Crisis worsens as IMF delays bailout money

Andreas Harsono

The West Australian, March 9,1998

THE International Monetary Fund’s decision to delay $4.5 billion rescue money to indonesia would plunge the country into deeper economic trouble, economists have warned.

Some hoped it would cause President Suharto to step down but Mr. Suharto, 76, formally agreed yesterday to be nominated tomorrow for a seventh five-years term in charge of crisis torn Indonesia.

Mr. Suharto was quoted as saying the IMF aid package was not suitable for the Indonesian economy.

“The IMF package will impose a liberal economy, which is not in line with Article 33 (of the Indonesian constitution),” he was quoted as saying at a meeting with a political delegation seeking his renomination.

The decision to delay crucial funds for Indonesian could undermine financial guarantees from the country’s trading partners and halt key manufacturing processes. 

The Group of Seven industrialised countries and Australia, the Netherlands and Singapore said they would follow through with credit guarantee promise only if the IMF approved of the way Indonesia carried out reforms. 

Indonesia’s present crisis, triggered by the rapid decline of the rupiah currency against the dollar, has crippled production in many industries which depend on imported raw materials.

“Some of the manufacturing activities have already stopped. In the short term, there is an urgent need to keep the remaining production lines running to prevent the crisis from worsening," said Mulyani Indrawati, an economist at the University of Indonesia. 

She said the central Bank Indonesia did not have an adequate security blanket to cover import essential for Indonesia’s manufacturing sector. 

The IMF said at the weekend that it’s second instalment of its $60 billion rescue, schedule for next Sunday, would not take place before April because of Mr. Suharto’s failure to comply with the term set by the IMF.

Banking consultant Laksamana Sukardi said he hoped Mr. Suharto would adhere to the IMF agreement, “If the IMF is to pull out of Indonesia, we’re heading to a doomsday scenario,” he said.

A manager of an electronics firm joint venture with US firm Hewlett Packard told the The West Australian that buying sprees and a rush to buy the US dollar were likely spread.

But another middle ranking manager of a non-government organisation said, “It’s better if the IMF is to pull out of Indonesia so Suharto is to step down. The sooner the better.”  

Hopes that Mr. Suharto would toe the IMF line and evert the payout delay faded as Indonesia’s ruling Golkar party blocked references to the economic crisis in draft guidelines setting out government development policy for the next five years.

Legislators said at the week and that Golkar members successfully blocked mention of the turmoil, in the draft guidelines discussed in a series of closed-door sessions of the 1000-member People’s Consultative Assembly last week.

“If (the guideline document) is actually not realistic,” said Jusuf Syakir, faction head of the opposition Islamic oriented United Development Party, one of the three political parties permitted by Indonesia. Calls by the Christian-nationalist Indonesian Democratic Party for changes in the draft to reflect the depth for the country’s economic crisis fell on deaf ears.

Demonstrations continued for the sixth straight day on Saturday. Unemployment, inflation and fears of food shortages have been behind the unrest. 

“We reject the President’s speech,” read a banner at a demonstration in Bandung where 1,000 students criticised Mr. Suharto’s March 1 speech accounting for his last five years in office. Thousands of students at campus rallies around the country have kept up pressure on Mr. Suharto to introduce immediate reform.