IMF responsible for Indonesian crisis

Ronnie H. Rusli, Senior Lecturer, Postgraduate Program, University of Indonesia, Jakarta

Ross Mcleod of Australian National University must be lauded for his two-part incisive article in The Jakarta Post on March 17 and 18 on the "transfers of wealth between entities within the economy" from the erroneous management and resolution of the banking crisis.

This is a refreshing admission from a respected observer of Indonesian affairs.

He had stated what many economists would not dare to openly admit, that is, that the crisis resulted in the public assuming a debt of about US$60 billion which has to be borne by generations of Indonesians through the budget, at the expense of development programs.

It has been generally acknowledged, though always obliquely, that the International Monetary Fund was responsible for causing further destabilization of the financial sector during its early intervention from late 1997. It reinforced misguided policies by holding successive governments "hostage" to impose its policies in exchange for regular disbursements. From October 1997 when the IMF was invited to "rescue" our economy, we have not had "control over our economic policies" as the Letters of Intent (LOIs) were masqueraded as the government's economic program but in reality, dictated by the IMF.

The IMF must certainly be held accountable for incurring the largest and "quickest" debt of any sovereign country over such a brief period, from their intervention in November 1997 to close banks up to the recapitalization of all banks by September 1998. As part of this process, it forced the introduction of "blanket guarantees", set up the Indonesian Bank Restructuring Agency (IBRA) as the complementary asset management corporation to take over the distressed assets and injected government bonds to restore the "soundness" of the banking sector.

As pointed out in McLeod's article, these have all been "in vain". The banking sector is as fragile as it was pre-crisis. The current "financial soundness" of banks is aided only by the huge payment of interest on government bonds. Bank lending to the real sector, the main justification for government investment in rescuing banks, has not happened.

As part of our democratization process, we must begin to honestly appraise what has happened in our progress toward democratic nationhood.

We will begin a "new democracy" with a "bankrupt" economy, burdened with a huge debt. The new and successive governments must set high on their list of priorities restoring budgetary soundness and move forward to focus on economic development with the goal of raising the level of living standards through sustainable growth, employment creation and balanced regional development.

A priority issue that needs to be dealt with by a newly elected government is to understand how we came to be so "heavily indebted" and to find a solution to deal with this issue, for it will continue to dodge our development efforts.

Let us use the business world as an analogy. If a public company went into insolvency, shareholders would demand accountability and the authorities would have to investigate how such a corporation managed to be run aground and caused losses to shareholders.

The investigations into mismanagement and holding senior officers in Enron and Worldcom accountable are examples of sound governance practices whilst recovery measures by a new management team are underway.

The people responsible for managing the economy during the crisis and post crisis should not be held less accountable than expected for those in public corporations.

We must seek accountability, justice and recovery for the biggest "national corporate failure" of $60 billion debt left behind for our people.

However, we should not readily accept the well-publicized argument that the $60 billion debt was a result of the crisis. Beyond the IMF policy mis-prescriptions, we must be convinced that those responsible to manage the process of asset recovery, including ministers and officials responsible for IBRA have acted properly and with judicial prudence.

We should not readily accept, as stated in McLeod's article, that former errant bank and corporate owners are rewarded for their cooperation and for passing on their burden to an "unsuspecting public".

Our forefathers sacrificed their lives to wrestle our republic from colonial "masters". It seems that in our quest for democracy, we paid the price in that wealth was redistributed to a select favored few at the expense of the general public. Is this acceptable?

In the absence of proper accountability for the massive public losses and to bring justice to those responsible and institute recovery measures -- such as legal sanctions against those who had benefited from the crisis including "windfall tax" proposed by McLeod -- can we move forward with democratic governance?

Democracy is accountability and governance for the people, by the people and of the people. The restoration of our democratic freedom need not be at the expense of an "unsuspecting public" who now have to bear the huge burden of our crisis. The new legislature and government must have the political will to deal with the aftermath of our crisis and can act decisively to pin-point accountability, restore justice and seek recovery for the "biggest loss' to the national economy.

Only then can we claim to have fully restored democracy.