THE ROLE OF THE IMF IN THE CRISIS

Oleh : J. Soedradjad Djiwandono
Gurubesar tetap Ilmu Ekonomi, Universitas Indonesia


INTRODUCTION

Issues and challenges facing President Megawati's government in the first 100 days of her tenure, with respect to its dealing with the International Monetary Fund (the Fund) originate from the previous governments. Evaluation on the current state of affairs of the working arrangement between the government and the Fund should include the beginning of its involvement in the Indonesia's effort to address the crisis as stated in the Fund-supporter programs under a stand-by arrangements (SBA).

Prior to the 1997 crisis, the Fund involvement through Fund-supported program for Indonesia was occasioned by balance of payments' problems experienced by Indonesia in late 1960's and early 1970's. After that, for more than two decades Indonesia had been enjoying a very good working relation with the Fund without ever going to ask for receiving stand-by loans1.

Faced with the financial shock that struck Indonesia in early July 1997, the government of Indonesia initially resorted to the current policy available, namely foreign exchange policy in the framework of a managed floating system with a crawling band, supported by fiscal, monetary and other discretionary policies.

However, due to the slipping market confidence in the banking sector and the macroeconomic management, the Soeharto government decided to ask for help from the Fund by requesting to resort to its facility. In October 1997 the government of Indonesia signed the first letter of intent, which was approved by the Board of Executive Directors in November 4, 1997. This arrangement triggered an active involvement of the Fund in the adjustment programs that the Indonesian governments adopted to address the financial and economic crisis.

This paper attempts to describe the nature of the Fund involvement in the Indonesia's efforts for resolving the financial and economic crisis facing the nation, its development as well as its likely prospect in the near future. It also gives an assessment on why certain steps were taken and otherwise. This is hopefully give some lights on what could be learned by both the government and the Fund for serving better, the efforts to resolve the crisis and to pave the way for recovery and beyond.

THE FUND'S ROLE IN THE CRISIS

A member country entitles to acquire a Fund facility in the form of temporarily using funds held by the institution. To do this the member country has to submit a proposal for using the requested sum of fund in the form of a letter of intent (LoI). The proposal contains the requested amount of the fund, accompanied with a detailed program for resolving the imbalances facing the national economy, the balance of payments in particular.

A letter of intent including the document that is called Memorandum of Economic and Financial Policies (MEFP) contains variety of programs that the government commits to implement in specified times. These programs are proposed to support a request for utilizing a stipulated Fund facility, generally in the form of a sum of stand-by loan for balance of payments support. An adjustment program to address the imbalances in the balance of payments that has to be agreed upon by the two parties becomes what is usually called as a Fund-supported program. This program is to be implemented by the country entering an agreement with the Fund into a stand-by arrangement (SBA).

The document is submitted to the Managing Director of the Fund, who in turn submits it to the Board of Executive Directors for approval. Basically, the program comprises of monetary and fiscal policy adjustments and other adjustment policies to address imbalances that the receiving country encounters.

From October 1997 to the present a total of 16 letters of intent (LoI) had been agreed upon by the Fund. They include 3 from the Soeharto government, 8 from Habibie, 4 from Abdulrachman Wahid and 1 from Megawati. At the time of rewriting this paper, the government is negotiating with the Fund for a new LoI. The total funds involved in the program amount to SDR 11.8 billion (around USD 14.95 billion), with SDR 2.75 billion in Stand-by loan (SBC) and SDR 9 billion in Extended Fund Facility (EFF)2. So far, the total withdrawals amount to a little over USD 10 billion.

The program also includes variety of quantitative and qualitative requirements, which constitutes what is technically called conditionality. The Fund conditionality is basically a set of requirements that has to be fulfilled by the member country entering an agreement with the Fund to use its facilities or to receive some loan from the Fund. Since utilizing Fund facility is done via withdrawals on stages, the member country has to demonstrate its compliance to the Fund conditionality for the initial withdrawal as well as every other withdrawal within the duration of the arrangement.

Conditionality comprises of varieties of performance criteria, structural benchmarks and program reviews. It also includes steps to be taken by the receiving country prior to the approval of the arrangement by the Fund's Executive Board, which is called 'prior action'.

Due to the complex nature of the crisis, different adjustment policies are introduced in the Indonesia's Fund-supported program in addition to the common feature of the Fund program for macro stability. They are in the form of comprehensive financial restructuring, economic reforms in the real sectors, institution building, plus measure to improve government and corporate governance and increase transparency.

Conditionality in Fund-Supported Programs serves as a link between the approval and continuation of the Fund's financing and the implementation of specified elements of economic policy by the country receiving the financing3. The requirements that have to be fulfilled by the receiving country are viewed as safeguards by the Fund, that the use of the facility would achieve the objective, and that the funds that go with it would be guaranteed to be returned.

