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.