For Indonesia, It's supranationals to the rescue

For Indonesia, It's supranationals to the rescue

By David DeRosa

NEW CANAAN, Connecticut (Bloomberg): Notice the fancy footwork on Indonesia. Not one but two supranational agencies -- the United Nations and the International Monetary Fund (IMF) -- are trying to put Indonesia back together.

The drill is this. The United Nations will sponsor the troops, keep the peace, and set up a war crimes tribunal. The IMF will pay the bills. If Indonesia doesn't behave itself, the IMF will threaten to stop paying the bills.

Indonesia, being economically strapped and having consented to foreign military forces on its soil, is pretty much a conquered nation at this point.

Wouldn't you love to be a fly on the wall in former president Soeharto's dining room? The old general must be bitter and twisted about what is happening to his country. Plenty of people must have wished that Soeharto would die and go to hell -- but who among his enemies had the imagination to wish that he remain alive and be in hell, speaking metaphorically?

Anyway, Indonesia is the latest example of what has become the real new world order. Got a crisis? Call in the United Nations or IMF or North Atlantic Treaty Organization (NATO). This is what Washington prefers. For political and diplomatic reasons, the United States doesn't think it would be a good thing to be seen responding unilaterally to a crisis. This is why the supranationals get so much play these days.

The powerful nations of the world have a hankering to do their crisis work through the third party auspices of the supranational organizations. By using NATO to bomb Yugoslavia, or the UN to go into East Timor, or the IMF to impose conditions on Russia, the supporting participants create a precondition of moral rectitude. Future recriminations are obviated by the initial unanimity of resolve.

Here is how to do things these days if you get to be Secretary of State: (1) Declare that a crisis exists; (2) Get a consensus for action from friendly nations; (3) Arrange with some supranational organization to front for you; (4) Send in the Air Force, the Navy, the Marines, and the Army (in that exact order to mitigate casualties).

Yet all supranational agencies are not equal in Washington's eyes.

The number One favorite for the United States is the IMF. First of all, the United States has a veto on any major issue before the IMF because it owns 18 percent of the votes. Important issues, like dealing with the disposal or revaluation of the IMF's gold, require an 85 percent vote of approval.

Moreover, the senior staff of the IMF, Managing Director Michel Camdessus, First Deputy Managing Director Stanley Fischer, and Director of Research Michael Mussa, usually think along the same lines as the senior U.S. money men, Treasury Secretary Larry Summers, and Federal Reserve Chairman Alan Greenspan.

Relations are very friendly between the IMF and the U.S. policy works -- you can just picture them getting together some time in the future to reminisce about the days when they were the hub of the world's financial superstructure.

One guy who will not be invited to stop over for an old- timer's whiskey and soda will be UN Secretary General Kofi Annan. That is because his UN doesn't play ball with Washington. The voting works differently at the United Nations than it does at the IMF and there is no clear advantage to the United States.

A case in point was when Former U.S. Secretary of State Lawrence Eagleburger, then in retirement, called Annan a "pest" for his involvement that thwarted military action against Iraq. The United States was all set to clobber Iraq when, to its chagrin, Annan pulled off a last minute deal to allow resumption of the contentious armaments inspections. Annan earned himself the status of a suspected sympathizer with the enemy.

This is probably why the United Nations was sidelined in the Kosovo action. Using NATO was a clever way of taking Annan down a peg or two. It was almost painful to watch Annan trying to get a word in edgewise as the NATO bombs were falling on Belgrade.

Still, the allies have had to go back to the United Nations for East Timor, if only because geographical considerations exclude an involvement by NATO. It isn't going to be easy. This is civil war, not one country invading another, and although there are plenty of victims, there may not be many good guys who can be counted on to help. This isn't going to be the kind of action that can be won by a remote-controlled air war. This is going to be down and dirty on the ground.

Indonesia could be a morass for the IMF too. Right now it's hard to see how Indonesia could be held to the terms of previous IMF agreements, especially with respect to the wide spectrum of political and economic reforms. Reforming Indonesia under normal circumstances is probably a pipe dream -- but thinking about cleaning house in a country that's practically in a state of civil war is about as realistic as trying to put a new TV antenna on the roof during a hurricane.

The writer is president of DeRosa Research & Trading and manages an investment fund. He is also an adjunct finance professor at Yale School of Management. His opinions don't necessarily represent those of Bloomberg News.