IMF responsible for Indonesian crisis

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.