uncertainty in the government,
officials and politicians could easily react with irritation to
the warnings and resort to inordinately nationalistic outbursts,
striking back at the international agencies as interfering in the
country's domestic affairs and infringing on its sovereignty.

But all of us, notably the government and politicians in the
legislature, would be well-advised to realize that the warnings
are well-intentioned, sincere advice from old and trusted friends
who have been helping this nation since the late 1960s. The two
agencies alone have poured in tens of billions dollars to help
the country get over its 1997 crisis at a time when private
creditors had virtually excluded the country from their
portfolios.

The warnings should instead encourage the government and
lawmakers to reconsider their positions so as to see whether we
ourselves have been serious and disciplined enough in taking the
bitter medicine required to cure the multidimensional crisis we
are presently mired in. Foreign assistance can only help so much
and may even be frustrated by our weaknesses in or resistance to
correcting ourselves.

It is now almost four years since the crisis first assailed
our economy and later wrecked havoc with almost every aspect of
our nationhood and statehood. But look how negligible has been
the progress made in our core reform programs -- namely reform in
the judicial, administrative, banking and corporate fields.

The government, therefore, should urgently mend its
relationship with the IMF because a breakdown in this
collaboration will result in the virtual isolation of the country
by the international financial community.

We are still hopeful that more vigorous, frank negotiations
will still enable the government and the IMF to sensibly resolve
their different stances over the issues of the borrowing policies
of regional administrations and transparency in asset sales that
have been souring their relations since late last year.

But the government should realize that the great concern about
the independence of the central bank that has become the bone of
contention in its latest spat with the IMF is shared by all
foreign creditors and investors, and even national businesspeople
as well. It is entirely pointless for the government to argue
that the IMF has no business at all in querying the proposed
amendments of the central bank law as they are not referred to in
the reform agreement with the IMF.

An independent central bank, especially given the present
climate of uncertainty in government, is vital to maintain
confidence in and to lend credibility to macroeconomic
management. As the central bank (Bank Indonesia) is the manager
of monetary policy and controls the money supply, it is supposed
to be above politics. One can imagine how scared will be the
international and domestic markets if Bank Indonesia is
vulnerable to the whims of the government, especially the current
one, which has lost most of its credibility.