Renegotiation is required

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