The IMF bashing
The IMF bashing
As the new reform agreement with the International Monetary
Fund (IMF) now enters its seventh month of delay, without any
clear signs as to when negotiations will resume, Indonesia's
chief economic minister Rizal Ramli appears to be increasingly
frustrated with the multilateral agency.
The situation appears very different now from last August,
when a highly confident Rizal took over the leadership of the
Cabinet's economic team and acted firmly to rewrite the
government's accord with the IMF. Recently, however, he has
resorted to a sort of IMF-bashing campaign, scoffing at its role
in Indonesia's bailout and its contribution to the country's
economic recovery.
He has lambasted what he sees as the IMF's excessive meddling
with policy details and interference in areas completely outside
its authority and competence. He also cited several major
mistakes committed by the IMF in its program between 1997 and
1999.
Rizal's frustration is, to a certain extent, quite
understandable. His economic team has been working very hard,
though sometimes in uncoordinated, haphazard ways, to implement
the reform measures stipulated in the September 2000 agreement
with the IMF.
The problem is, though, that his team's hard toil has often
been sabotaged by the erratic leadership of President Abdurrahman
Wahid and the President's tussle with the House of
Representatives.
Apart from a highly respectable economic growth of 4.8 percent
last year, substantially up from almost zero growth in 1999 and a
contraction of nearly 14 percent in 1998, Rizal now has nothing
much else to flaunt this year.
The rupiah's exchange rate, which rose to as high as Rp 7,000
against the U.S. dollar in September 1999, has now plunged to as
low as Rp 11,500, thereby upsetting estimates on major items of
government revenue and expenditure and threatening the state
budget with an unmanageable deficit. Estimated economic growth
for this year has been slashed to a mere 3.5 percent.
Even though corporate debt restructuring and asset sales by
the Indonesian Bank Restructuring Agency have been running more
quickly, they remain below the pace required to strengthen the
budding recovery. The privatization of state companies is even
more dispirited.
As the fate of the IMF's third US$400 million tranche of its
$5 billion bailout fund, supposed to be made last December,
remains uncertain, Rizal and his team cannot but conclude that
the agency has adopted delaying tactics.
When the IMF decided on the delay last December, it cited slow
progress in corporate debt restructuring, postponement in the
sales of Bank Central Asia and Bank Niaga and concerns about new
borrowings by the local administration as the main reasons.
But when these issues were subsequently resolved, the IMF came
up with another requirement: the satisfactory completion of the
proposed amendments of the central bank law. When the House
started deliberating the law amendments, the agency imposed
another tie -- demanding the government cancel its plan to issue
asset-backed dollar bonds.
When the IMF sent a review team in mid-April, there was great
hope that a new reform accord was in the pipeline. But the team
not only left without any commitment but also slapped on another
condition: the 2001 state budget must be amended to make it more
realistic.
The IMF cannot entirely be blamed for its misgivings in
dealing with Abdurrahman Wahid's government, given its notorious
record of backtracking on its commitment to reform measures. But
then one may also criticize the agency for seemingly pressing too
hard on a government that is grappling with a multidimensional
crisis.
The core issue here is that as the government's credibility
and popularity have been sharply eroded, especially following the
heightened political uncertainty that has now worsened into a
leadership crisis, its ability to take painful reform measures is
weakening.
The additional requirements imposed by the IMF cannot simply
be seen as a delay tactic, waiting for a new government to emerge
after the political crisis is hopefully resolved in August.
New conditions such as the budget amendments are needed
anyway, with or without the IMF asking for it. The independence
of the central bank should be maintained. Rizal's plan to issue
dollar bonds secured with natural gas export revenues (already
canceled) would further increase the country's foreign debts that
have now exploded to a critical level of more than $140 billion.
Picking on the IMF and bickering is the last thing the
government needs, especially given the current leadership crisis.
The blunt reality, however bitter it may be, is that the market,
foreign creditors and even the majority of informed people in the
country still have more trust and confidence in the IMF, despite
its mistakes and shortcomings, than the present government, which
in the public's perception is an outgoing one.