So, for the receiving country the conditionality provides a guarantee that some fund is made available, provided that certain requirements are fulfilled. While for the Fund it is some kind of guarantee that the objective of the facility is achieved and that the fund being loaned is repaid.

WORKING WITH THE FUND

Confronted with the financial panic in July 1997 a series of adjustment steps were taken by the government of Indonesia. The initial policy response to the currency problem, in a system of managed floating with crawling band, was an immediate step to widen the central bank's intervention band in the foreign exchange market. This decision was made on July 11, 1997, the same day the Philippine peso was floated. The Thai's baht was already floated a week before

The managed floating with crawling band was in general an effective technique to maintain the stability of rupiah in the face of increasing capital inflows that also experienced market disturbances. The rupiah was stable for some period after the last devaluation of September 1986.

Bank Indonesia widened the intervention band six times between 1994 to July 1997, with the aim of facilitating dollar inter - bank market while withdrawing itself from domestic foreign exchange market. At least on two occasions, the Indonesian dollar market was experiencing disturbance, which was immediately put to rest by the central bank. The two occasions happened in January 1995, which was caused by the Mexican peso crisis, and in July 1996, occasioned by a wild riot in Jakarta following the ransacking of the headquarter of Megawati's Nationalist Party (PDI-P).

Prior to July 1997, every time Bank Indonesia widened the intervention band, the rupiah was appreciated. In fact, the dollar exchange rate in the spot market closely followed the lower band, which was the buying rate of Bank Indonesia.

In contrast, a completely different market reaction arose in the financial panic of July 1997. When Bank Indonesia widen the intervention band in July 1997, the rupiah depreciated instead. Worse still, the spot rate of the dollar not only broke the mid-rate, but also the upper band or the selling rate of Bank Indonesia. The latter prompted Bank Indonesia toint ervene the market, first by selling dollar forward, and later, in the spot market.

The rupiah drastic depreciation continued despite the government concerted efforts to strengthen it through a combination of both fiscal and monetary steps. The banking sector started to experience distress in the face of some bank runs and large amount of dollar purchase. With recent decision by neighboring governments to float their currencies, by this time rupiah became the only currency not being floated in the region. The rupiah under the current system of managed floating with crawling band became vulnerable. Facing the precarious environment and to reduce the danger of fast depletion of foreign exchange reserves held by Bank Indonesia, the government took a decision to float rupiah freely on August 14, 1997. Since that date, Indonesia adheres to a free-floating exchange system.

Realizing the fact that the problem had spread to the banking sector, in early September 1997 the government launched a broad economic policy initiative, which encompassed not just monetary and fiscal measures, but also liberalization in the trade and other sectors. This was a precursor of a Fund-supported program. The efforts did not help, rupiah kept under heavy pressure and depreciating. The market experienced shortage of liquidity, partly due to the government own policy to tighten the monetary stance for defending rupiah. The banking sector felt the crunch as the number of banks violating mandatory reserve requirement was rising. Some banks were even started to experience a negative balance in their relation with the central bank. In fact, some sign of banking in distress was beginning to surface.

Ultimately the government of Indonesia decided to invite the Fund in October 1997. The IMF-supported program was initiated with the first Letter of Intent that was submitted to the Fund on October 31, and was approved November 4, 1997.

The Fund-supported program comprised of the followings:

  • a package of policies for economic reform in the real sector, including enhancement of transparency and governance,
  • a strategy for comprehensive financial restructuring that included closure of insolvent banks, and
  • a strong macroeconomic policy for balance of payments stability in the form of prudent monetary and fiscal policy.
For a short period, the initial implementation of the program commanded a positive response from the market. The closing of 16 insolvent banks and joint intervention in the currency market by Bank Indonesia with the Monetary Authority of Singapore and the Bank of Japan, were welcomed by the market and resulted in strengthening the rupiah from 3900 rupiah to 3200 rupiah to the dollar.

However, the domestic reaction on the closing of banks was the reverse of what was originally expected. In fact, market confidence on the banking sector was collapsing. Bank run was rampant, and many banks loss their deposits. The banking sector suffered from a 'flight to safety and to quality'.

In the process, many banks lost their deposit base, while inter bank money market suffered from compartmentalization. To make matters worse, since January 1998, letters of credit issued by Indonesian banks were not honored by their counterparts abroad. The confidence problem was spreading to include three areas; namely, the rupiah exchange rate, which was weakening dramatically against the dollar, the banking sector, which was losing its deposit base and creditors, and the business sector that was unable to repay foreign debts.

After some flip-flop implementation of the IMF-supported program with a record four letters of intent in seven months, coupled with social unrest spearheaded by continuous students' demonstrations, the confidence problem extended to include socio-political problems, and ultimately the national leadership4.

