Fri, 22 Sep 2000

'Globalizing' the International Monetary Fund

By John Dodsworth

JAKARTA (JP): Ministers Rizal Ramli and Prijadi Praptosuhardjo along with acting Bank Indonesia Governor Anwar Nasution are traveling this week to Prague to represent Indonesia at the Annual Meetings of the International Monetary Fund and World Bank.

The meetings will be an opportunity for the new economic team to discuss the activities of the IMF and the World Bank in Indonesia and to exchange views on economic policy.

But more than that, it is a chance for Indonesia to make its voice heard and to join in discussions on the globalization, on the role of the IMF, and the future of the international financial system.

The word "globalization" may not appear on the formal agenda, but the theme will pervade the meetings. The rapid growth of international trade and investment has brought enormous progress to many countries. But capital flows can be volatile, exposing countries to the risk of financial crisis.

And with some countries integrating into the global economy more quickly than others, the gap between rich and poor countries is growing ever larger.

Horst Koehler, who became Managing Director of the IMF in May, has expressed his determination to strengthen the voice of developing countries within the institution. Since joining the IMF, he has traveled to Africa, Asia, Eastern Europe and Latin America to listen to views on the IMF's role and how it needs to change.

He will now use his first Annual Meetings to outline his vision of the IMF's future, presenting ideas on how to make the IMF more effective in today's rapidly evolving world economy.

In his travels, which brought him to Indonesia, Koehler learned that countries generally share his conviction that the IMF should focus its work more sharply on policies that foster economic growth and financial stability -- those relating to the government budget, money and credit, the exchange rate, and financial markets.

Good policies in these areas, implemented with consistency and good governance, can help all countries, including Indonesia, reap the benefits of globalization. Such policies will also enable countries to be better able to withstand economic shocks, including shocks from outside. And such policies will contribute to economic growth and recovery, which is indispensable for reducing poverty.

The IMF works to promote the health of the economies of each of its member countries and the global economy. Like a good doctor, it must focus on prevention where possible and cure when necessary. Prevention means helping countries to become less vulnerable to crises. This calls for a sharper focus in the IMF's policy dialog with its members on such issues as balance of payments deficits, the exchange rate, and the strength of banks.

It means a new emphasis on making high-quality economic information available to the public regularly and promptly. And it requires stronger relationships to be developed between governments and countries' private lenders and investors.

But crises have not always been prevented. Indeed, the past decade has seen financial crises strike around the globe, including in Mexico, Thailand, Korea, Russia, Brazil, and, of course, Indonesia.

Like contagious diseases, some of these crises have spread rapidly from country to country, attracting labels like "Asian flu." The IMF is continuing to examine how best it can help countries manage and resolve crises.

Countries that find themselves in difficulties, such as Indonesia, often do need IMF loans to ease adjustment and support reform. But, as is well known from discussions over Letters of Intent, there are conditions attached to IMF loans to ensure that the money is put to good use.

What experience from around the world shows is that economic reforms work best when the country is committed to them. To improve country "ownership" of policy programs, the Fund is looking at how the conditions attached to lending can be best tailored to individual country circumstances.

In Indonesia, the new economic team has boldly proclaimed their "ownership" of the economic program. This is indeed a very welcome development.

"We value the work of the Fund." Koehler has heard this repeatedly from developing country members. The IMF has a role to play in helping all of its 182 members share in the benefits of globalization. This includes the poorest and most heavily indebted.

Under the Initiative for Heavily-Indebted Poor Countries, the IMF has played its part in substantially reducing the debt burdens of 10 countries over the past year, and is aiming for another 10 by the end of 2000.

This represents significant progress in reducing debt burdens and freeing resources for poverty reduction. Some have asked why debt reduction has not proceeded faster, but time is needed to ensure that debt relief goes hand in hand with policies-including good governance-that create the conditions for a better future.

The IMF is also supporting these policies with concessional loans from its Poverty Reduction and Growth Facility.

These are crucial issues. Indeed, for Indonesia, the issues of globalization and engagement with world financial markets are of critical importance in trying to sustain economic recovery from the recent crisis.

Koehler has reminded member countries that the IMF belongs to all its members and that "all members can present on an equal basis their ideas [and] their objectives".

The Prague meetings provide an opportunity for voices and ideas from around the world to be heard as the world's financial leaders prepare the IMF for the new century.

The writer is Senior Resident Representative of the International Monetary Fund.