Turning to IMF is both right and a right

Turning to IMF is both right and a right

Before the government announced its decision to turn to the
International Monetary Fund for help, economist Kwik Kian Gie had
already made the same suggestion in an article in this newspaper.
In the following discourse, Kwik comments on the government's
move and the strong reactions it has provoked.

Question: Some commentators are wary that the IMF will be
dictating to the Indonesian government. What is your comment?

Kwik Kian Gie: We have to distinguish between dictating and
giving rational advice. Indonesia has almost always accepted
advice given by the World Bank each time it asks for new loans.
It is also continuously receiving advice from the Harvard
Advisory Group. Why should anyone object to the IMF when we have
a monetary crisis which could lead to an economic recession?

Q: Some commentators also say that accepting the IMF terms means
losing our sovereignty...

A: Indonesia is a fee-paying member with an obligation to help
other members in difficulties. In spite of its own problems,
Indonesia helped Thailand with a US$500,000 loan.

If Indonesia is refusing to use its right to an IMF assistance
because it does not want to be dictated to, then it will be
better off quitting the IMF. That way, Indonesia won't have to
pay any fee and isn't obliged to assist other members.

Q: What about their objections to tough IMF terms?

A: The same commentators have been calling for thorough reforms.
It is now clear that we could not do these ourselves. We should
be glad if the IMF insisted on those reforms.

If the government is willing to swallow the IMF's pills after
ignoring the same recommendations from its own people, that will
certainly hurt. It shows that our leaders are submissive only to
foreign parties. But the bigger interest now is to resolve the
crisis, because if we don't, an economic recession is sure to
follow which will harm the welfare of our people.

Q: Can the IMF help restore monetary stability?

A: That depends on whether the IMF knows the true condition of
the economy, including how severe the debts are for big
corporations who cannot repay their offshore loans.

The IMF will possibly only look at the sound financial reports
of companies prepared by reputable public accountants. If that's
the way it works, then it cannot help much.

Will the IMF be content with formal truths or will it go after
material truth and insist on investigative auditing?

Will the IMF be told about companies with loan problems, their
creditors and how much they owe? Is the IMF's definition of
problem loans as loose as that used by Bank Indonesia? If it
turns out that companies with large problem loans are owned by
people close to the power elite, will the IMF insist on
disclosure?

Will the IMF be informed of the true condition of banks in
Indonesia? If it learns that many banks have been sustained only
by Bank Indonesia's intervention, what will it do?

Will the IMF have the courage to reschedule projects which in
its view are not urgent but which the government regards as
priorities -- such as the national car project and the IPTN?

Q: Some people say that the final conditions would be negotiated
between the IMF and the Indonesian government...

A: If that's the way the IMF works, then it should stay out of
Indonesia. Not only would its credibility be destroyed because
its aid would not be effective, but, by playing politics, the IMF
would be sinning against the Indonesian people. It would be no
different from the actions of many of Indonesia's elite. While
the elite put position above anything else, the IMF would be
putting its sympathy for the Indonesian government, and possibly
the interest and profit it earns, above anything else.

Q: President Soeharto, through Minister/State Secretary
Moerdiono, has called on private companies with offshore debts
not to rush in buying dollars, saying they should buy when their
debts fall due, at whatever rupiah exchange rate of the time...

A: In the absence of any detail, this call is unrealistic. Who in
their right mind will refrain from buying dollars if they feel
that the rupiah is going to fall?

What President Soeharto has in mind is for Bank Indonesia to
introduce an instrument allowing these companies to line up in
buying dollars in accordance with their debt repayment schedule.
If there hasn't been any follow-up measures, it is not that the
President was being unrealistic, but that Bank Indonesia is not
innovative enough.

Q: Can you think of any appropriate instrument for this?

A: Bank Indonesia can offer debtors to buy options with premiums
lower than the market rate. To qualify for this facility, these
companies will have to furnish details of their debts, the total
amounts and the repayment schedule. These options cannot be
traded and are nontransferrable.

Without having to buy dollars now, these companies would know
exactly how much their rupiah obligations were when the time to
repay their debts came. Given this certainty, a debtor would wait
until that time arrived. If the market rate was higher than the
option rate, he could exercise his option. If the market rate was
lower, he would buy in the spot market. This, I think, fits with
what the President has in mind.