IMF aid

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