IMF-sponsored reforms need not be taken for granted

By Makmur Keliat

SURABAYA (JP): The International Monetary Fund (IMF) has been established to assist countries facing serious problems in their balance of payments and current accounts but it is a great mistake to conclude that it can do nothing wrong.

Economist Marie Pangestu noted in The Jakarta Post's Jan. 22 edition that the rupiah's continuous free-fall should not be blamed on the IMF. It has been argued that the IMF funds is the medicine which the patient, ie. Indonesia, does not want to swallow.

According to Marie Pangestu, the financial crisis cannot be addressed immediately due to the government's reluctance to seriously implement the IMF's reform programs. This, in turn, has further reduced the value of the rupiah against the U.S. dollar. She suggested, therefore, that it was better to look closer to home rather than blame the IMF, globalization and speculation.

The IMF's mission of assisting countries with serious problems in balance of payments and current accounts is not always in line with its own objective. These two concepts are different from each other.

While its mission relates to the ethical aspects of its establishment, its objectives mainly deal with daily pragmatic compulsion of the need for survival.

Indeed, all institutions should be able to survive before they achieve their mission. Due to this need for survival, many institutions are more attached to their institutional objectives in their working agenda rather than their institutional missions.

The establishment of a state is a case in point. No one doubts that a state has been established with a sacred mission to provide prosperity and security for their citizens. However, it has also become an undisputed fact that the existence of the state itself, particularly in developing countries, has become part of the problem. It has frequently been found that the violation of human rights and rampant corruption in developing countries has occurred due to the misuse of power by the state.

The establishment of the Armed Forces is another example. All states have set up their armed forces with a mission to protect their citizens from external threats and enemies. However, in some developing countries, the armed forces has been commonly misused to protect the vested interests of ruling groups merely to preserve the status quo.

The incongruities between an original mission and real behavior of institutions, therefore, is a common, undeniable fact.

To gain a greater understanding of how the above examples are relevant in the context of Indonesia and why the IMF prescription need not be taken for granted, the following analogy is good for comparison.

The presence of hospitals and their medical doctors is of great importance for the care and improvement of social health. This does not necessarily mean, however, that hospitals and their doctors will be free from misconduct when remedying their ailing patients.

It has become a public secret in major Indonesian cities that some hospitals and doctors give improper and unethical advice so that their patients will be required to return to them time and again. In this way, doctors are able to take advantage of their position to get as much money out of their patients as they can.

Due to these money making motives, there is a possibility that the medicine prescribed by the doctor is not effective and will not help a lot. Only knowledgeable patients will notice the difference and therefore they will choose not to follow their doctor's advice immediately.

In highlighting the IMF's policy prescription, the above analogy needs to be taken into consideration. A kind of tug-of- war between its institutional objectives and institutional mission is always omnipresent in the IMF's working agenda.

Though since the very beginning it has cultivated a mission to provide assistance to its member countries facing financial problems and promote world liberal economic order, the IMF, as an institution, is also confronted with the problem of how to survive.

Since the IMF is not a charity but a lending institution, whose financial sources are derived from its member countries, mainly developed ones, the money it has lent should be paid back by the debtor countries.

This can be achieved only if the borrowing countries can assure the repayment of the financial assistance. Otherwise, the IMF itself can become default like the borrowing countries. It is because of this inherent contradiction that the IMF's policy prescription in many cases has become difficult for developing countries. However, this does not mean that Indonesia should turn down the IMF's financial assistance. What it needs to do is to scrutinize the IMF's economic reform package and to be selective in its implementation.

It has been well documented that the success of the IMF's policy package in developing countries, mainly emphasizing the efforts of how to spur impressive economic growth, has been achieved with high social costs. It is sufficient to say that the success story has come along with high inflation, the freezing of labor wages, the greater role of foreign economic forces in the management of the domestic economy and the great reduction in social investment by the state, particularly in education and health services.

In this context, the economic reform package launched by the government on Jan. 22 seems to imply that Indonesia will suffer the effects of the crisis in years to come. There is no doubt that in some cases, the package seems to have given a good impression and should be welcomed. It has abolished the clove monopoly practice by the Agency for Clove Marketing and Buffer Stock (BPPC) and restricted the trading monopoly of the National Logistic Agency (Bulog) to only rice.

However, it seems necessary to debate why the economic reform has also allowed foreign industrial and trading companies to sell their products in the domestic retail market. As their capital and management are far bigger and better than most domestic enterprises, it is predicted that foreign enterprises will benefit from the economic reform.

In addition, the economic reform package does not touch on the crucial issue of how to increase labor wages, while the price of basic commodities continue to rise. It is most likely that labor wages in Indonesia are now the cheapest in Asia in terms of the U.S. dollar as a result of the drastic depreciation.

Criticism against the IMF's reform policy should therefore not be regarded as a far-fetched and baseless argument. Otherwise, some may say that Indonesian economic policy makers, including its technocrats, have behaved like comparadors, the extended arm of foreign economic interests, as has happened in some Latin American countries. Therefore, the criticism, should be encouraged, unless we really want to put all of our eggs into one basket. Finally, no body is perfect. Therefore, it goes without saying that no institution is perfect, including the IMF.

The writer is a teacher at the Department of International Relations, School of Social and Political Sciences, Airlangga University, Surabaya.