> World Socialist Web Site http://www.wsws.org
>
> The IMF tightens the screws on Indonesia
>
> By Peter Symonds
> 22 April 2000
>
> Another International Monetary Fund (IMF) team arrives in Jakarta early
> next week to again put the Indonesian government and the economy under the
> spotlight. Having delayed the payment of $400 million in loans that were
> due in April, IMF officials will examine the extent to which ministers and
> officials have implemented the detailed economic prescriptions set out in a
> letter of intent signed in January.
>
> At stake is not only the immediate loan but also further disbursements as
> well as other financial arrangements. On April 13, after grilling a team of
> Indonesian officials led by coordinating economic minister Kwik Kian Gie,
> the Paris Club of creditors agreed to reschedule $5.8 billion in government
> loans, which had been due between 2000 and 2002. But the arrangement is
> conditional on Indonesia carrying out the IMF's dictates, in particular, to
> deal with private debtors and to press ahead with the sale of up to $80
> billion in assets acquired by the government as part of its bank rescue
> package.
>
> Without the agreement with the Paris Club, the government's budget plans
> would be thrown into disarray. Moreover, any adverse judgement by the IMF
> team would almost certainly further undermine the shaky Indonesian rupiah
> and the prospects of attracting international investors. This week the
> rupiah slid in value against the US dollar in response to the shocks on
> world stock markets and news that Standard & Poor's had cut Indonesia's
> credit ratings.
>
> The IMF's decision in late March to suspend payments produced alarm in
> Indonesia. President Abdurrahman Wahid publicly lashed out at his own
> ministers, particularly in the economic portfolios, banning all ministerial
> travel overseas. On April 1, he convened an emergency meeting of cabinet to
> discuss the means for speeding up the implementation of the IMF demands.
> The government offered to meet the IMF's requirements by April 30 but the
> IMF's representative in Indonesia John Dodsworth insisted on faster
> results. All measures were due to be in place yesterday.
>
> Wahid's panicky reaction underscores the knife edge on which his government
> is perched. Kwik noted at the time that the IMF had the government over a
> barrel. "The Paris Club, donor countries and the IMF know exactly our
> situation, we have no choice, we cannot pay," he said. Dependent on
> international
> loans and investment to prevent the Indonesian economy from going into
> financial freefall, the government is compelled to carry out the IMF's
> detailed measures according to a rigorous set of deadlines-all to be
> completed by the end of the year.
>
> But to implement these measures means to send a substantial number of
> Indonesian companies to the wall as well as slashing government spending
> and privatising state-owned enterprises. Not only does the government face
> resistance from sections of Indonesian business, particularly those
> companies most closely connected to the former military strongman Suharto,
> his family and cronies, but also from wide layers of workers, students and
> sections of the middle class who will be hit by job losses, higher prices
> and lack of social services.
>
> In comments last week in Jakarta, IMF representative Dodsworth made clear
> that the Wahid government had to press on with the agenda regardless of the
> impact. The key problem when it came to corporate restructuring, he
> complained, was that "debtors are looked on as victims" and courts were
> "somewhat kind" to companies facing bankruptcy. "There has to be the
> political will to say they are responsible, not victims," he told a
> seminar, adding that the present system lacked teeth to push indebted
> companies into restructuring.
>
> In the aftermath of the 1997-98 Asian financial crisis, the Indonesian
> government was compelled to set up the Indonesian Bank Restructuring Agency
> (IBRA) as part of its plans to prop up and recapitalise the country's
> financial and banking system. IBRA now has about $80 billion in assets
> seized from the owners of insolvent banks, which the IMF is demanding be
> sold off to the highest bidder or liquidated.
>
> At the same time, the IMF has been critical of the failure of the Wahid
> government and the courts to take action against so-called delinquent
> private debtors-companies which after the financial crisis simply stopped
> paying their international creditors. It is insisting that private
> companies, responsible
> between them for an estimated $70 billion in debt, be forced to reach an
> agreement with the foreign banks or be liquidated if they refuse.
>
> To enforce its demands, the IMF has put the Indonesian government on a
> short leash. Last year, it cut off funding to the previous Habibie
> government which had refused to make public details of an investigation
> into the so-called Bank Bali scandal-the siphoning off of about $80 million
> in funds by
> prominent figures close to Habibie. In order to restart IMF funding, the
> Wahid government signed a letter of intent in January. As a senior
> government economic adviser Dr Sri Mulyani Indrawati commented: "When the
> government signed the letter of intent with the IMF they had not realised
> the real burden of implementing it."
>
> The letter of intent is an extraordinary document setting out not only
> specific economic policies and targets for Indonesia but also the
> structures required to implement them and a precise timetable to be
> completed in the course of this year. For all intentional purposes, the
> IMF, backed by the US and other major powers, not the president and his
> economic ministers runs the country's policy. Under the banner of assisting
> economic recovery, the IMF is seeking to create the conditions for an
> influx of international investment to exploit the country's cheap labour
> and raw materials.
