Saying No, Thank You to IMF loans

JAKARTA, Nov 26 (IPS) - When the Asian financial crisis struck a decade ago, savaging South-east Asian economies, including Indonesia, Jakarta turned to the International Monetary Fund (IMF) for help in getting the country back on its feet.

But now, as a global financial crisis -- triggered by the collapse of major United States banks -- looms, the mood here is different. Most noticeable is the cold shoulder given by Jakarta to the Fund’s offer of some two billion US dollars as a short-term lending facility to meet the growing pressure on the Indonesian economy.

It stems from lingering bitterness over the damage caused to this regional giant by the harsh prescriptions the IMF imposed in its rescue package for Indonesia, beginning in late 1997. President Susil Bambang Yudhoyono conveyed such a sentiment during the recent meeting in Washington D.C. of the leaders of the world’s biggest economies (the G-20).

Indonesia will ‘’not follow the IMF’s formula in coping with the global financial crisis,’’ the president was reported to have said, according to the local media. ‘’We still need to learn from that experience (of a decade ago).’’

It is a view echoed here by National Development Planning Minister Paskah Suzetta, who said, ‘’We will not use the IMF programme, because the problem of overcoming the crisis is not of the balance of payments but on the budget deficit,’’ according to Antara, the national news agency. ‘’The IMF earlier offered to give loans to developing countries, including Indonesia, five times higher than their earlier loans for three months.’’

Such reservations towards assistance from the IMF are deeply ingrained here because it became clear that ‘’with the IMF’s involvement 10 years ago the crisis plunged deeper than necessary,’’ says Rizal Ramli, former finance minister and currently a presidential candidate for next year’s election. ‘’Indonesians do not want to taste the same bitter pill again.’’

‘’The damage done was huge,’’ he observed during an interview. ‘’The economy declined from a seven-percent growth rate before the IMF stepped in to a minus 13 percent growth rate. It was an economic depression on a scale we had never experienced since independence (from the Dutch in 1945).’’

‘’Millions of people lost their jobs due to the 130 conditions covering various economic sectors that the IMF got the government to sign in order for Indonesia to get loans from the IMF,’’ Rizal added. ‘’It also recommended the closing of 16 banks without sufficient local preparation. That undermined the banking sector as people withdrew money from other banks and sent it abroad or kept it at home. There was a capital outflow of five billion U.S. dollars.’’

Similar sentiments were echoed by the ‘Jakarta Post’, an English-language daily, in a commentary last year to mark a decade since the Asian financial crisis. The IMF’s multi-billion dollar rescue package, ‘’with excessive policies,’’ exacerbated the problem, the paper argued. ‘’In Indonesia, the number of poor people jumped from 34 million in 1996 to almost 50 million in 1998.’’

But the country’s economic landscape is much more healthy now, giving it the confidence to be selective about who it wants to roll out the welcome mat for taking outside funds to endure the current global financial crisis. Indonesia’s foreign exchange reserves, for instance, are now at an impressive 51 billion dollars, far higher than it was during the ’97 crisis.

‘’The economy is not as vulnerable today as it was during the last crisis. And the attitude towards the IMF is a sign of confidence,’’ says Satish Mishra, managing director of the consulting firm Strategic Asia. ‘’Indonesia has gone through a systemic change over the past decade. The reforms in the judicial, political and financial sectors have been a phenomenal achievement.’’

The only worry is in the export sector, he told IPS. ‘’Export prices have come down and that will have an impact. But it is not dependent on U.S. demand because the trade pattern has shifted towards Asian markets.’’

The country’s major exporting partners are Japan, the U.S., Singapore, China, South Korea and Malaysia. Exports in 2007 were estimated to have reached 118 billion dollars.

Indonesia’s economic recovery since the ’97 crash also saw it rush to get the IMF off its back ahead of schedule. In 2004, it paid up the debts it owed the Washington-based international financial institution, which was five years ahead of schedule.

Indonesia, in fact, was one of the Fund’s four major borrowers in 2004. The other three were Turkey, Brazil and Argentina, of which only Turkey remains a client.

Such early payments to the IMF, and an emerging view in Asia that there are other sources of funding to draw from, given the region’s record of holding 3.5 trillion dollars in foreign reserves, have chipped away at the Fund’s relevance in international finance.

Indonesia has warmed to seeking foreign funds through bilateral or regional initiatives than going, cap in hand, to the Fund. The Chiang Mai Initiative is one, which enables countries in South-east Asia to benefit from a network where bilateral financial swaps are possible. This measure, to deal with short-term liquidity problems, was named after the northern Thai city where it was formally approved by the region’s finance ministers during a May 2000 meeting.

‘’Indonesia and other countries are smart to reject the IMF’s offers at this point. The G-20 meeting confirmed that, since the leaders didn’t place the IMF as a significant institution at the centre,’’ says Walden Bello, senior analyst at Focus on the Global South, a regional think tank. ‘’They have more choices now like the money China can offer or Asian foreign exchange reserves.’’

‘’This adds to the crisis of legitimacy that the Fund is facing,’’ Bello said in an interview. ‘’The IMF needs borrowers more than the borrowers need the IMF. This is to make it more relevant as a lender.’’

Copyright © 2008 IPS-Inter Press Service.