Under Soeharto government, the market started to doubt the sincerity of the program implementation. A simple illustration is on the bank closure in November 1997. The foreign market was in the beginning strongly endorsed the decision for closing 16 insolvent banks, which also included three banks partly owned by the Soeharto family. However, when the monetary authorities allowed Soeharto son and former owner of one of the closed banks to acquire a new bank, the market began to raise doubt and the reacted negatively.

Domestically, the closing of banks was badly received. Amidst a condition that was lacking in transparency, there were rumors that there were many more problem banks than the 16 that were liquidated. If even banks partly owned by people closed to the center of power were closed, what about other banks. As a result, there was public perception that a second wave of bank closure was eminent and further loss of confidence in the banking sector followed. This had basically transformed the banking sector from a state of distress into a crisis when market confidence was almost completely lost.

It was indeed ironic that closing insolvent banks, a decision that was designed to bring back confidence to the banking sector, had resulted in the collapse of confidence instead. In fact, the bank closure had plunged the banking sector into chaos. Banking sector, which was already suffering from distress, was turned into crisis.

The negative reaction to the implementation of the reform program was more pronounced when a reversal was announced of some decisions to postpone big government projects. At about the same time there was a reappearance of monopoly practices and some other inconsistencies in the implementation of the program for restructuring the real sector.

This was how market confidence to the government's seriousness on the program for economic restructuring rapidly evaporated. As a result, the rupiah downward slide was not just difficult to stop, but the economic crisis was rapidly shifting into a total crisis in a downward spiraling process. And President Soeharto had to pay dearly for not addressing the problem head-on by resigning in humiliation on May 21, 1998.

Problems in the banking sector become more winding that extend to the present. In November and December 1997, bank runs were rampant while inter-bank money market was segmented. The banking sector was collapsing.

Confronted with the possibility of total collapse, the government reiterated its policy for not closing banks further. Acting on this policy and playing its function as the lender of last resort, Bank Indonesia assisted banks in need of funds with liquidity supports. A step that later become controversial.

Bank Indonesia maintains its contention that the liquidity support to the banking sector was done to save the banking sector and the payment system from collapsing. It was done in its capacity of the lender of last resort, and based on the government policy for not liquidating banks further. However, because of some bank scandals that added complication to the issues, the problems of liquidity support to the banking sector became a complex political issue that remains contentious.

A program that also raised debates in the aftermath of the crisis has been the full guarantee given by the government to both the national banks assets and liabilities. The scheme was introduced on January 27 1998 as a salvaging step to avoid total bank collapse on the advice of the Fund. It basically gives provision for fully guaranteeing deposit and saving accounts with the national banks participating in the scheme, as well as their creditors. This scheme is known as blanket guarantee. It is a scheme that at some point during the crisis was adopted by all three Asian crisis countries adopting a Fund-supported program - Thailand, Korea, and Indonesia - as well as Malaysia5.

Another issue that on a later date raised some public debate was the problems and policies with respect to corporate debts. That unsustainable corporate debts is identified as one of the major causes or complicating factors of the Asian crisis seems to be well accepted. For Indonesia, the fact that some scheme for the resolution of corporate debts was not included in the early agreement of the Fund-supported program is curious.

MACROECONOMIC ADJUSTMENTS

As stated in the Fund - supported program for economic reform, essentially the program comprised of economic restructuring of the real sectors, and financial restructuring, complemented by prudent fiscal and monetary policy. This was then extended to include steps to address problems related to subsidies for the social safety- nets and private sector debt overhang. The real sector reforms, including privatization, were aimed at reducing inefficiencies in the economy, uprooting monopolistic and oligopolistic practices, increasing transparency and abolishing corruption.

Many studies have clearly shown the close link between the soundness of the banking system, which is the subject of microeconomic analyses, and monetary policy, which belongs to macroeconomics. Neither effective monetary policy for stability, nor well managed macroeconomic policy for achieving growth and stability, can be sustainable without the existence of a sound banking system. In this respect, Manuel Guitian argued that banking soundness should be treated as an objective for monetary policy, together with price - and exchange rate - stability6.

In the meantime it has been documented that since 1980 up until just before the Asian crisis broke out in July 1997, over 130 countries had experienced banking problems, either significant banking problems or banking distress and banking crises. It also appears to be a fact that more problems had been observed in the latter part of this period, and that both the nature and the intensity of the problems as well as their ramifications had been increasingly severe7. This seems to indicate that, despite increasing awareness about the close link between the micro and macro aspects of monetary policy, over time more countries have been experiencing banking problems and the problems are becoming more serious while their impacts are worsening.

The above development has contributed to the many studies conducted and resolutions and policy proposals made to cope with the problems8. The latter came notably from the G-7 communiqué after the Lyon Summit in June 1996 and the Interim Committee's Declaration, Partnership for Sustainable Growth, in September 1996.

