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.