The apathy of RI financial sector

The apathy of RI financial sector

By H.M.T. Oppusunggu

JAKARTA (JP): One could be quite baffled by the oddities of
Indonesia's economic development since August 1997.

For example, the central bank, Bank Indonesia, has turned out
to be a major force behind the demolition of the financial
sector.

Monetary turmoil brought on the downfall of the economy which
resulted in drastic drops in income and employment, particularly
affecting the silent majority: the poor. All this happened in a
very short period of time and was not due to the fault of the
public. The situation was further compounded by the heavy
engagement of the International Monetary Fund (IMF) in advising
and supporting BI in its monetary policies.

The fundamental point is that when BI was under inadequate
leadership the IMF exploited this weakness as part of its
ulterior motive to make Indonesia a country permanently begging
for outside assistance.

The Fund generously extended a huge loan of US$43 billion
which has been used by Indonesia to repay its foreign debt. Thus
in essence, the IMF has been acting as a discreet substitute for
foreign creditors, so that not a single cent of the IMF loan has
been used for generating economic recovery.

It remains unclear as to how Indonesia will be able to fulfill
its commitment to pay back its accumulated foreign debt of US$40
billion bound to mature by the year 2004.

Both BI and the IMF have been misleading our people. Wittingly
or unwittingly, this was done to alleviate continuous levels of
public distrust and concern over dreary prospects.

Time and again, letters of intent -- jointly formulated by BI
and IMF -- had stressed that their policies had paid off well, as
the economy was said to be already underway towards recovery.

Their officials claimed that gross domestic product (GDP) had
grown by 4 percent to 5 percent in 2000 as compared to a sudden
drop of 14 percent in 1998 and zero growth in 1999.

The upward trend was considered to have been accompanied by a
significant increase in foreign exchange reserves and one digit
inflation.

At closer examination however, GDP growth was more apparent
than real, as it was not actually attributed to real production
factors. The growth in GDP and foreign exchange reserves were
primarily due to sharp increases in oil prices.

Further, there was a significant redirection of goods from the
declining domestic market into exports.

Low inflation was heavily supported by subsidies of
substantial imports of rice, without which the price of rice --
and thus inflation -- would have been higher than indicated by
the official inflation index; so that the real growth of GDP
during 1998-2001, if any, would be much lower than had been
presented by BI and the IMF.

Above all, BI and the IMF lost sight of the employment level
which remained depressed and the poor were even more miserable
than before.

This financial conspiracy between BI and the IMF persistently
deprived the real sectors of the economy of their fundamental
need for infrastructural monetary services and facilities.

At present it would be fatalistic and futile to expect even
the slightest recovery unless Indonesia's financial and banking
sectors are restored to a sound position.

The most compelling imperative is to thoroughly revamp BI and
return it to its proper function as a central bank, away from its
errant activities, in which it acts as if it were an owner or
operator of all individual national banks.

BI must, once again, hold command of money and foreign
exchange. Its free floating exchange rate should be revoked to
avoid soaring prices of imports and related production costs.
Otherwise the trend of shutting out foreign investment in the
domestic market will no doubt continue.

The IMF should also refrain entirely from its meddling in BI's
independent monetary policy.

Another basic prerequisite is that, if monetary or economic
policy is to be effective, it must consist of a set of properly
coordinated guidelines, as well as measures and instruments used
to pursue clearly defined aims.

Had BI understood the implication of its negligence in
adhering to this basic principle, the current monetary collapse
would not have happened.

The writer is a senior Indonesian economist based in Jakarta.