It may be important to reiterate that; "an appropriate macroeconomic policy stance is unlikely to be sufficient to maintain balance in the economy unless it is supported by sound underlying microeconomic conditions". This is true on the fiscal front as well as in the area of monetary policy, be it in exchange rate management, external debt-management, or in the area of monetary policy and banking soundness9. The need for higher tax ratio in the budget is well understood. But, this also implies micro problem of increasing efficiency of tax administration.

The macro-micro inter- relation has been somewhat overlooked, even though it seems to be obvious. The macro problem of exchange rate management has micro implication in the form of its impact on export competitiveness. Recourse of foreign debt that could produce positive impact on domestic demand has a micro implication of how to utilize foreign saving efficiently. And, especially after the Asian crisis, it is widely accepted that the effectiveness of monetary policy is also determined by the soundness of the banking sector.

These propositions have been recognized and widely accepted. They have developed from past experiences in many Latin American countries in the early eighties, savings and loans associations' problems in the United States, exchange rates problems in Europe with the Exchange Rate Mechanisms (ERM) experiment, the Mexican crisis, and several others10.

In this respect, it is a bit of an irony that Managing Director Camdessus, in his closing speech of the International Monetary Fund (IMF) seminar on central banking at the beginning of 1997 said that "Last year I said that I suspected the next international economic crisis would begin with a banking crisis or almost certainly be compounded by one. Let us hope that all of our efforts to increase the awareness of financial sector problems and to seek solutions to them will lead to serious reforms - both nationally and internationally - that promotes sound banking and market discipline. Through these efforts, including events such as this seminar, we can substantially reduce the possibility of my suspicions becoming reality11." It turned out that the Asian crisis was already in the making then.

BANKING RESTRUCTURING

It has been conjectured that banking soundness is vital for a sustainable macro-economic management of a national economy. Despite the continuous competition from other financial intermediaries as a result of the globalization process, the banking sector still plays a dominant role in a national economy, particularly in developing countries. The condition of the banking sector generally reflects the status of the financial sector as a whole. Thus there is the over-riding concern over bank soundness.

According to the IMF Executive Board, efforts to strengthen the banking system should be guided by the following principles:12

  • the soundness of a bank is first and foremost the responsibility of its owners and managers; yet the soundness of a banking system is a public policy concern;
  • bank soundness is crucially linked to sound macroeconomic policies;
  • a framework for sound banking must include structures to support internal governance and market discipline, as well as official regulation and supervision; and
  • international cooperation and coordination can play an important role, not only in strengthening the global financial system, but also in improving the soundness of the national banking system.
Let me summarize how banking restructuring was conducted in Indonesia with a view to the principles mentioned before. Before the current banking crisis, the most recent experience of dealing with problematic banks was the closure of Bank Summa, a sizable bank, at the end of 1992. A significant number of banks, including most state banks, were faced with serious non-performing loans, partly due to the drastic monetary policy implemented during 1991-1992 to halt the overheating of the economy. The IMF classified the condition of Indonesian banks then as experiencing significant problems. The closure of Bank Summa was a distressing experience since it took a long time to be resolved. However, in the course of time, conditions improved as shown by the national average of non-performing loans, which declined from 25 per cent of total lending in 1993 to 12 per cent in 199513.

The banking crisis was preceded by a short period of distress when, due to a process of erosion of confidence, banks lost their deposit bases. In addition, the inter-bank money market functioned poorly, in that it suffered from compartmentalization. Weak banks had to rely on Bank Indonesia to keep afloat. Confidence was completely lost when "flight to quality" was rampant and a substantial number of banks were confronted with bank-runs within a short period. Strangely, in the recent Indonesian experience, these phenomena happened following the closure of the 16 banks in early November 1997, which was originally designed to boost confidence in the banking system. Individually, a bank confronted with a problem of mismatched liquidity could easily become insolvent. For the banking sector, the problem changed from distress to crisis.

When the currency crisis spread to inflict the national economy, the government's efforts to address the banking problems were combined with other policies and treated as part and parcel of the adjustment policies for stability and sustaining growth. But, this treatment was more explicit in the IMF supported programs, from the first letter of intent in November 1997 to the most recent one in August 2001.

In 1997 the Indonesian government asked for a three-year stand-by loan from the IMF, which was processed through an emergency procedure. The amount of the stand-by loan was SDR 7.3 billion, and together with those provided by the World Bank and the Asian Development Bank, the total loans amounted to US$18 billion. This amount, plus US$5 billion of Indonesia's own reserves set aside for balance of payments support, made a total of US$ 23 billion available to be drawn. Together with bilateral facilities in the second line of defense the total amount of the rescue package amounted to US$ 43 billion.

