Wed, 12 Apr 2000

Catch-up to reform

The manner in which the government scrambled last week to meet rescheduled deadlines for the implementation of reform measures clearly showed the programs were aimed mainly at satisfying the International Monetary Fund in order to qualify for the next disbursement of US$400 million from the IMF bailout fund.

That the IMF decision to delay its loans spurred President Abdurrahman Wahid to bring the Cabinet to task also implied that the hundreds of policy measures set to improve the economy were designed by the IMF.

For better or worse, the government's attitude also proved once again the crucial role of the IMF as the watchdog of the economic measures essential to pull the nation out of its worst crisis in over 32 years. Not even strong criticism from the House of Representatives, which is supposed to be the people's representative responsible for exerting checks and balances on the government, has ever been as effective as the rebuke from the IMF in jolting the Cabinet to rapid action.

We cannot help but feel a little relieved to know that the IMF will continue to oversee economic reform until 2002 under a three-year, $5 billion bailout program signed in January. Without the IMF's supervision, there might not have been quick action on investigating the politically charged Bank Bali scandal. Without IMF prodding, the Indonesian Bank Restructuring Agency (IBRA) might have simply surrendered to the strong lobbying of bad debtors and bankers.

Without IMF jawboning through the mass media or subtle pressure exerted in negotiations with Cabinet ministers, few of the austere, yet vital, reform measures in other sectors would have been pursued. The government might have simply delayed the measures, focusing instead on populist programs to satisfy the people, while driving the economy into direr straits.

Yet we are also saddened to observe how politically shortsighted the government is for paying more heed to the IMF's warnings than to the people who gave President Abdurrahman and his Cabinet the mandate to lead the country out of the devastating crisis.

True, as a multilateral agency that is accountable to its sovereign shareholders, including the Indonesian government, the IMF should impose conditions on any loans it extends. Like a bank that approves a loan only after assessing the feasibility study on the borrower's business plan, the IMF is responsible for protecting its money from waste or losses and, most importantly, maintaining its integrity and reputation.

Nevertheless, the reform measures, as stipulated in the Jan. 20, 2000 letter of intent from the government, although tied to the $5 billion bailout fund, constitute the only avenue that the government, with or without an IMF loan, can take in putting the crisis behind Indonesia.

The IMF loan will only contribute to relieving the pain caused by the taxing programs, serving as a catalyst to help restore investor confidence, which is vital to a sustainable economic recovery.

The South Korean government, which worked all out to implement its reform programs ahead of the schedule set with the IMF, was able not only to restore robust economic growth as high as 9 percent last year, but also to begin installments on its debts to the multilateral agency ahead of their maturity dates.

The negative market reaction to the delay of the IMF loan is not so much because of its damaging impact on Indonesia's balance of payments condition. Instead, it is more due to the great concern that without proper and timely implementation of the reform measures, the fundamentals of the economy will remain unsound, no matter how much money the IMF injects to replenish the country's foreign reserves.

With or without IMF conditions or loans, the economy would never recover without firm and consistent measures to restructure the ailing banks, to resolve domestic and foreign debts, to reform the judicial system, to prosecute bad debtors and delinquent bankers. Without the measures, foreign investors, whose sudden flight in late 1997 and 1998 triggered the rupiah meltdown and resulting multidimensional crisis, will continue to shun the country. Even domestic investors will prefer to park their money overseas if legal certainty, one of the main objectives of the reform measures, is not established.

Resorting to blaming too much intervention by the IMF and World Bank as the cause of the delay in reform programs, as Minister of Finance Bambang Sudibyo did on Friday, only serves to lay bare the lack of technical and political competence of the government in managing implementation of reform.