Fri, 17 Oct 1997

Govt has 'no choice but to seek IMF aid'

YOGYAKARTA (JP): The government has no alternative but to allow the International Monetary Fund (IMF) to intervene in the country's currency crisis.

Economist Edy Suandi Hamid, from the Yogyakarta-based Islamic University of Indonesia, said that acquiescing to IMF's assistance would be much better than using the central bank's reserves to shore up the falling rupiah.

Using the central bank's US$20 billion foreign exchange reserves to fight speculative attacks on the rupiah could damage the economy even further.

Thailand spent much of its forex reserves on fighting the currency speculation but the crisis remained, he said, adding that the country had finally turned to the IMF for help when the use of its reserves failed to solve the problem.

"The Indonesian government didn't choose this alternative. That means that the government is now ready to accept whatever requirements the IMF imposes as a consequence of asking for help," he said during a discussion held by the Yogyakarta-based Center of Policy and Strategic Studies Wednesday.

Also speaking at the discussion were political analyst Amien Rais and economist Revrisond Baswir, both from the University of Gadjah Mada.

Edi said that the IMF's formula and recipes for mending the country's monetary system could contradict with the vision of most Indonesians because its solutions were generally based on the conditions of developed nations.

He said that the IMF might demand economic reform in return for its aid package, such as a cut in the government's subsidy on domestic fuel sales, a rise in electricity tariffs and a cut in budgetary spending as well as the tightening of bank loans.

The Indonesian government has a strong bargaining position and can eliminate the pressure of IMF requirements because the country's economic condition was much better than that of Thailand, he said.

Indonesia's foreign reserves were, for example, still sufficient to finance six months of imports and the overall macroeconomic condition was still relatively good, he said.

"In other words, Indonesia still has the opportunity to take domestic steps to solve today's economical problems," Edy said. "The question is do we have the courage to do so?"

Revrisond Baswir highlighted the serious consequences of inviting IMF to help Indonesia cope with its economic crisis. Thailand, for example, had to change its constitution because of IMF, he said.

"I'm not saying that Indonesia has to do the same because of the IMF's intervention but, at least, something slightly below that (step) is possible," he said.

Revrisond also criticized today's policies of handling a crisis, which he said only reduced the pain rather than removing the cause.

The rupiah has lost more than 35 percent against the U.S. dollar since the speculative attacks hit the currency in early July.

IMF, World Bank and Asian Development Bank (ADB) delegates are now in Jakarta to assess Indonesian's aid requirements.

Neither IMF nor the government have named the aid figure, however, analysts said that the aid package could be announced soon. (23/swa)