Basically, the IMF supported program was comprised of a comprehensive policy package to deal with insolvent and weak banks, and to overcome structural rigidities in the economy, supported by prudent fiscal and monetary policy. The financial restructuring program, which had been put together with technical assistance from the IMF, the World Bank, and the ADB to restore public confidence in the financial system, was comprised of five parts, namely:

  • the closure of 16 insolvent banks, which was executed on November 1, 1997.
  • the establishment of proper procedures and policies to deal promptly with weak but viable financial institutions, so that they can be placed quickly on the road to recovery; some banks were to be put under intensive supervision by BI.
  • the resolution of specific problems of state and regional development banks.
  • the strengthening of the institutional, legal and regulatory frameworks for banking operations to ensure the emergence of a sound and efficient financial system; this program includes the modification of such laws as the central bank law, the law on bank liquidation, and the bankruptcy law.
  • the establishment of Indonesia Bank Restructuring Agency (IBRA), after the second Letter of Intent.
The program of banking restructuring was part and parcel of a comprehensive program that comprises both the real and financial sectors, supported by prudent fiscal and monetary policy.

If we look at what was put into the program, one could argue that the right steps were taken to address the Indonesian crisis. But, why is Indonesia's IMF supported program showing negative results thus far? In comparison with the implementation of other IMF supported programs, the Indonesian case is definitely the worst, particularly when one compares the rate of currency depreciation, growth prospects, inflation, and the development of other variables in the respective countries.

The IMF supported program that Indonesia is implementing includes a comprehensive restructuring of the banking system. With the help of the ADB, the World Bank and the IMF, IBRA is working to address the problems of the weak banks through a combination of mergers, recapitalization and ceasing the operations of insolvent banks. The bad loans of the banks are to be transferred to an Asset Management Unit (AMU) to be established within IBRA.

To strengthen relatively sound banks, schemes will be announced soon which will allow banks that achieve a special increase in capital can sell their bad loans to the AMU so that they can improve their CAR. In addition, a provision will be made for the creation of tier- two capital in the form of subordinated loans to banks whose capital has been increased by their owners.

Discussions are under way with foreign banks regarding investment in the banking sector. To facilitate the process all restrictions on foreign ownership of banks will be lifted as part of the prospective amendments to the banking law. As an interim measure, foreign bankers will be retained to strengthen the management of banks under IBRA's control.

All banks are to achieve minimum capital adequacy ratios of 4 percent of risk-weighted assets by the end of 1998, rising to 8 percent by the end of 1999 and 10 percent by the end of 2000.

These are, of course, necessary steps to get the banking sector back to a normal footing, i.e. being solvent. However, for the banking system to be sound most banks should be solvent and are likely to remain so. The IMF stipulates that the likelihood of remaining solvent will depend, inter alia, on banks' being profitable, well managed, and sufficiently well capitalized to withstand adverse events14.

Furthermore, to have a sound banking sector the supporting infrastructures have to be - namely regulations, prudential measures, disclosures, accounting practices and the legal base - to support the industry have to be working well. Manuel Guitian, mentions the three-pillar paradigm for banking soundness, namely official oversight (the prudential standard), internal governance (risk management in each individual bank), and market discipline (sound banking practices). But, this paradigm still has to be complemented with adherence to several principles for strengthening the banking system: responsible owners and managers of banks and professional authorities, prudent macro management and, in a globalize financial system, good international cooperation.

The problems that the Indonesian banking system is presently facing seem to be very complicated indeed. The steps, which need to be taken, are often problematic. In a way, measures which had been taken all these years to put the prudential regulations in place were wiped out by the crisis. At the same time, an opportunity arises to put all the necessary pillars for sound banking system in place. A comprehensive program towards that seems to be in place. What has to follow is the discipline to implement the program.

But the linchpin of all the above issues is still the stability of the Rupiah at a reasonable rate. The Government in addressing these pressing problems has made some progress, but the market has still not made any positive move. In my view, this actually means that somehow 'a turn around' still has to come before the market players - the traders, investors, and creditors - are willing to act positively to the development of the Indonesian economy.

The positive response from the market has to be preceded by a positive perception. Indonesia has experienced a positive market perception every time a change of government happened. A positive perception could come when market confidence is back. John Maynard Keynes showed us 62 years ago about the importance of confidence in an investment decision, aside from the marginal efficiency of capital. However, it is difficult to define what confidence really means. I could only say that, indeed, market confidence is crucial. Confidence is very difficult to describe. We will only know how crucial it is when we do not have it. When confidence is present the market is not very demanding. However when it is lost, everything we do is not good enough. Market reaction that is basically based on this perception is extreme. It could result in irrational exuberance at one point, and extreme pessimism at another point.

MEGAWATI GOVERNMENT AND THE FUND

President Megawati started to deal with the Fund since the last few months of Gus Dur presidency, in her capacity as Vice President. This was occasioned by the current development that out of President Wahid disgust with the Fund for not agreeing with his wish to replace Governor Sabirin, the President left the dealing with the Fund to Vice President Megawati. In fact, the relation between President Wahid and the Fund was worsening such that implementation of different adjustment programs was stalled. The euphoric relation between President Wahid and the Fund that promised to improve the relation in the early part oh his administration was rapidly worsening.

