Highly debatable are both the rationale used by the team of more than 30 economists to support their recommendation for abruptly ending Indonesia's reform program with the International Monetary Fund (IMF) and the policy measures they outline for achieving annual economic growth of 6 percent to 7 percent in the post-IMF program period.
The team of economists, headed by former chief economics minister Rizal Ramli, asserted last week that the IMF-supervised program, instead of helping to stimulate recovery, had driven the economy into an even deeper crisis because the reforms were based on a mistaken diagnosis of the economic woes.
The team believes that if Indonesia were unshackled from the IMF's tight oversight, or IMF policy-making colony, as many politicians perceive the program, the government could raise Rp 524 trillion (US$58 billion) in additional revenues between 2003 and 2005 for pump priming to raise annual growth to the pre-1997 crisis level of 6 percent to 7 percent.
Strangely though, the policy measures recommended by the team to achieve the robust-growth scenario are essentially the very reform programs that Indonesia has endeavored to execute under the IMF facility, with little progress since 1998.
The robust-growth projection, as the team elaborates in its post-IMF program, requires, as preconditions: effective, strong national leadership dedicated to the people's welfare and quicker realization of tax and civil service reform, institution-building, reduction in the stock of domestic debt, revision of the investment law, optimal use of public funds (minimizing wasteful spending), economic decentralization, debt renegotiations with major creditors and a conducive investment climate.
Just peruse the string of government reform agreements with the IMF and their attachments, known as the Supplementary Memorandum of Economic and Financial Policies, since early 1998, including the ones negotiated by Rizal Ramli, while he was the chief economics minister in 2001. You will find in the documents similar policy programs, clearly defined with matrices of target schedules.
The problem, though, is that many of the policy measures have been delayed. Worse still, the government has often backtracked on its reform commitments or reversed measures deemed to be politically or socially unfeasible. Things have also been complicated by the learning process in democracy and local autonomy.
Moreover, many of the measures, such as tax and civil service reform, institution-building and reduction of wasteful spending (inefficiency and corruption), are meant to be medium-term processes as they are impossible to achieve fully within one or two years.
The question, then, is how the end of IMF oversight could contribute to building a more effective and stronger national leadership and to accelerating the execution of the desired reform measures. Would President Megawati Soekarnoputri and her government benefit from an additional injection of stronger leadership or would the House of Representatives suddenly profess a higher sense of urgency and crisis in the absence of IMF supervision? After all, the IMF has neither obstructed nor prohibited the government from implementing the kind of reforms recommended by the economists.
True, as the economists asserted and many other international analysts have observed, the IMF made several major mistakes in 1997 and 1998 in its simultaneous handling of the economic crises in Thailand, Indonesia and South Korea.
Most notable of the misguided policies in Indonesia, which have been extensively discussed, were: too austere fiscal and monetary policies, which worsened the recession and set off mass rioting and social and political instability; the ill-timed closure of 16 banks in November 1997, with no prior establishment of blanket guarantees for bank deposits, which triggered massive runs on most other major banks; delayed restructuring of corporate debts, which crippled most businesses and worsened the banking crisis.
These mistakes, according to many analysts, made the Indonesian crisis more severe than it should have been and the recovery more drawn-out than it needed to be. But these mistakes would not have been so devastating if then president Soeharto had not so stubbornly resisted reforms, in order to defend the interests of his family members and cronies, and subsequent presidents had been able to deliver on their reform commitments.
Anyway, the IMF has now learnt its lessons. Analysts' complaints that the IMF programs imposed too many conditions that were beyond its core competence have been addressed. The IMF has streamlined and focused its conditions on policies that are critical to achieving macroeconomic objectives and has increasingly emphasized the importance of national ownership (national political consensus) of policy reforms.
The government now has more freedom and leeway in designing reform measures that it considers socially and politically feasible.
But then, in retrospect, the IMF should not be blamed entirely for its too-comprehensive reform (conditions) agenda that it imposed on Indonesia. In fact, it was the reformist ministers in the Cabinet who urged the IMF to include in its conditions, notably in 1997 to 1999, many reform measures against corruption, collusion and cronyism. The ministers wanted to use IMF leverage to pressure the government to do what they had long wanted to implement but had failed to achieve due to strong resistance from within the government.
It is now futile to continue recrimination and debate on who is right and wrong in handling the crisis. It is simply an accumulation of mistakes piled atop other mistakes by both the IMF and the Indonesian government, with each side's errors compounding the other's.
There is no benefit to be gained now by abruptly ending or dropping out of the program with the IMF. There is no other alternative for stimulating a sustainable recovery than implementing all the reforms agreed with the IMF, with or without IMF supervision. The government may, instead, unnecessarily risk losing market and creditor confidence.
Most importantly, the government should improve its policy-making credibility and reform-executing ability, to show to the market that it is capable of putting its own house in order without the need for international oversight.