IMF debate beyond good and evil

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.