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.