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The policies were outdated and the organization needed to be reformed, he said.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