Economists criticize IMF over its policy failures

Economists criticize IMF over its policy failures

JAKARTA (JP): Indonesian economists criticized Thursday the
International Monetary Fund (IMF) for failing to explicitly admit
its inability to address the country's economic woes.

Faisal Basri said the IMF had instead stubbornly demonstrated
its arrogance by defending its widely-criticized measures,
including the tight monetary and fiscal policies.

Faisal was commenting on the IMF's report Tuesday which
admitted its mistakes in handling Asia's financial crisis,
putting an over-optimistic spin on the likely economic downturn
and misjudging the market's response.

The IMF's failure to resolve the prolonged regional turmoil,
which has hit hardest in Indonesia, was not merely because of its
admitted miscalculation of the magnitude of the crisis, Faisal
said.

"Our economic condition has worsened because the IMF policy
was in the first place inappropriate in coping with the crisis,"
he added.

The policies were outdated and the organization needed to be
reformed, he said.

Faisal added that the IMF is no longer capable of fulfilling
its mission under the present global monetary system that is
highly vulnerable to the actions of the packs of money
speculators.

Another analyst, Didik J. Rachbini, expressed pessimism that
the IMF could adjust itself to the changes in the global economic
and monetary system, technology, and political scenes.

These shortcomings have made the fund unable to anticipate the
developments in Indonesia's social and political conditions since
it first stepped in to rescue the country's economy in late 1997,
Didik said.

"To me, the IMF is like a provincial bank which is trying to
fix the problems of the national banking system. Its capacity is
way below the weight it carries," he said.

Didik also noted that the IMF tended to build a "feudalistic"
structure of relationships with the countries it helped, allowing
them little latitude in arguing over the points of its policies.

He lambasted the fund's initial drastic moves, including its
recommendation to close down 16 insolvent banks at the dawn of
the crisis in late 1997.

"The move triggered banking hysteria in the country," he said.

Other economists, however, contended that Indonesia -- like it
or not -- had no other choice but to swallow even the bitterest
pill prescribed by the IMF in exchange for the multi-billion
dollar rescue package that the fund arranged.

Rino Agung Effendi, the chief economist of Danareksa
Sekuritas, said the IMF's bailout package was the only means
available to Indonesia to stem the tide of crisis.

"Although it has temporarily exacerbated the economic crisis,
there is no other way for us now but to stick with the IMF
prescription," Rino said.

According to him, Indonesia was rather different from other
Asian crisis-ridden countries in that its economic recovery
depended on developments in the political field.

"But the IMF has no leeway to help out with Indonesia's
political problems," he added.

Economist Pande Radja Silalahi agreed that the IMF should
stick to its standard crisis-management policies.

"The IMF policies, especially those designed to create a more
efficient economy, are precisely what we need now. It's just a
matter of how we're going to implement them," he said, adding
that high interest rates must be maintained until the rupiah
stabilizes.

Pande also noted that the IMF had of late been more flexible
regarding its policies in the country, in contrast to its earlier
tactless attitude through which it simply ignored the political
impact of its moves.

The fund has, for example, been more tolerant of the gradual
decrease in subsidies for essential food items, social safety net
programs, and the state budget deficit, he said.

Faisal urged the IMF to give more attention to non-economic
factors, putting pressure on the government to act firmly to
solve the socio-political problems.

"This should not be seen as intervention in Indonesia's
internal affairs because the economic crisis can never be settled
without a solution to the socio-economic problems," Faisal added.
(jsk/gis/aly/das)