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.