IMF's prolonged role in Indonesia questioned

Berni K. Moestafa, The Jakarta Post, Jakarta

Some experts have voiced concern over the prolonged presence of the International Monetary Fund (IMF) and its undermining of the Indonesian government's sovereignty in pushing its own economic reforms program.

The government's signing of a fourth letter of intent (LoI) could pave the way for the disbursement of the IMF's US$360 million loan, but CIDES economist Umar Juoro said it was tied to too many conditions.

"The more targets the more it is difficult to comply with the LoI," he told The Jakarta Post on Friday.

The government has pledged to meet the IMF's new reform targets under the LoI as a prerequisite to obtaining the loans.

With 53 conditions, the latest LoI has become more elaborate than the third one which had only 35 conditions.

Umar said the government should take the reform targets out of the LoI and made them part of its own program independent of the IMF.

"The IMF is not designed to handle micro economic issues, it is overstepping its own role," he said.

But Finance Minister Boediono said the LoI was drafted by the government in line with what it saw as demands for reforms from the financial market.

Umar called this a poor excuse to allow the IMF to meddle with Indonesia's sovereignty over an extended period of time.

"We must separate the IMF's tasks from that of the government in reforming the economy," he asserted.

Claims that the IMF helped prevent the reforms targets from derailing due to the country's many vested interest groups, also missed the point of having the IMF in the first place, he said.

Umar added that such claims only underscored the weak leadership that marked the current government.

IMF critics have surfaced from time to time mostly on the heel of drastic reforms measures under the LoI.

The IMF came to Indonesia's rescue in 1997, after the financial crisis led to the near collapse of the entire economy.

Its job was to provide liquidity support for the government's dwindling foreign reserves, which had been used defending the rupiah against speculators and hedgers.

The IMF arranged a loan package worth $23 billion from international lenders such as the World Bank.

However, the bailout came at a heavy price of surrendering a part of Indonesia's economic sovereignty to the Fund.

As part of the loans preconditions, the government launched massive reform programs to weed out inefficiencies in the economy.

But while countries like Thailand and South Korea have exited the IMF's program, Indonesia has not.

This is because of the political chaos that followed the 1997 crisis that badly impaired the economic reform program.

Prolonged political instability coupled with wide-spread security problems have been a major drag on reforms.

Consequently, the country is still left with a stagnant economy.

Next year will mark the last year under the IMF, unless the Fund grants Indonesia's bid to extend the terms for another year.

This is to secure a debt rescheduling deal for next year with Indonesia's creditors, collectively called the Paris Club.

Although an extension is urgent, its reasons did not justify the IMF's presence in the country, according to legislator Faisal Baasir of the House of Representatives' Commission IX, which oversees financial affairs.

In a further sign of indecisiveness, Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said the government needed the IMF until the country's risk rating had improved.

While the IMF's senior representative to Indonesia David C. Nellor said the Fund would continue helping the country for as long as the government felt it needed the IMF.