New Indonesia might mix with IMF

New Indonesia might mix with IMF

By Patrick Schwarz

SEMARANG (JP): They say a picture speaks a thousand words. The
picture of the front runner in Indonesia's elections, Megawati
Soekarnoputri of the Indonesian Democratic Party of Struggle (PDI
Perjuangan) reluctantly shaking hands with the International
Monetary Fund (IMF)'s Stanley Fischer on the front page of
Sunday's The Jakarta Post, however, speaks more like a thousand
books to a political or economic observer.

Leave it up to the reader to interpret the wry smile of
Fischer. Megawati, on the other hand, looks stately, outright
presidential, and brings forth dignity as only an Indonesian
woman knows how. Considering the fact that she had just been
virtually hit over the head with a brick by IMF heavyweight
Fischer, this is a remarkably diplomatic showing.

Now, what is this brick all about? Essentially, Fischer's
mission was to convey the clear message to Megawati, that, should
she win the elections, she had better stick to the agreement the
IMF had worked out with the New Order regime of former president
Soeharto -- or else! And for good measure, he conveyed the same
message to representatives of Golkar, the National Awakening
Party (PKB), the National Mandate Party (PAN) and the United
Development Party (PPP), just to make sure the message stuck, no
matter what the Indonesian people eventually will be up to.

The Indonesian people chose on June 7. And the Indonesian
people are desperate to distance themselves from the crony
capitalism of the former regime. While they wait for the final
vote counts to finally find out whether history will repeat
itself or whether they have succeeded in rewriting their own
history, the IMF is now going out of its way to write history on
their behalf. Not only was the IMF with its ill advice a major
force behind the undoing of former president Soeharto, but now,
at the moment where an Indonesian democracy is about to hatch,
they must make sure that the show goes on. One may think whatever
one wishes, but to this writer, who is not Indonesian, this is
colonialism of the highest order.

Democratic elections are new to Indonesians. So are campaign
promises. PDI Perjuangan campaigned on an economic platform that
included the possibility of a fixed currency regime. Such a
regime imposes an enormous discipline on a future government and
displays the genuine desire to distance PDI Perjuangan from the
shenanigans that ran the economy under the New Order regime.

But the IMF says no way. If any new Indonesian government
anchors the rupiah, the IMF will not disburse the remaining US$35
billion it had agreed to ($10 billion has been paid out so far).
Most voters may not be aware of it, but even before all the vote
counts are in, they have already made history of another kind.
Nowhere in world history has an unaccountable, nonelected
international organization such as the IMF caused the politicians
of a sovereign country to renege on their campaign promises.

IMF dealings with Indonesia are taking on almost ironic
proportions. The poignant -- yet harmless -- essay of Carl
Chairul in this newspaper on June 20 expressing the uneasiness of
Indonesians being bullied whichever way by the IMF prompted an
acid response by way of a letter to the editor of this newspaper
by IMF director for Asia Pacific, Hubert Neiss, vehemently
defending the fund's stance.

No, the fund is not meddling in Indonesia's affairs and the
fund is only here to help and that thanks to the fund's actions,
the economy is on the mend. Think of this whatever. But it
certainly illustrates what Indonesians are up against when
dealing with the fund.

The economy is in a state of total confusion. The same people
that prescribed a remedy of high interest rates four months ago,
now proclaim they must come down because the current movement of
the rupiah demands it and the economy is on the mend anyway.

Well, is it? And if it is, to whose benefit? True, the rich
crony capitalists have unwrapped their Mercedes Benzes and BMWs
and put them back on the road as it now seems safe again to do
so. They have slapped their diamond-studded Rolexes back on their
wrists. There is some motion again at the Jakarta bourse. And
thanks to the movements of the rupiah, the currency speculators
are back at playing their profitable games.

But this does not mean an economy is on the mend. If one looks
at the real sector of the economy, it is one vast disaster zone.
And will remain so for a very long time. Small exporters -- this
writer included -- that have been running idle for more than a
year, have just seen what little profit they might have worked up
in the last three months evaporate in front of their eyes --
compliment of the rupiah's drastic rise over the last three
weeks. Foreign investors in the real sector of the economy,
notably the manufacturing sector that would create badly needed
jobs for ordinary Indonesians, are looking anywhere but to
Indonesia.

The economic platform of PDI Perjuangan to anchor the rupiah
would be the only viable remedy for the real sector of the
economy. The sector that would benefit all Indonesians. This does
not mean that other measures taken by the present government
based on IMF's advice, such as the restructuring of the banking
sector, will have to be compromised.

And that PDI Perjuangan is willing to accept the discipline
and transparency such a measure requires, speaks for its
leadership's political and economic maturity and demonstrates
that Indonesians are absolutely capable of fending for
themselves. Yet, they are not "big" enough to stand up to the
mighty IMF, and the country's enormous debt of US$150 billion
does not leave them much room to maneuver. Long-term monetary
policies can not be turned around at a whim.

It therefore speaks for the wisdom of PDI Perjuangan's leaders
to endorse the incumbent government's decision to play along the
IMF fiddle. At least for now, Indonesia, the IMF and democracy. A
cocktail that does not mix well. And goes down even worse.

But this may change. The fund's latest meddling in Indonesia's
affairs that are of a political and sovereign nature is only the
latest in a long chain of blunders that has raised a few
eyebrows, notably in the U.S. Senate.

Voices have heard over there, that, before the Senate votes on
the confirmation of Larry Summers as the new U.S. treasury
secretary, he should be held responsible for this, since the IMF
will be taking orders from him in future. One does not have to
speculate to conclude that this may well have implications as to
how the IMF will be run in future.

Now that would be some scenario! A new Indonesia, with a new
democratic government, sorting out its economic woes with a new
IMF. That one would go down as smooth as an eggnog.

The writer is managing director of ANP Corporation, Semarang.