By David Jenkins – So who is to blame for the mess in Indonesia, a nation that appears to be sliding inexorably towards political, social and economic chaos?
Can everything be laid at the feet of President Soeharto's New Order Government, in power for 32 years and widely criticised for fostering a climate of corruption and nepotism?
Or is the International Monetary Fund (IMF) also partly responsible? Has the IMF made matters worse by insisting on serious structural and institutional reforms when it should only have been holding out a helping hand and offering technical expertise?
In the view of most economic analysts, the fault clearly lies with Jakarta, although some will acknowledge that the IMF may have overstepped the mark and been insufficiently flexible.
Others argue that the IMF has asked Indonesia to do too much too soon and say that the country has had an unfair press.
Whatever the truth of the matter, the Reserve Bank of Australia believes the situation is so desperate that immediate pressure for structural reform has to be set aside in favour of emergency measures. The bank's deputy governor, Dr Stephen Grenville, said on Thursday that it was time to refocus the reform effort on the core economic issues – the exchange rate, foreign debt and rebuilding the financial sector.
While reform in the structural issues of governance was eminently desirable, "what is needed now is the kind of triage we see in an emergency room – sorting the life-saving critical priorities from longer-term issues", he said.
Indonesia's collapse has come with breathtaking suddenness. A year ago, its economy was rattling along at a fine clip. GDP growth in 1996 was just under 8 per cent and inflation was under control, at 6.6 per cent.
As the Australian National University's Asia Pacific Profiles 1997 noted, high growth was generating steady and substantial increases in average incomes. "A high level of capital inflow, predominantly driven by the private sector, demonstrates the attractiveness of Indonesia to foreign investors."
As it happened, that high level of capital inflow proved to be a curse, not a cause for celebration.
When Indonesia began to be affected by the "contagion" spreading from Thailand, there was a huge change in investor confidence. Investors who had been prepared to gamble heavily on the stability of a regime that was heavily dependent on one man and known for its cavalier attitudes to "governance" issues, making hay while the sun shone, suddenly took flight.
Most Indonesian companies are technically bankrupt, unable to service private debt of about $US74 billion ($111 billion). The country is facing hyperinflation. The banking system is close to collapse. There are fears of widespread unrest.
Indonesia's relationship with the IMF has come under increasing strain since October, when Jakarta called on the fund for help. In return for a $US18 billion bail-out package, Soeharto agreed to undertake significant microeconomic reforms.
The IMF package failed to stop the rot, partly because investment sentiment had soured, partly because the Government seemed to be dragging its feet on reforms that cut across the interests of Soeharto's family and friends.
On January 15, as Indonesia reeled from a renewed loss of confidence, representatives of the IMF and the Government agreed on a new rescue package, this one costed at $US40billion. Many of the conditions in the 50-point IMF Mark II were tougher than those in the earlier package; others were eased somewhat.
As part of the deal, Jakarta agreed to postpone expensive infrastructure projects, phase out monopolies, reduce fuel subsidies, overhaul the banking sector and reduce trade barriers.
That was not enough to restore market confidence for more than a few days. As many saw it, Soeharto was continuing to drag his feet on reform.
To make matters worse, the President shunned his Finance Minister, dismissed and humiliated his central bank governor and board of directors and made it plain that he wanted the high-spending Research Minister, Jusuf Habibie, as his new Vice-President, a move that caused the rupiah to plunge to 17,000 to the US dollar at one point.
This month, as the situation has continued to deteriorate, Indonesia has been engaged in an unseemly slanging match with the IMF.
According to Steve Hanke, an American economist who has been advising the President about the supposed benefits of pegging the rupiah to the dollar, a frustrated Soeharto believes "the current IMF program hasn't been a roaring success". That may be true. But whose fault is it?
Bijan Aghevli, a senior IMF official, says the blame for Indonesia's problems lies not with the fund but with "lack of confidence in the markets that the program is going to be put in place". In an interview with The Washington Post, Aghevli pointed to evidence that the President was hoping to go on subsidising industrial projects in which members of his family and crony businessmen hold large interests, citing the "national car" project backed by his youngest son, Tommy.
Others, while willing to concede that the Indonesians have shot themselves in the foot at every opportunity, argue that the IMF has pushed for too much reform, too quickly.
According to this view, the IMF made a number of mistakes, some purely technical, others more ideological or philosophical, involving an overly nosey interest in "governance" issues.
The fund first insisted, unwisely, on a 1 per cent budget surplus, an impossible hurdle for Jakarta to clear when the exchange rate was deteriorating so rapidly. That set the country up for an inevitable fall.
When the budget was brought down in early January, market expectations were dashed by unrealistic assumptions about the exchange rate and by a 33per cent increase in expenditure, an unavoidable outcome given the value of the rupiah.
Yet, say the critics, when Indonesia went on to produce an equally fictitious revised budget, based on an equally unrealistic exchange rate and providing for an even greater (45 per cent) increase in expenditure, the fund seemed perfectly happy.
Meanwhile, they say, the fund was continuing to insist on unrealistic structural reform.
"They were asked to do things that were clearly going to be just about impossible to do," said an expert on Indonesia's economy.
"The way it was announced by [the IMF's managing director, Michel] Camdessus was, in effect, "We will substantially sweep away all restrictions.' And he wasn't talking about foreign exchange as one area. He meant all restrictions. So, foreign investment? All gone! Monopolies? All gone! Marketing agencies? All gone!"
In Australian terms, this source said, that was the equivalent of the IMF coming in and saying we had to disband everything from the Australian Wheat Board, the NSW Grain Handling Authority (Graincorp) and the former Egg Marketing Board to the Potato Growers' Marketing Association and "zillions" of other similar bodies – in one or two months. "We couldn't do that in a month or three months," said this source, who noted that these bodies were not so harmful in Australia. "What Jakarta was asked to do was essentially dismantle the way business had been done in Indonesia for at least 30 years and perhaps even since independence."
It is true, the critics say, that Thailand and South Korea have been on the mend since they agreed to IMF-mandated reforms. But, they say, Seoul was not asked to disband the chaebols, or conglomerates, that dominate the South Korean economy.
It is also true, they add, that Soeharto should have done some of the things he promised to do in the January 15 statement. But, they contend, much of the blame can be shot home to IMF ineptitude and pushiness.
"What you have to say is that the Indonesians are screwing up at every turn," said an economist. "But in a way, my starting point is to say, "Well, of course the Indonesians are screwing up. That's why they are a developing country.'
"The IMF is meant to be there, not in a sense raising the hurdle all the time and seeing if they'll jump it. The IMF should be there taking their hand and gently shifting them towards better practice. And that's where I think the IMF has gone right off the rails."
That echoes the view of Martin Feldstein, Professor of Economics at Harvard University and president of the US National Bureau of Economic Research.
"The IMF's recent emphasis on imposing major structural and institutional reforms as opposed to focusing on balance-of-payments adjustments will have adverse consequences in both the short term and the more distant future," he writes in the latest issue of Foreign Affairs.
The IMF, he says, should stick with its traditional task of helping countries cope with a temporary shortage of foreign exchange.
According to Feldstein, the doyen of conservative US economists, the IMF should provide the technical advice and the limited financial assistance necessary to deal with a funding crisis and to place a country in a situation that makes a relapse unlikely.
"It should not use the opportunity to impose other economic changes that, however helpful they may be, are not necessary to deal with the balance-of-payments problem and are the proper responsibility of the country's own political system."