Renegotiation is required

I was very pleased to read Sunday's Jakarta Post article (Jan. 11, 1998), Harvard economist slams IMF for Asian crisis. In this article Jeffrey Sachs, director of the Harvard Institute of International Development is quoted as being critical of the off- the-shelf IMF remedies that have been applied in the current Asian crisis. The article also quotes Henry Kissinger as being concerned about a potential anti-American backlash developing as a consequence of the stringent conditions imposed by the IMF bailout. I'm pleased that important western figures are beginning to call into question the approach the IMF has taken in this crisis.

All Asian recipients of IMF help are calling for renegotiation of bailout terms. Western commentators and investors are concerned that this is a signal the recipient countries are unwilling to implement the changes that will get them out of the crisis. I disagree. Renegotiation is definitely required, and is not a sign that the recipient nations are uncommitted to change.

Renegotiation is required because our understanding of the depth and nature of the crisis has changed substantially since the IMF agreements were made. The IMF agreement with Indonesia was made in early October. At that time it might have made sense for the IMF to demand a budget surplus, it no longer does. I hope the IMF recognizes this and backs off from this demand.

In October the IMF cannot have expected the exchange rate to get anywhere near the Rp 10,000/dollar that was reached last week. It is doubtful they expected two million people to lose their jobs before the end of this year. In October, commentators were expecting a 1998 economic growth rate of two to three percent. It would be hard to be that optimistic now, any positive growth at all is probably wishful thinking. It seems crazy to exacerbate these problems further by demanding a budget surplus, especially since government overspending was not responsible for the problem in the first place.

Renegotiation is required because the situation has changed radically since the agreement was implemented in October. Renegotiation is required because no one understood then, and probably do not understand now, why the crisis is so virulent. An approach of ongoing reconsideration and negotiation is required here. Let the IMF work with, not against, these sovereign nations. It is clearly wrong to simply "draw a line in the sand" and dare the recipient nations to cross it. The IMF wishes to help reestablish investor confidence? Then they should not make impossible demands that will shake investor confidence when the demands are not met.

VAUGHN BALL

Jakarta