Rizal deals with IMF

Rizal deals with IMF

Given the extremely low credibility the new Cabinet has to
start with, we find it hard to understand why chief economic
minister Rizal Ramli decided on the first day in office to go
public with his intention to review Indonesia's reform programs,
as stipulated in the government's letter of intent to the
International Monetary Fund (IMF) on July 31.

While the sequencing or scheduling of the reform measures
might need some changes as Rizal suggested, he should have
pursued it quietly with the IMF, asking for vigorous discussions
in closed-door meetings. Picking the IMF for a public bickering
about such a plan could imply that the new Cabinet would
backtrack on the reform program already signed by the previous
cabinet. Such a capricious stance would sabotage whatever efforts
the Cabinet might conduct to gain market confidence and political
credibility, and the Cabinet would never be able to work
effectively in a hostile market environment.

Rizal should realize he is no longer an independent analyst
who can publicly air his views anytime he chooses, however
controversial or half-baked they may be. While such a defiant
stance may gain support among a number of politicians in the
House of Representatives who have long criticized the IMF for
being too meddlesome in Indonesian affairs, that is completely
the wrong way of asserting that he is now in charge.

The new Cabinet will have to live with the reality, however
bitter it may be, that the market and foreign creditors and even
the majority of people in the country have more trust and
confidence in the IMF, despite its mistakes and shortcomings,
than in the government itself.

Moreover, in so far as the rehabilitation of the economy is
concerned it is, we think, immaterial and cosmetic to debate who
owns the reform measures. As the programs are stipulated in the
Memorandum of Economic and Financial Policies attached to the
government's letter of intent to the IMF, they were formulated by
and become fully the responsibility of the government.

Certainly, because the measures are being implemented within
the international consortium's bailout of the Indonesian economy,
the IMF, as the leader of the consortium, always has a big say in
the formulation of the programs.

Rizal could be right in his observation that some of the
reform measures, notably those in such politically sensitive
areas as the reduction of fuel subsidies and the liberalization
of rice imports, might need rescheduling. But asking for changes
in the reform package simply because the balance of payments has
now become much stronger and the government therefore does not
immediately need the third tranche of bailout funds from the IMF,
indicates a misunderstanding of the essence and basic objectives
of the program. Even more damaging, that point of argument may
also give the wrong message to Indonesian creditors in the
Consultative Group on Indonesia who will meet in Tokyo next
month.

True, the balance of payments has markedly improved due mainly
to the steep rise in international oil prices reaching all-time
highs and a strong pickup in exports. But the unilateral decision
by corporate debtors to simply stop serving their US$65 billion
foreign debts and the creditors' rescheduling of $8.5 billion in
government debts until 2002 also play a very big part in the
improvement of the external balance. And one should not forget
that the creditors' decision to reschedule government debts has
always been based on the IMF endorsement of Indonesian reform
measures.

First and foremost, the reform measures are needed to abolish
the woes and correct the mistakes which in late 1997 drove the
nation into its current multi-dimensional crisis. With or without
funds from the IMF, Indonesia must restructure its banking
industry and the huge debt overhang of corporations, gradually
reduce its fiscal deficit, undertake concerted tax efforts,
strengthen legal certainty, minimize wastes and losses caused by
corruption and inefficiency and make its stable of over 150 state
companies highly competitive. All this is the essence of the
reform measures as agreed with the IMF and which have to be
reviewed bimonthly.

What the reform measures boil down to is a concerted drive to
develop good governance in the broadest sense, in both the public
and private sector. But it is rather impossible for the
government to execute all the programs without international
cooperation, in the form of either official loans or private
investment. But such cooperation depends on an independent
oversight of the Indonesian government, given the lack of
confidence in its ability and willingness to consistently execute
painful and, sometimes, politically sensitive reform measures.
Hence, this is one of the crucial roles of the IMF as the opinion
leader for creditors and the market.