The Bank Bali scandal and the feud between President Wahid and Governor Sabirin had been an ugly seen and costly. Program review kept being postponed such that since the last LoI of September 2000 there was no loan disbursement until after the change of government to President Megawati in late July 2001.

It is fair to say that all the Fund-supported programs designed by the Fund and different governments of Indonesia under Presidents Soeharto, B.J. Habibie, and Abdulrachman Wahid became sources of frustrations for both the government and the Fund. President Soeharto was never serious in implementing the programs that at one instant, January 15, 1998, he himself signed the letter of intent15.

President B.J. Habibie's presidency suffered from lack of legitimacy, because it was based on some kind of default when President Soeharto resigned in disgrace in May 1998. Habibie's government was perceived as the continuation of Soeharto's. The government was powerless in the execution of the program he inherited from his predecessor. However, it should be noted that a friendly relation with the Fund gave a good environment for variety of liberalization steps, including freedom of the press. Habibi's government also enjoyed smooth Fund reviews that resulted in the signing of 8 letters of intent during a little over 17 months of his administration with smooth loan disbursements. Rupiah was worsen in the beginning of Habibie's administration, from Rp 11.200 to USD 1 in May 1998 to Rp 16.300 in June 1998 But, it was stabilized in October 1998 to become Ro 7.100 to USD 1. Rupiah was hovering between Rp 7.100 - Rp 8.600 for almost a year. And it was Rp 7.195 to USD 1 at the change of government to President Abdulrachman Wahid in October 1998.

During the presidency of Abdulrachman Wahid, economic coordinating minister Kwik Kian Gie and finance minister Bambang Sudibyo suffered from a similar ambivalence. And during his second cabinet, Economic Coordinating Minister Rizal Ramli became infamous because of his ambivalent attitude towards the Fund, which resulted in a virtual freezing of relationships since December 2000. President Wahid then replaced Rizal Ramli as Coordinating Minister by Burhanuddin Abdullah, a Deputy Governor of Bank Indonesia who had a stint with the Fund in Washington DC as assistant to the Indonesian Executive Director. Rizal Ramli was posted as finance minister. All these moves did not actually mend the relation with the Fund. And the working relation between the government and the Fund remained sour until Vice President Megawati took charge on the matter in May 2001.

Under Vice President Megawati leadership some important decision was made in fulfillment of some requirements that had to be done as stipulated in the latest agreement with the Fund. The most important one was the reduction of oil subsidy. This had been followed with different steps that strengthened further the government dealing with the Fund. The Fund team returned back to Jakarta for negotiating the items that had been constraining the resumption of the working arrangement before.

The improved relation between the government of Indonesia and the Fund was getting further boost with the change of government from President Wahid to Megawati and the appointment of the new Cabinet. The environment was friendlier because of the election of the new President and the new economic team that was more Fund friendly.

The Fund also discarded the old 'micro-management' approach, as an implementation of the new policy under the new Managing Director Horst Kohler, Under the new Managing Director; the Fund streamlines the structural conditionality to make its involvement in the program more focus to its core functions16.

A new LoI was signed in August 27, 2001 and the Board approved a new disbursement of US$ 395 million. The election of Megawati to the presidency and the formation of the new Cabinet were very well accepted by the market, such that rupiah was strengthened from around 11.000 to 8.500 to the US$ 1 in August 2001.

Some thorny items of disagreement between President Wahid and the Fund on the necessary adjustments of 2001 budget, the amendment of central bank law, privatization and sales of assets held by IBRA had either been resolved or renegotiated, which smoothen further the government relation with the Fund. The latest one was the new budget of 2002, which was approved by the Parliament.

However, some old problems reappeared and new issues prop up. The sale of IBRA assets, like the sale of BCA shares has not been smoothly executed. The sales of shares of Semen Gresik and Semen Padang encountered new hurdles from the provincial government. Of course the implication of this delay is on the budget revenues which could result in further negative effects on the efforts to address the crisis for recovery.

The September 11 terrorists' attack and its aftermath, plus the slowing down of the American economy as well as the Japanese and European economy clouded the prospect of the economic recovery under the Fund-supported program. This development has caused the very good start of Megawati presidency to run out of steam, even before running its course. Uncertainty is returning, rupiah is weakening and economic recovery seems to go away at least for the time being.

TURNING POINT

I subscribe to the idea that in a crisis a turning point, which produces an end of deterioration process from the crisis, is crucial before a process of recovery could proceed. Unfortunately, a good start is not a guarantee for a recovery to hold, and even less so for sustainable development.

