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.