IMF-set reform stays

IMF-set reform stays

The commitment, expressed on Saturday by Indonesian major
political parties to the International Monetary Fund (IMF)
delegation that they will continue to implement the current
reform programs, removed one element of what the market perceived
as risks related to the process of transition into a new
government later this year.

The assurances, received by IMF's visiting first deputy
managing director Stanley Fischer at successive meetings with
leaders of the five biggest political parties based on the
provisional results of the June 7 polls, cleared away some
controversies and market doubts created by pre-election campaign
promises made by parties in a bid to woo voters.

The meetings seemed to have been prompted by IMF's uneasiness
with some of the statements and promises made recently by major
party leaders that put in question several basic components of
the reform package being implemented with financing from the IMF
arranged bail out funds. Several parties rode on the complaints
among people about the pains inflicted by the reform programs and
promised to stand up to the multilateral agency in order to lobby
for less painful measures to cure the economy. The election
front-runner, Indonesian Democratic Party of Struggle (PDI
Perjuangan), promised a quick fix -- which it later neutered --
to resolve the economic crisis by fixing the rupiah at a rate
more than 35 percent higher than its current level of 7,300 to
the U.S. dollar. The National Mandate Party (PAN) cited the
advantages of foreign exchange control policy as pursued by
Malaysia and hinted at its feasibility for the country in the
quest for currency stability.

One may see the IMF jawboning on the political parties -- one
or several of which will form the next government -- as an
infringement of Indonesia's sovereignty to decide on its own
economic policy. But this is the blunt, bitter fact we have to
live with for now, whether we like it or not. As long as our
economy remains in the care of the IMF bail out scheme, our
economic policies will have to surrender to the close oversight
of the multilateral agency. After all, the IMF, which has so far
poured in more than US$9.5 billion out of the $45 billion bail
out fund, shall also be accountable to its shareholders and other
multilateral and sovereign donors contributing to the fund.

Moreover, as the country is still at an initial stage of the
long process of developing good governance, the IMF -- despite
its shortcomings -- is still seen by international creditors and
investors as the most independent and credible supervisor of the
reform measures whose targets include corruption and collusive
business practices already entrenched in the public and private
sectors for more than 30 years. The slower than expected
resolution of the huge amount of debts owed by politically well
connected businesspeople to domestic banks is only one of the
examples of how the corruption infested government has no
political will to enforce laws indiscriminately. Only strong
pressure from the IMF lately have accelerated the process of debt
resolution.

As we have often asserted in this column, the IMF prescribed
reform package is for now the most effective program we can
afford to lead our economy out of its present crisis.
Consistently implementing the programs according to their
schedule is the best way of regaining investor confidence in our
economy. The package, similar to the IMF programs which have
succeeded in stabilizing Thailand and South Korean economies, is
designed to restructure the crippled banking industry, remove
market distortions and minimize corruption, which are all the
main woes behind our economic predicament.

Restoring the rupiah to a fixed-rate system, as suggested by
PDI Perjuangan, could indeed be a disaster, given the country's
foreign debt overhang of more than $150 billion. Likewise,
imposing some form of foreign exchange control would only benefit
those in power, given the high venality of government officials.

We would even look foolish and naive to suspect that the IMF
is a tool of developed countries to plunder our economy. On the
contrary, it is also for the greater interest of creditors and
investors themselves, who have plowed hundreds of billions of
dollars in the country, to have our economy recover again. The
extensive involvement of international observers and the sizable
international donation to our recent election is more evidence of
their interest in our economic recovery. They realize that the
reform program, however well-designed and targeted it may be,
would not be fully effective without a credible, competent
government.