IMF should account for poor advice during crisis: Govt
IMF should account for poor advice during crisis: Govt
Bloomberg, Jakarta
Indonesia said the International Monetary Fund must account for its poor advice during the 1997 financial crisis after the fund said it failed to fully diagnose the magnitude of a liquidity problem in the economy.
"It is not sufficient to acknowledge it made a mistake without any corrective actions in terms of the people and system that created the mistake," Mahendra Siregar, senior aide to Dorodjatun Kuntjoro-jakti, top economic minister, said in an interview.
"They need to provide accountability. This is not a dissertation. This is the real world."
Indonesia's trade collapsed in 1998 after then-President Suharto's government, under fund pressure, closed some banks, choking credit to exporters and leading to a run on the currency that saw the rupiah fall from 2,400 to the dollar to 16,525.
Since then, the government has seized 72 banks, shut 52 and recapitalized 20.
The IMF's Independent Evaluation Office on Tuesday said the Washington-based fund failed to see the government-induced currency shortage and the economic impact of investors pulling funds out of the country.
The simultaneous closure of 16 banks under pressure from the fund also shifted money from private banks to state and foreign banks, skewing measurements of whatever liquidity remained, it said in a report.
"It is hard, now, to comprehend just how mild the problem was judged to be," the report said.
The IMF put together a US$36 billion package for Indonesia between 1997 and 2003 to tide over the crisis after the government spent about Rp 650 trillion to bail out lenders by injecting funds to boost their capital after debtors defaulted on loans and the currency collapsed.
Southeast Asia's No. 1 economy has yet to recover from the contraction of 1998. Economic growth lags many of its neighbors and is dependent on private consumption, which accounts for 70 percent of the economy.
"The benefit of hindsight offers a luxury that one did not have in the middle of the complex and fast-changing situation that characterized late 1997 and early 1998," David Nellor, the fund's representative in Jakarta, said in an e-mail to Bloomberg News.
"The report does not suggest that the crisis could have been avoided by another course of action."
Hubert Neiss, the top fund official for Asia during the crisis, wasn't available for comment.
The country exited the IMF loan program in December 2003.
Over the last few years, the IMF has pushed Indonesia to sell state-seized banks, control spending, reign in inflation and stabilize the currency. Inflation, one key pillar of the IMF's prescription, has slowed from a peak of 82 percent in 1998 to 6.5 percent in May.
"Our priority is to move on," Siregar said. "All the indicators show the economy has moved away from the situation at the time of the crisis. Banks have recovered, monetary and economic stability has been achieved, the budget deficit has fallen."
The IMF said in the report its errors also delayed a banking industry overhaul and contributed to a 13.1 percent economic contraction in 1998, compared with an IMF forecast of 5 percent growth.