Indonesia and IMF Try Again to Save Marriage
The two have struck their third deal in six months to implement a $43 billion economic rescue package.
The Indonesian government and the International Monetary Fund are keeping it together after all.
Never mind Indonesia's flirtation with ways to revive its currency without the help of the IMF. Never mind the IMF's decision to withhold the disbursement of a $43 billion rescue package over worries that this government is unwilling to change the way it does business.
Yesterday the government and the fund renewed their commitments to each other and promised to do better this time. But like many couples, they go on because they must go on.
Indonesia has learned that working with the IMF is its only option, analysts say, and the fund seems to have no choice but to cooperate with the regime that led the country into crisis. The alternative is economic collapse in Indonesia, which would hurt many in this nation of 200 million people and harm the global economy.
"This package is doomed to succeed," says one Jakarta-based European diplomat. As his tone suggests, a sense of resignation accompanies the emergence of the third attempt in six months to spell out how the international community will help Indonesia and what the country will do in return.
Earlier versions, agreed upon in October and January, have only gone a short way in restoring international confidence in Indonesia. One measure of this confidence is the exchange rate - it still costs about three times as many Indonesian rupiah to buy one dollar as it did nine months ago. This devaluation is driving up inflation and unemployment and driving away foreign investors whose involvement is key to Indonesia's economy.
Monitoring the deal
Although the plan's details have not yet been released, pending a review by the Fund's board, an IMF statement said yesterday that the implementation of the deal would be monitored daily by a special Indonesian committee, in cooperation with the IMF and other agencies.
But as World Bank representative Dennis de Tray noted here the other day, the government faces a tough audience. "It's going to be a process of demonstrating to a skeptical country and a skeptical world that they are committed - day by day, week by week - to continue the hard work of implementation."
The government has made some progress in addressing what to do about the more than $70 billion that Indonesian banks and firms have borrowed overseas but now cannot repay. Officials said yesterday that the government was considering ways to help borrowers overcome the effects of the currency devaluation. Bailing out these companies and their bankers is controversial, since it saves those who presumably were aware that business entails risk, but economists argue that the country's economy cannot get back on track without resolving the debt burden.
Really really serious
Although Indonesia's President Suharto himself signed a letter of intent to the IMF on Jan. 15, officials here yesterday assured reporters that the government was really, really serious about this package.
"There is not any single commitment we are not going to undertake. All of them will be implemented," said Ginandjar Kartasasmita, the country's top economic minister.
The Washington-based IMF is the rescue squad of the global economy. Funded by the world's rich nations, it operates as a lender of last resort for countries in economic trouble.
Its programs to help some other countries battered by East Asia's economic crises, notably South Korea and Thailand, are already looking successful.
But the key to helping Asia's economies is restoring international confidence, something that political change helps to do. The Koreans and the Thais have chosen new leaders in the past five months, underscoring their commitment to economic renewal.
Indonesia seems to lack that option. President Suharto has ruled the country for 32 years and shows every sign of wanting to stick around to lead Indonesia out of crisis. At the same time, Indonesia's power structure is built on some less-than-sound economic policies, such as the politically strategic dispensation of cartels and monopolies.
But Mr. Kartasasmita says that apart from rice and soybeans, whose subsidized distribution the government says is necessary to ensure that Indonesians don't go hungry, all monopolies will be abolished.
Curiously, Suharto has named to his most recent Cabinet, installed last month, some of the close associates who have profited from government-sanctioned cartels.
Initially the Cabinet was criticized as a gang of cronies, but foreign officials have come to see them as a group that has the access and economic interests necessary to effect change. "There's a feeling that if anyone can carry it off, these guys can," says another Jakarta-based diplomat.
Changes are afoot in the collusive structure of the Indonesian economy, but the president seems firmly in control of this process. "Everyone wants to lean on Suharto; no one wants to offend him," the European official says.