'Globalizing' the International Monetary Fund

'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.