In order for a turning point to generate process of recovery, there are other important factors to be presence, namely;

  • Speedy recognition of the problems and well thought policy decision. In the face of contagion 'the sooner the better'
  • Good and consistent policies and consistency of implementation
  • A conducive world economic conditions
In the case of Thailand, a turning point was associated with a change of government. And so was the Korea case. Thailand went to ask for the Fund help in August 1997. In mid-November 1997 a change of government occurred. The new government embraced the Fund-supported program that was just introduced, such that a consistent program implementation ensued.

The Korean government invited the Fund in early December 1997 at the time the process of transfer of power to the new government was in progress. The incoming government, which took over the administration in mid-December, 1997 was already consulted in the designing of the Fund-supported program.

A change of government seems to be instrumental in the process of implementing adjustment programs. To be sure, it seems to be easier for a new government to make commitment of implementing adjustment programs, which sometime involving correction of past policies that otherwise would be identified as policy errors of the past government.

That was not how Indonesia's Fund-supported program was implemented. The Fund-supported programs of Indonesia have been running for close to four years by now. Indonesia has also experienced several changes in government throughout the period.

In the meantime, Indonesia's experience with the crisis has been unique. Indonesia could claim that in the inception of the Fund-supported program the economic and financial condition of Indonesia was in a better shape than both Korea and Thailand. The initial policy response by the government was also lauded as timely and prudent. But, after sometime of implementing the Fund-supported program Indonesia becomes the worst case among the Asian crisis countries.

One possibility for a logical explanation about the above phenomenon is the lack of consistency in program implementation. Indonesia even experiences difficulty in providing a turning point for a recovery process to take hold. In Indonesia the same government of Suharto negotiated and implemented the first batch of the adjustment programs. There was a change of government in May 1998. However, the market perceived the government of President B. J. Habibie as a continuation of the old President Suharto's government.

A credible change of government happened only in October 1999. Unfortunately, President Abdulrachman Wahid, who was well received by the market initially, wasted the best momentum provided by positive market responses. The recovery didn't happen because President Wahid did not consolidate the initial steps by having a consistent policy implementation.

President Megawati with her new cabinet made a very good start by making the right steps, including its working relation with the Fund. Rupiah was strengthened drastically in the first month from Rp 11,300 to Rp.8,500. But the gloomy prospect of the world economy for next year, which was aggravated by the September 11 tragedy, and the renewed doubt from the market toward the government have been putting pressures on the rupiah to the present level of Rp 10,500.

PROBLEMS OF CONSISTENCY

The Indonesian experience in implementing Fund-supported adjustment programs in its fight to the financial and economic crisis seems to demonstrate that a consistent policy implementation is very crucial for the its success. The long waiting for the coming of a turning point through change in administration is one factor. The democratic change of government in Indonesia, which gives its legitimacy, was only occurred in October 1999, two years after the first LoI.

But, the presence of a new and legitimate government does not in itself guarantee the coming of an economic recovery either. It only serves as a starting point for a process toward recovery. This has to be followed by consistent implementation of a good program, which has previously been prepared. Our experience with the government under President Wahid clearly showed this.

From the first adjustment program in 1997 to the most recent one, hurdles that have been constraining the success of the program generally arise from inconsistencies in its implementation. The inconsistency itself may come from, using Stephan Haggard analysis, sins of omission from the lack of administrative capacity and know-how. Or it may arise as the result of commission, in the form of forbearance to favored parties17.

There seems to become a pattern also that in the crisis government officials tend to prefer to be inactive and reactive for avoiding risks. In the new era of more transparency, the government becomes timid in making any decision due to the fact that any decision is risky, at least for being open to any criticism.

There have been inconsistencies of program implementation in every administration from the first time Indonesia involved in Fund-supported program to address problems arising from the crisis. Several blatant inconsistencies came out early in the program implementation that was committed by Soeharto government. But, to some extend some of the inconsistencies have been carried on to the present.

These are examples of inconsistencies in the implementation of the first letter of intent, signed by the government of Indonesia October 31, 1997;

