Feasible exit strategy needed for IMF parting

Feasible exit strategy needed for IMF parting

Ari A. Perdana, Centre for Strategic and International Studies (CSIS),
Jakarta, Ari_Perdana@csis.or.id

The IMF assistance program in Indonesia is entering its final
year. Signed in 1998, the contract initially expired last year,
but the government decided to extend it for another year. So far,
the government is still unsure whether or not to once again
extend the contract. Politically, it will not be a popular
decision for the government to keep the IMF program, given strong
opposition against such an idea.

The opponents of the extension argue that the presence of the
IMF has not helped much to bring the country out of the economic
crisis. It has even cost the country more. It was indicated by
the fact that during five years under the IMF program, the
economy has only been growing at 3 percent to 4 percent per year.
Structural recovery has been very slow, and foreign investors'
confidence has yet to fully recover.

Such argument may be true. Maybe not as well. Nevertheless, we
are not in the condition to prove that had the IMF not come to
Indonesia, back in 1997, the country's economic performance would
have been better than at present. But there is something missing
in the logic here. Asking for IMF assistance is one thing, but
being committed to the settled agreement is another thing. Many
times the IMF delayed the loan disbursement because the
government failed to perform some policy actions or failed to
achieve the indicative targets.

Hence, it is irrelevant to debate how the economy would
perform with or without the IMF. We can only evaluate how serious
the government is in undertaking the economic reform. University
of Indonesia's economist Chatib Basri once illustrated the
situation when Abdurrahman Wahid was the president, and Rizal
Ramli was the chief economic minister, the relationship between
the government and the IMF was at its lowest point. Many policies
outlined in the Letter of Intent (LoI) were not performed, and
the IMF delayed its loan disbursement for more than a year. That
means, during the period, the role of the IMF in the Indonesian
economy was not significant. Still the economic performance was
not much different with the present.

The illustration suggests that the presence of the IMF is only
a secondary factor for the economic performance. The primary
factor is the seriousness of the government. But while the main
problem lies on the secondary factor, oddly the secondary factor
is the one to blame.

Of course, it is now more productive to discuss whether the
government should or should not end its program with the IMF. An
obvious answer is yes, it should. Otherwise, that means that we
have yet to solve our domestic economic problems. The question is
how and when should the IMF assistance be ended.

It is basically not a difficult task to end the IMF
assistance. It takes only a political decision. The harder part
is to prepare the "exit strategy": The post-IMF economic reform
agenda. So far, there is no clear exit strategy being socialized
by the government. The one articulated was only some possible
relationship between Indonesia and the IMF and foreign donors
after the program ends. Not a comprehensive economic reform
blueprint.

It is not to say that the IMF is free from any sins. Many of
its policy prescriptions have been bad, or at least questionable.
Most of the problems arisen since the IMF failed to understand
the socio-political situation in Indonesia that have distorted
economic theories from the reality. For example, the closure of
16 banks in 1997. A good policy on paper, but because it was
taken at a time when the economic crisis started to become a
political one, the effect was a serious deterioration of public
confidence in the domestic banking sector. As a result, banking
sector recovery became more difficult.

However, a devil's advocate -- as some people call it -- it
may be, one important role of the IMF for the country is making
sure that the government is on track on economic reform.
Practically, it is the only institution that could "step on the
government's toes", quoting economist Faisal Basri's term, to be
committed to the economic reform agenda. In the lack of a strong,
credible government and a consolidated civil society in which the
check-and-balance mechanism is well-functioning, sometimes
external pressure is needed to push for economic reform.

Looking back to the 1997-1998 era, it was the IMF that became
powerful instruments to strip the rent-seeking power of
Soeharto's oligarchy. Through the LoIs, the monopoly powers of
the cronies were reduced, the notorious clove marketing agency
(BPPC) was eliminated, the ridiculous national car project was
stopped, and the off-budget expenditures were made transparent.
At a level, those made Soeharto angry and called for the
rejection of the IMF, arguing that the LoIs were too liberal and
against the Constitution.

We could stop now and think, what would it be had Soeharto
really sent the IMF home at that time? But again, that would be
an unproductive discussion. What is relevant now is answering
this two following questions. Is there any clear agenda of the
post-IMF economic reform? Is there any guarantee that those
agendas would be consistently implemented?

If the answer to both questions is yes, then we can easily
kiss the IMF assistance goodbye.