IMF aid

It appears that the monetary crisis that is at present hitting our country is regarded as truly serious. After a limited cabinet meeting on Wednesday, it was announced that the government would be seeking assistance from the International Monetary Fund (IMF) and the World Bank in order to surmount the effects of the monetary upheaval.

This decision is rather surprising. After the monetary crisis began, and subsequently grew in intensity, the government announced several times that the situation was still sound. Our foreign exchange reserves, for example, were sufficient. The same assurances were made even when the government decided to broaden the rupiah intervention band and tighten liquidity. There were no indications that we were looking towards the IMF. So if now we are turning to the IMF, the question is, what is going on?

At the end of last week, after a brief period of respite, the rupiah abruptly dropped in value to around Rp 3,700 to the U.S. dollar. The rupiah's value fluctuated for a while, and then dropped again to bust the Rp 4,000 per dollar level. In Indonesian monetary history, this was the biggest plunge the rupiah had ever experienced.

Considering the extent of the decline, it appears that the drop in value could not be ascribed merely to the workings of the market mechanism. As economist Didik J. Rachbini observed, what we are seeing now are panic symptoms. So many people are panicking and have lost their trust in the rupiah that a rush on the dollar has resulted.

Assuming that we do not really need IMF assistance at this stage, what the step the government is now taking may be viewed as a precautionary measure, so as to be ready for any eventualities while at the same time waging a war of nerves (against speculators).

The question is, how capable are we of accepting this IMF aid, merely as a precautionary tool and to conduct a war of nerves? Obviously, that aid will not be without obligations on our part. Stringent requirements will be attached whose impact will be widely felt.

What if, for instance, the IMF were to demand that we raise our value-added taxes, further tighten our liquidity, or reschedule even more projects? The ones to feel the impact are the people at large. This would mean that our people, who have never in their lives had anything to do with dollar speculation or bad credit, will be forced to help bear the consequences of the present monetary crisis.

-- Republika, Jakarta