IMF loan and economic crisis

IMF loan and economic crisis

In any country it is common for one or two companies or banks
to be closed down every year and at the same time be replaced by
similar establishments. In this context, Indonesia seems to have
had the most extraordinary and painful experience, when since
August 1997 almost overnight thousands of enterprises closed down
and banks went bankrupt with all the attendant adverse effects on
income, employment and use of capital equipment. The collapse
concerned was due not to mismanagement or other causes on the
part of the enterprises, but solely due to the malpractice and
monetary crime committed by Bank Indonesia (BI). Ironically, the
crime was committed by BI under the guise of monetary reforms.

What follows is confined only to the role played by the
International Monetary Fund (IMF), which appeared to be heavily
involved in the creation of the current banking and monetary
tragedy facing the country.

IMF's culpability in the crime may be substantiated by the
keynote address Indonesia -- the road ahead, delivered by IMF
director Hubert Neiss, to the Jakarta Financial Club on June 22,
1999. Neiss' paper condensed in clear terms the similarity of
assessment and approach as well as the closely knit collaboration
been established between BI and IMF in dealing with the
Indonesian monetary crisis. Suffice it, to make the following
salient observations.
* The real devil that caused the economic and monetary
catastrophe was not the Asian crisis, but solely BI itself when
it took the disastrous decision in August 1997 to shift from a
system of controlled foreign exchange rate of the rupiah into a
free floating one. Things turned particularly worse when
subsequently a sudden shock of substantial foreign exchange
demand emerged emanating from the huge accumulation of unpaid
offshore loans. The upshot was that all of a sudden the exchange
rate for the whole of 1998 skyrocketed by 300 percent and
occasionally even 600 percent to 700 percent. It has brought in
its wake "short-circuits" in business everywhere, except the
export and the tourist sectors.
* Just imagine, what has happened to the over US$10 billion in
IMF bailout funds released to date. I am sure that the IMF would
not be surprised at all to know that not a single cent of it was
ever used for the domestic economy, let alone for the purpose of
recovery. It was not even used -- though only seemingly -- to
strengthen the country's foreign exchange position, since the
routine reserves were adequate to cover all routine foreign
exchange expenditure.
* Right from the beginning the IMF was surreptitiously bent on
safeguarding the interests of foreign creditors and at the same
time alleviating -- not Indonesia's -- but conglomerates'
defaults in repaying offshore debts. Where is the rationale then
for burdening the population to pay off the IMF giant loan?
Because of the IMF's blunders involved, the $10 billion so far
released should be forfeited entirely. That is also the reason as
to why the IMF was so reluctant to formulate a clear cut plan for
the allocation of the loan and the future capacity of Indonesia
to pay it back. IMF's ulterior motive was, however, to subject
Indonesia to "the beggar-thy-neighbor" theory of yore and make it
the greatest beggar among nations in spite of its greatest
richness in the whole world.
* Neiss mentioned about "financing the resulting fiscal deficit
with external aid so as to maintain domestic financial
stability". This is absurd. The fiscal deficit concerned cannot
be financed at all by foreign exchange but only in terms of
rupiah and as such would necessarily aggravate and not alleviate
domestic financial stability as expected by Neiss. More
importantly, the repayment would be passed onto our people who do
not benefit at all from the foreign loan concerned.

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