[stop-imf] Largest U.S. Investors Back Megawati, IMF Awaits Reforms (fwd)

[Robert Weissman]

Inter Press Service
July 30, 2001

INDONESIA: U.S. INVESTORS BACK MEGAWATI, IMF AWAITS REFORMS

By Tim Shorrock

WASHINGTON,

   The largest U.S. investors in Indonesia are taking steps to support the
new government of Megawati Sukarnoputri as it struggles to gain its
footing in the wake of last week's removal of Abdurrahman Wahid as
president.

   The U.S.-ASEAN Business Council will send a high-level delegation to
Indonesia this October and use its newly opened representative office in
Jakarta to monitor Indonesia's disposal of bankrupt assets and other
economic reforms critical to the country's future, said Walter Lohman,
director of the Council's U.S.-Indonesia Business Committee.

   The Council represents U.S. multinational corporations doing business
in Indonesia and other countries of the Association of Southeast Asian
Nations (ASEAN). Key members include General Electric, Freeport-McMoRan
Copper & Gold, Unocal, and Federal Express.

   Earlier this year, the Council formed a business tie-up with the
government-run Indonesian Bank Restructuring Agency (IBRA) to find U.S.
buyers for distressed Indonesian companies and banks. IBRA's former
director, Laksamana Sukardi, is a close confidante of Megawati and is
expected to win a high-level position in her new government.

   While some foreign investors are keeping a wait-and-see attitude
towards

the political developments in Indonesia, "our companies that have invested
there aren't leaving," Lohman told IPS. "In fact, some of them have had
very good years."

   Meanwhile, the International Monetary Fund (IMF), which declined to
finalize an agreement with the Wahid government in the days leading up to
his ousting, is apparently hoping to see the new administration implement
some of its recommended reforms before signing a new $ 5-billion loan for
Indonesia in August or September.

   "The IMF is telling us they'd been waiting to see concrete progress
before they signed" a new Letter of Intent that would spell out the
details for the loan, said a U.S. official who has been briefed by the
Fund on its talks with Indonesian authorities. "They've wanted to see it
implemented." The Indonesian government holds foreign debts worth more
than $ 67 billion.

   The IMF suspended its three-year program last year, saying that
Indonesia had failed to meet targets in its previous Letter of Intent. The
IMF has been pressuring the government to keep budget deficits to less
than four percent of gross domestic product (GDP), provide assurances that
its central bank will remain independent from the government, and speed
IBRA's sales of distressed assets.

   The pressure angered members of the previous government, including
Finance Minister Rizal Ramli, who told reporters that the latest Letter of
Intent was less detailed in scope than what the IMF wanted.

   The IMF's official stance, issued last week by Thomas Dawson, director
of external relations, is that the executive board will vote by September
on a

new Letter of Intent. At a news conference, Dawson noted that IMF
representatives spoke to Megawati during a recent visit to Jakarta, making
further meetings with her unnecessary.

   "There were a number of scenarios that were contemplated at the time of
the mission," Dawson said. The past week's developments were part of that
baseline scenario, he added, "so that the change in government itself need
not cause a mission to go there."

   Asked on July 27 to clarify when a mission might go to Jakarta, an IMF
spokesman said, "Not until the government settles down." After checking
with country specialists, the spokesman later added: "There's been no
decision yet on when the mission would go."

   He would not comment on the details of the Letter of Intent. The IMF
loan, once completed, will clear the way for further assistance to
Indonesia from the Paris Club of lenders, which includes the Japanese
government, the IMF, the World Bank, and the Asian Development Bank.

   These developments come as U.S. officials breathed a sigh of relief at
Wahid's arrival in the United States for medical treatment at Baltimore's
Johns Hopkins Hospital. The face-saving move allowed Wahid to leave the
country after making a desperate attempt to hold on to power and
reportedly was arranged by Paul Wolfowitz, the former U.S. ambassador to
Jakarta and currently Deputy Secretary of Defense in the Bush
administration.

   Wolfowitz, who directed Johns Hopkins' foreign studies center before
going into the Bush administration, has many years of involvement in
Indonesian politics and is known to be close to Megawati's husband,
businessman Taufik Kiemas.

   During their latest meetings in Indonesia, IMF and government officials
said very little in public, adding to an atmosphere of apprehension, said
Sylvia Tiwon, a University of California at Berkeley economist working
temporarily in Jakarta.

   "There was a strange disconnect between the political discourse on the
one hand and the economic discourse on the other," Tiwon told IPS. "Part
of the reason for this is the closed nature of the IMF negotiations."

   Tiwon said Megawati's stance toward the IMF and the international
business community won't become clear until she appoints her economic
team. While the daughter of former President Sukarno has identified
herself as a strong nationalist, "her stance on economic nationalism is
unclear at best," said Tiwon.

   Megawati's political party includes several economists who have been
critical of the IMF and World Bank approach to development. But, Tiwon
pointed out, Megawati was responsible for sending Emil Salim, a technocrat
under former President Suharto, to Washington to talk to the financial and
monetary establishment at a time when Ramli, the former economics
minister, was debating the IMF on the concept of central bank
independence.

   While the IMF delegation was in the country, 100 Indonesian legislators
issued a scathing statement about the IMF that asked the Fund to write off
the country's foreign debts.

   Citing the "macro-economic shocks in avalanche proportions" that hit
the country in the late 1990s, the lawmakers said: "The question as to who
should be made accountable for the whole disastrous situation needs to be
determined objectively and transparently. And it is our conviction that
ultimately IMF itself must bear the direct responsibility for misguiding
our monetary and economic authorities over the last three decades under
the authoritarian and repressive ex-President Suharto."

   U.S. companies that have done well in Indonesia despite the recent
turmoil, Lohman said, include Sun Microsystems and Cisco Systems in the
high-tech sector, and Unocal in the oil and gas industry. Conditions have
been so good for Unocal, in fact, that the California oil giant expects to
meet its goal, announced a few months ago, to increase its capital
spending in Indonesia to $ 200 million this year, double the amount it
committed in 2000.

   The U.S.-ASEAN Business Council's office in Jakarta opened earlier this
year with financial support from General Electric, Freeport-McMoRan and
Unocal. "The office has positioned the (U.S.-Indonesia Business) Committee
particularly well to immediately engage the new government," the Council
said in a statement.

   "We want to work with President Megawati to make the rest of the world
understand and invest in Indonesia's incredible potential," added Ernest
Z. Bower, the president of the Council.