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.