>
> The letter of intent lays out broad guidelines for the restructuring of the
> central bank, state banks and private banks, changes to the tax system, the
> devolution of financial powers to local and provincial government, budget
> policy, changes to the tax system, privatisation of state-owned enterprises
> and the
> restructuring of the oil, gas and electric power industries. The document
> foreshadows prices rises for petrol, gas and electricity and an end to
> subsidies and cheap credit to farmers. There are over 100 particular
> measures to be put in place this year ranging from changes to the tax
> policies in Free Trade Zones and the reduction of import tariffs on capital
> goods, to detailed prescriptions for IBRA's operations and specific plans
> for the restructuring and privatisation of state banks.
>
> When the IMF delayed its latest loan in late March, it claimed that the
> Indonesian government had failed to deliver on 42 items in the letter of
> intent. Over the last three weeks the focus of Wahid's attention has been
> to ensure that the IMF's conditions are met on time. Although not
> officially cited as an item to
> be implemented, it is clear that the US and IMF are demanding that action
> be taken to clear away the business networks established by Suharto, his
> family members, business cronies and military officers, which acted as an
> impediment to foreign investors.
>
> Over the past month Attorney General Marzuki Darusman has pressed ahead
> with attempts to interview Suharto over allegations of his misuse of funds
> from five charitable foundations to which all civil servants were compelled
> formerly to donate a portion of their salary. Suharto, like his Chilean
> counterpart General Pinochet, has claimed through his lawyers to be too
> sick to be interrogated. After Suharto failed to turn up for questioning in
> three separate occasions, a team of lawyers and doctors have attempted to
> interview him at his house. Darusman has also begun to question Suharto's
> children-the family as a whole is estimated to control businesses worth an
> estimated $15 billion.
>
> But the legal game of cat and mouse with the Suharto family is to a large
> extent a matter of show. Wahid, who has been seen in public with a rather
> fit-looking Suharto on two separate occasions, has already indicated that
> he is prepared to grant the ageing dictator a presidential pardon if the
> courts
> should convict him. Moreover, no legal action has been initiated against
> Suharto for the crimes of the murderous regime over which he presided for
> 32 years.
>
> Comments by Darusman make clear that the purpose behind prosecuting Suharto
> has nothing to do with justice but rather is to satisfy the international
> investors that the old system of payoffs and nepotism is being dismantled.
> "The settlement of the Suharto question, and the Bank Bali question, would
> go a long way to restoring confidence in the legal and financial system,
> which is the most crucial elements of turning around the economy," he said
> recently. Darusman is a senior figure in Golkar, the ruling party under
> Suharto.
>
> The Wahid government is also under pressure to change the country's
> commercial courts, which so far have frustrated attempts to liquidate
> bankrupt corporations. IBRA proposed assigning three "ad hoc" judges to the
> agency's three bankruptcy cases. Economic advisory team member Faisal Basri
> even
> went so far as suggesting that Indonesia hire foreign judges, possibly from
> the former colonial power, the Netherlands, to handle specific cases such
> as major bankruptcies. But neither proposal has been adopted despite a
> large backlog of bankruptcy cases in the courts. One of the few successes
> that the
> government can point to is the reinstatement of charges, dropped in a lower
> court, against one of the key suspects in the Bank Bali scandal.
>
> At the same time, Wahid faces far broader opposition from workers, farmers
> and the urban and rural poor over plans to cut or abolish government
> subsidies on fuel and food. Confronted with the prospect of large
> student-organised demonstrations in Jakarta, the government was forced to
> back down,
> temporarily at least, on plans to increase fuel prices by 10 percent on
> April 1.
>
> Wahid was no doubt mindful of the fact that Suharto's decision to press
> ahead with fuel price hikes in 1998 contributed to the widespread protests
> that finally forced Suharto to resign. But the decision has only
> temporarily postponed a confrontation. Co-ordinating economic minister Kwik
> noted at the time
> that the IMF did not object to the delay but then added: "If we still don't
> raise the fuel prices after three months, it will be fatal."
>
> Whatever the outcome of talks next week with the IMF team, the Indonesian
> government is in a precarious position. If the IMF decides to release the
> $400 million, it is little more than a short reprieve. An article last
> month in the British Economist magazine entitled "Still waiting for Wahid"
> indicates growing impatience in international financial circles with the
> lack of results.
>
> "The new government is safely buckled in," the Economist commented, "but it
> remains stuck on the runway. Abdurrahman Wahid has spent the first five
> months of his presidency trying to rally international support and to
> outfox his opponents in the armed forces and rival parties. He has so far
> been successful. But when will all this tactical manoeuvring lead to less
> violence and more confidence in the economy?"
>
> Wahid has little room to move. And as he implements the demands of
> international finance capital, his government is certain to face deepening
> opposition and a growing political crisis.