IMF's ominous message
Very few people would have missed the negative signal sent by the failure of the International Monetary Fund (IMF) and the Indonesian government to agree on a new reform accord last week, however hard both parties tried to sugarcoat the unpleasant reality with such comments as "we have completed the basic draft of the letter of intent" and "we have reached a basic agreement at the mission level".
The blunt reality is that this is the second thumbs-down the IMF has given the government of Abdurrahman Wahid, after a similar mission in mid-April also failed to revive the reform agreement, which was held up last December.
The IMF high-level mission is simply not confident that the present Cabinet is capable of executing the sorely needed reform measures, given Abdurrahman's shaky political leadership. Hence, what is the point of drawing up a contract that most probably will not be honored.
Other than the impending impeachment of President Abdurrahman by the nation's top legislative body, the People's Consultative Assembly, in a special session early next month, there was really no other good reason for the IMF not to revive the reform program under a new letter of intent.
All the requirements that have held up the disbursement of the third US$400 million tranche of the IMF's $5 billion since January have been met. The government even backed down on what it had said was the nonnegotiable issue of the planned central bank law amendment, which would have led to the replacement of Bank Indonesia's entire board of governors.
However, in order to avoid the impression of the IMF meddling in politics, mission leader Anoop Singh, the IMF director of Asia and the Pacific, insisted that the failure to reach an agreement had nothing to do with the Assembly's special session.
But the IMF's first deputy managing director, Stanley Fischer, hinted in Tokyo in the middle of last week that it was difficult to predict when a final agreement could be reached, given the political uncertainty in Indonesia and the lack of progress in debt restructuring and the sale of nationalized banks.
Thomas Dawson, the director of external affairs at the IMF headquarters in Washington, acknowledged over the weekend that several details still needed to be worked out to reach a final agreement. This indicated that things were not as smooth as officials in Jakarta claimed.
But in another apparent attempt to avoid the impression of the IMF trying to buy time, waiting for a new government to emerge later next month, Dawson noted that "at the mission level, they have reached a basic agreement ... with other details needing to be worked out in Washington".
Since Indonesia joined the IMF bailout program in November 1997, we have never heard an IMF review team use the term "mission-level agreement".
The review teams have always been headed by the Asia-Pacific director, who is authorized to give a fiat on the spot (in Jakarta) to a final letter of intent, which normally is approved by the IMF executive board two weeks later. This process seems normal, otherwise it would be a gross waste of resources to send the mission to Jakarta. What would be the point of sending such a high-level executive as Asia-Pacific director Singh to Jakarta if the details of the agreement had yet to be worked out by the board in Washington?
Although the IMF would certainly deny it, one cannot help but get the impression that the fund seems uncomfortable with the current finance minister, Rizal Ramli, a staunch critic who often recounts in emotional outbursts what he sees as past mistakes by the IMF in the early handling of Indonesia's economic crisis in late 1997 and early 1998.
But the problem is that most of the reform measures to be outlined in the letter of intent -- fiscal consolidation, bank restructuring, corporate reform and asset sales -- fall under the jurisdiction of the finance minister. So all in all, despite the sugarcoated remarks used to describe the outcome of the latest IMF review mission, a lot of things could still happen before a final agreement is reached.
But one thing is crystal clear: the IMF is no longer confident that the present government is capable of executing the reform program, especially now when the political and macroeconomic conditions are much worse than they were last year.