The political costs of IMF's cure

The political costs of IMF's cure

By Aleksius Jemadu

JAKARTA (JP): Indonesia might have to pay political costs for
the government's recently announced reform measures, aimed at
regaining economic stability, which were suggested by the
International Monetary Fund (IMF).

In order to increase national efficiency and the
competitiveness of the economy, the government measures included
the gradual reduction of import tariffs and trade regulations for
various commodities, the lessening of obstacles hindering
exports, the elimination of special tariffs for automotive
producers who achieve high local contents by 2000, and a review
of investment and expenditures by the public sector.

Indonesia's problem has stemmed not only from the weakening of
its currency but also from a "crisis of confidence" which has
been due to its failure in practicing good governance. Various
economic reform packages are said to be half-hearted measures
which reflect more the prominence of vested interests of powerful
corporate lobbies rather than economic priorities. For instance,
there has been no clear explanation as to why the government has
suspended costly and vital infrastructure projects, while sparing
equally expensive but less urgent projects.

Some analysts welcomed the fact that the IMF has asked the
government to undertake much needed structural reforms for the
national economy. Of particular importance in this regard is the
demand for the elimination of monopolies and other distortions in
government economic policies.

Government officials often argue that Indonesia needs
conglomerates in order to be able to enter the global market.
However, there is a growing concern about the emergence of a
relatively high concentration of ownership and market power in
the hands of conglomerates. It was estimated that the operations
of the top 200 business groups in 1990 constituted the equivalent
of around one-third of the country's gross domestic product
(GDP), of which about a third was controlled by the top five
groups, according to a World Bank report in 1993.

Most Indonesian conglomerates were also said to be
inefficient, less export-oriented and grown mainly out of either
family ties or quid pro quo connections with government
officials. The preservation of the economic interests of some
well-connected conglomerates was considered by some observers as
a major stumbling block for a more comprehensive deregulation in
certain sectors of the economy, especially with respect to some
agricultural products. The coincidence of the economic crisis and
the depoliticization of society will inevitably lead to the
strengthening of the state's power, which constitutes a close
collaboration between the ruling elite, multinational capital,
and domestic capital.

What will be the political costs of the IMF intervention?

IMF authorities have always assumed that the politics of the
recipient country should be made subservient to its economic
development. They, therefore, have tended to take political
stability for granted. Their main argument has been that a nation
can only have political democracy if it can free itself from an
economic crisis.

It is a common phenomenon in developing countries that
economic problems could lead to the political activation of
grassroot elements of society. In response to a government's
austerity programs, the working masses have asked for higher
wages, lower inflation, more government services, tighter control
of foreign corporations and higher taxes on the rich. At the same
time, such political activity can be perceived by the ruling
elite as a threat to their interests and their international
collaboration. The greater the threat, the more likely the
emergence of "hardline" groups in the military and bureaucracy to
promote a more complete subordination of society.

The indispensability of the role of international capital in
the economic development of a recipient country could lead to the
establishment of a strong cohesion between state power,
translational capital and national entrepreneurs. These three
actors could monopolize the appropriation of all development
resources at the expense of the majority of the people. Such
economic exclusion could exacerbate existing social and economic
injustices.

Some political observers suggest that prior to the
presidential election next March, political tensions will tend to
increase. Indonesian politics will become more uncertain and
unpredictable. This is partly due to the fact that both the
government and the people seem to believe that Indonesia's future
leadership can be taken for granted. The fact that the nation is
going to face unprecedented economic difficulties could turn such
a belief into a political fiasco.

This is indeed a moment for reflection. All Indonesian people
are supposed to unite their strength in a spirit of solidarity to
bear the burden imposed by the IMF-sponsored austerity programs.
This can only be done if government officials can free themselves
of illegal corrupt and collusive practices.

Speculating on the possible political consequences of the IMF
cure in solving the monetary crisis may not necessarily mean that
Indonesia should reject international assistance. The message of
this writing is to persuade the government not to forget the
sacrifices people will have to bear in accepting the IMF cure.
They have already suffered a lot in coping with the increasing
prices of basic needs due to the depreciation of the national
currency.

The writer is the director of the Parahyangan Center for
International Studies at the Parahyangan University in Bandung,
West Java. He holds a Ph.D. in social sciences from KU Leuven in
Belgium.