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The legacy of IMF and World Bank rule

Source
Green Left Weekly - May 31, 2000

Max Lane – The role of the International Monetary Fund in determining economic policy in Indonesia came under the spotlight after the 1997 economic crisis. In the wake of the crisis, the Suharto, Habibie and then the Wahid regimes surrendered virtually all sovereignty over government economic policy to the IMF.

However, the Washington-based international financial institutions dominated by the US and other imperialist governments have exercised great control over the Indonesian state's economic policies since 1966.

Throughout the 1950s and early 1960s, the Indonesian economy faced a crisis caused by the sudden drop in the world market price for natural rubber, at that time the country's main export. The US and the World Bank seized on this "opportunity" and lobbied the left-wing Sukarno government to receive a delegation from the World Bank. The delegation offered substantial loans to Indonesia conditional upon the implementation of severe austerity measures and the denationalisation of the previously foreign-owned sector the economy.

The World Bank package was rejected and President Sukarno confronted the US ambassador before a mass rally in Jakarta with the cry: "Go to hell with your aid!".

In September 1965, General Suharto led a military coup and in 1966 reversed all the nationalisation measures of the Sukarno government. In October 1966, he adopted a "stabilisation plan" formulated with the "assistance" of the IMF.

The IMF insisted on the abolition of all discrimination against foreign investment and all preferential treatment for the public sector. It also demanded the abolition of the system of controls on foreign exchange that had existed under Sukarno, as well as a limit on government expenditure of no more than 10% of national income.

As part of gaining the IMF's "assistance", Suharto introduced the Foreign Investment Law in 1967. This gave foreign investors a five-year tax holiday and an additional five years of tax discounts.

Control over the Suharto regime's economic policies was exercised by the IMF and the World Bank through the Intern-Governmental Group on Indonesia (IGGI). This body emerged out of discussions in 1966 among Indonesia's debtors. By 1967 it included the United States, Japan, West Germany, Britain, the Netherlands, Italy, France, Canada, and Australia, as well as the IMF and the World Bank.

Each year, the World Bank prepared a "Report on Indonesia's Recent Performance" which was discussed at an IGGI meeting where representatives of the Indonesian government were also present. A few months after that examination, a second IGGI meeting would be held to assess how much "aid" (i.e. loans) would be provided to Indonesia.

Between 1967 and 1997, all the governments and institutions involved in the IGGI declared that the Suharto dictatorship had created a "miracle economy". This illusion was shattered by the massive economic crisis of 1997. The horrible vulnerability of the Indonesian economy to this crisis was a direct result of 30 years of IMF and World Bank control.

During this whole period, the IMF and World Bank ensured that the Indonesian economy was as open as possible to the dictates of the Western and domestic financiers, with more and more deregulation and privatisation. The only "market distortion" that the IMF and World Bank weren't able to vanquish was the Suharto regime's enrichment of the "first family" and its cronies.

At the same time, the whole economy was built up as fundamentally export-oriented with little investment in developing production to meet the needs of the Indonesian people.

When it became clear to the Western investors that, in a world capitalist economy addled with structural overproduction (overcapacity), the "Asian tigers" could not sustain their previous high levels of export growth, they pulled their money out, precipitating the 1997 Asian economic crisis.

Indonesia was the hardest hit by the 1997 crisis, which has thrown tens of millions of people below the poverty line. But what policy solution has been imposed on Indonesia by its economic masters in Washington? Cutbacks in government social spending, deregulation of economic activity and privatisation of the public sector.

That is, more of the same "remedies" that helped lead to the economy's collapse in 1997-98.

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