[stop-imf] Financial Times: IMF Spurs Indonesian Reform (fwd)

[Robert Weissman]

Financial Times
April 10, 2000

IMF spurs Indonesian reform

By Diarmid O'Sullivan

Bulldozers are at work on Jakarta building sites after two years of
standing idle.

The malls of the Indonesian capital are full of shoppers and the traffic
jams are back.

With growth expected to surpass four per cent this year, an observer might
be forgiven for thinking that Asia's worst-hit economy is now on the mend.

But the IMF has held up its plans to disburse a $400m loan to Indonesia
this month. The reason was that Jakarta had fallen badly short of the
economic reform targets which it agreed in January.

The IMF warned that lack of real structural reform could undermine the
current growth spurt.

The banking sector is still weak, a pile of corporate bad debts remains
unrestructured and the court system is so corrupt that one government
adviser has suggested bringing in foreign judges to hear bankruptcy cases.
The suggestion was turned down.

Galvanised into action, ministers rushed through some key measures and
promised to implement others by April 21.

Areas covered include the restructuring of state banks and reform of the
Jakarta Initiative Task Force (JITF), a mediation agency which has failed
in the past to speed up restructuring talks between corporate debtors and
their lenders.

The IMF has said the loan could now be paid out in May.

"What the IMF has done is issue a wake-up call," said Emil Salim, a senior
economic adviser to President Abdurrahman Wahid.

Indonesia will also go ahead with plans to ask Paris Club official
creditors for a rescheduling of $2.1bn in sovereign debt.

A Paris Club meeting will start as planned on Wednesday, though diplomats
expect any agreement to be conditional on Jakarta winning back the IMF's
approval. "The negotiations will be quite strenuous. I wouldn't like to be
on the Indonesian delegation because it won't be much fun," said a western
diplomat.

Analysts said the last few days had shown Jakarta could push through
reforms if it wanted to. "People have worked very hard and in good faith
in the last 10 days," said a source at a multilateral institution.

But critics are asking why so little was done until the IMF threatened to
hold up its loans.

Much of the blame is being directed at the team of ministers in charge of
the economy. The team is headed by Kwik Kian Gie, the Co-ordinating
Minister for the Economy. Other members include Bambang Sudibyo, the
finance minister, and Laksamana Sukardi, the minister for investment.

None has been in government before and some are said to resent what they
see as meddling by the IMF and the World Bank.

"There's also a kind of complacency because the last quarter [of growth]
was very good. All this in combination created a sense that there was no
urgency," said Mr Salim.

The fragmented nature of Mr Wahid's government is also a problem. To get
himself elected, he had to offer cabinet seats to all of Indonesia's main
political parties.

Mr Kwik and Mr Sukardi, for example, belong to the nationalist party of
vice-president Megawati Sukarnoputri, while Mr Sudibyo is linked with a
rival Muslim grouping led by Amien Rais, the parliament speaker. These
political rivalries are thought to feed into economic policy. For example,
Mr Sukardi and Mr Sudibyo are said to have tussled for control of
state-owned banks, which were used in the past as sources of political
patronage. Mr Subibyo won that battle, but has lost others.

Rumours have resurfaced in Jakarta that Mr Wahid, who has long wanted to
purge his cabinet, may now be planning to get rid of some of the economic
team.

"This hue and cry by the IMF has presented him with a golden opportunity
to do so," said H.S.Dillon, another presidential adviser.

Mr Wahid may wait until after parliament votes on his record in August, to
avoid a backlash from parties which lose out in a reshuffle.

Now that Mr Wahid has turned his attention to the economy, foreign lenders
will be hoping that reform moves forward at a faster pace.

There is still a risk, advisers said, that government officials will be
tempted to carry out the letter of reforms but subvert the spirit for
political reasons.

A big battleground will be appointments to key posts in the government and
state-owned companies, where vested interests are keen to preserve their
influence and parties want to build up their sources of patronage ahead of
the 2004 elections.

"We cannot deny that there is a political interest [in appointments], both
at the ministerial and the presidential level," said Sri Mulyani
Indrawati, an economist who works with Mr Salim.

Her fellow advisers had just sent a memo to the president asking that
public appointments be made only on professional grounds.

"We have to remind the government not to repeat old mistakes," she said.