IMF debate beyond good and evil

Akhmad Rizal Shidiq, School of Oriental and African Studies, University of London

Despite its big impact on Indonesians, the lack of debate on the role of the International Monetary Fund (IMF) is somewhat astonishing. Nevertheless, the recent dispute among the cabinet members on whether Indonesia should extend the contract with the IMF offers a good opportunity for people to discuss the cost and benefits of its involvement in the country.

Media coverage leads to the misleading picture that the debate is between good and evil. Mixed with some nationalism and populist sentiments, the debate brings us nowhere but the controversy itself. A more productive discourse would be to engage in a struggle to find the best among the good.

As Amartya Sen wrote in 1998 on the U.S. political economy and the European Union, this is a typical problem, a social dilemma, particularly between financial conservatism and social commitments to equity. Here, the tension is between the supporters of IMF contract extension that represent the financial conservatism and its opponents.

The former position is clearly stated by Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti in his statement on the four risks of ceasing cooperation with the IMF: The freezing of funds and its negative impact on foreign reserves; inconvertibility of the rupiah; possible discontinuation of the funds from donors, including the World Bank; and the increasing state budget deficit, eventually leading to high inflation, Kompas reported on June 12.

In many respects, the stabilization policy taken by the IMF reflects financial conservatism, through the proposal of subsidy cuts and high interest rates to deal with the balance of payment crisis.

The opposite social commitment to equity has been represented by State Minister of National Development Planning Kwik Kian Gie who mainly questioned the injustice of the bank restructuring scheme that brings huge domestic debt, which will become the public burden.

Earlier he also cited the unfairness in the way the government handles stubborn debtors. The main line of this argument is who gains from the stabilization policy, and who pays for it.

Certainly there are some truths in each position. Yet there has been a lack of serious debate among intellectuals on the IMF role, let alone regarding its ideological stand; for instance debate on the macroeconomic model of the IMF and its impact on growth. Not many, for instance, challenge the IMF's core arguments and model for stabilization known as financial programming, originally based on the Polak model in 1957, which reflects how the IMF sees the economy work.

We need a debate, supported by facts, on such underlying premises of the stabilization policy. Whether the IMF is successful can be inferred from those premises and the development of indicators -- not from a battle of rhetoric.

Yet to prevent such financial analysis becoming alienated from the public, a decision involving the people is also important, one which enables people to express their concerns and hardships.

However, under the current political system it is hard to imagine such participation, no matter how miserable people's lives are after the crisis and after IMF involvement in the government's stabilization policy.

Given the frustrating attitude of legislators despite their high salary, they cannot be expected to represent us either. Given the lack of intellectual debate, legislators' participation in the debate would likely be mere political commodity anyway, thus further alienating the public.

Nevertheless a wider debate among academics and the public is crucial to reduce the unnecessary negative reaction of the debate within the economy, as well as missing opportunities and momentum for economic recovery. This is extremely relevant if we consider that the process of economic recovery is as important as the outcome of the recovery itself -- and if democratization is integral to any economic stabilization policy.