Rizal-IMF tussle

Rizal-IMF tussle

Within days after his appointment as Indonesia's new chief
economics minister in late August, Rizal Ramli acted firmly to
proclaim his leadership of the government's new economic team.
The International Monetary Fund acquiesced to Rizal's demand for
amendments to the IMF-supervised economic reform and a new reform
agreement bearing his signature because the introduced changes
were only superficial and the core elements of the reform package
remained intact.

However, when Rizal, in his capacity as chairman of the
Financial Sector Policy Committee, approved last Monday more than
US$3.7 billion in debt workouts for four business groups -- debt
restructuring is supposed to be one of the vital elements of the
economic reform program -- the IMF and the World Bank balked.
What made Rizal's move seem even more controversial and suspect
was that the decision on the debt deals was made only two days
after he received a joint letter from the IMF and World Bank
chief representatives in Jakarta urging a second, independent
opinion on the deals before they were finally approved.

Rizal's biggest error seemed to be his apparent compromise of
two fundamental principles of the reform: transparency and
accountability, without which the whole reform program would be
doomed to failure.

The debt deals threw Rizal into a tussle with the two
multilateral agencies, until now still the most influential
opinion leaders on Indonesia for international creditors and the
international market. Most analysts also criticized the deals
made with Tirtamas, Texmaco, Kiani Lestari and Banten Java
Persada groups for their lack of transparency and for their
allegedly being too much in favor of the debtors.

The bone of contention of the two agencies that is fully
shared by most analysts is their argument that it is vital to
have a level playing field for restructuring debts and a basic
principle on which all the deals are based. A second opinion,
they argued, could offer a new perspective on the deals as each
debt restructuring could establish an important precedent and
have lasting implications for taxpayer liability and the future
role of the Indonesian Bank Restructuring Agency.

But what especially "burned" Rizal over the IMF and World Bank
warning was that the joint letter, which was disclosed by Dow
Jones, seemed to single out the deal with the Texmaco Group as an
example to stress the point of their argument.

Rizal accused the two agencies of being discriminatory in
their judgment, questioning their motive and asking why had they
kept silent over worse debt deals reached previously, such as
those with the Salim Group, which had ceded only Rp 20 trillion
worth of assets to settle its more than Rp 52 trillion debt to
the government.

However, the IMF and World Bank clarified in a another joint
letter to Rizal on Saturday that the institutions were neither
endorsing nor criticizing any particular asset restructuring
proposal, pointing out they were not in a position to do so, nor
would it be appropriate. The essence of the letter amplified the
remark made by IMF chief representative in Jakarta John Dodsworth
on Friday that it is not the fund's policy to comment on
individual debt workouts.

Needless to say, the FSPC should act immediately to disclose
the details of the debt deals, explaining all the facts that led
it to the conclusion that the deals would be the best alternative
for the economy and the people who will bear the risks.

A prolonged spat between the economic team and the IMF and the
World Bank certainly would not bode well for the nation,
especially in the run-up to the annual meeting of the country's
creditors grouped in the Consultative Group on Indonesia in Tokyo
next week, which will make a decision on the $4.8 billion in new
loans asked for by the government.

As we argued in this column last week, if the debt workouts
remain suspect, and unless they are accepted as viable by the
House of Representatives and the market (the international
financial community), they will not be effective in helping the
debtors resume normal operations because new credit lines would
likely remain closed to them. Only when the companies are
restored to normal production will the government have a fair
chance of recouping the huge amount of taxpayers' money already
invested in their plants.