IMF-sponsored reforms need not be taken for granted

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.