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.

HMT OPPUSUNGGU

Jakarta