  • When the government announced to reactivate 15 big development projects that were previously included in the postponed ones due to interventions by President Soeharto families and cronies.
  • At the outset of the program implementation, Soeharto intervention also damaging the execution of the decision to liquidate 16 banks. The monetary authorities had to succumb to the pressure to grant the purchase of a small bank by one of Soeharto's son who partly owned a bank included in the 16 liquidated banks.
  • In addition Soeharto families who partly owned some of the closed banks sued the Governor of the central bank and the Minister of Finance in court, in protest to the government decision to liquidate their banks. The market perception deteriorated drastically due to these two decisions for revising the program as agreed upon by the Fund.
  • Bank Indonesia was confronted with constraints in implementing agreed policy for monetary tightening during the initial efforts to defend rupiah from severely depreciating. The Fund kept asking for Bank Indonesia to raise interest rates while Soeharto did not allow the central bank to do it. In fact, Soeharto instructed the central bank to lower lending rates to help the business community to resume their activities18. Granted that high rate of interest policy is still debatable as to its effectiveness. But the inconsistency did a lot of damage to the credibility of policy implementation
  • In January 1998 Soeharto signed a letter of intent to the Fund, which in effect strengthened and improved the previous measures, which were agreed upon in the first LOI. These included discarding monopoly practice in clove trading and Bulog (the state agency for food procurement) imports, abolishing subsidies to the aircraft industry (IPTN), and the national car project. All are Soeharto pet projects. The implementation of all these measures was long and winding such that in effect the old practices were continued.
  • Soeharto was playing with a dubious proposal from Professor Steve Hanke for implementing a fixed exchange system with a currency board arrangement (CBS), which created uproar among the G-7 leaders and the Fund. Instead of following the steps, which had been agreed upon in the negotiation, Soeharto wanted to follow a different path.
However, inconsistencies in program implementation have not been the monopoly of Soeharto administration. All his successors for whatever reasons have been committing similar inconsistencies, albeit smaller. These are some examples;
  • Banking restructuring has been very slow, to a large extend due to pressures from different parties to deviate from the agreed upon programs. The fact that IBRA, the Indonesian Bank Restructuring Agency, in three years of its existence already experienced 6 changes in its management attested the presence of different interest groups that kept fighting for influence in its decisions to favor their respective interests. Corporate restructuring has also been incredibly slow.
  • The fight between the government and Bank Indonesia over the central bank management since President Abdulrachman Wahid in power also shows a similar problem.
  • The fight for eradication of corruption, the efforts to practice good governance and transparency in the government as well as corporate sectors have been very disappointing all along.
An ambivalent attitude towards the role of the Fund in the government of Indonesia's efforts to fight the financial and economic crisis has always been creeping among some group of Indonesians, including those in the administration. Public discussions on variety of economic and financial issues since the crisis have usually been linked to some concern about the Fund involvement in the government policy. In general, government policy relying on high rate of interest to defend the currency, issues related to the choice of exchange rate system, including the use of capital control or currency board technique, implications of bank closures, the policy to help banks with liquidity supports, and the implementation of blanket guarantee, have been encountering strong critics in the Parliament as well as in public debates.

Some of the concerns originate from early criticisms on the Fund's adjustment policy prescription to developing countries that sometimes ineffective due to its reliance on 'one size fits all' type of program. To be fair, the Fund has been learning this lesson, albeit only slowly.

However, there are also areas that certainly the Fund could still learn more lessons from the Indonesian experience in the last four years of muddling through of the financial and economic crisis. These may not have any relation with inconsistency, but the following points should be noted;

  • Based on ex-post analysis, there are two areas of problem that most seem to accept as either part of the causes or a complicating factors of the Asian crisis, i.e. the weak banking sector and unsustainable corporate debts. The Indonesian experience on bank closures in November 1997 and the initial policy to shy away from dealing with corporate debts problem, seem to indicate the presence of weak preparatory works, not just from the government but also the Fund.
  • The adoption of blanket guarantee in the banking sector in late January 1998 had also been creating controversy as to why it was adopted and for those agreeing with the scheme the issue was why was not it adopted earlier. This was the government decision. But, the Fund was very much involved in the decision to adopt the scheme.
    In all these issues, if the problems originated domestically, certainly they also implicate the Fund. Professor Kim Dae-Hwan good in describing similar issue on the Korean crisis, it is certainly 'home grown, but not home alone'19.
  • In the early implementation of the program the Fund inflexible requirement to impose on the Indonesian government to produce a budget surplus for 1998 turned out to be a disaster. The Fund retracted the decision in January 1998 to allow the government implementing a budget with a deficit. But, it was too late; the market punished the rupiah severely due to the government balanced budget that violated the Fund's requirement.
  • The bickering between the Wahid government and the Central Bank over the amendment of the central bank law has not been resolved. For almost a year the status of five deputy governors of Bank Indonesia who officially resigned are still in active duty to the present. On the one hand, there is a valid argument from the government to stress on some rule on accountability that goes hand in hand with independence. On the other hand, there is also a valid argument for the Fund to insist on guarding the independent status of the central bank for not changing the board of governors in any other ways than stipulated in the central bank law. However, the stand still is definitely jeopardizing the effectiveness of Bank Indonesia to function. A concerted effort has to be made by both the Indonesian government and the Fund to find a way out to this stand still.

CONCLUDING NOTES

Changes in government seemed to serve well in producing a turning point to stop economic deterioration in Korea and Thailand. To a certain degree it has also been the case with Indonesia. This seems to also be the case of changes (turning point) in the Fund policy. Serious efforts to improve IMF conditionality, structural in particular, to make its operation more focus have been running in full steam after changes in its management, from Michel Camdessus and Stanley Fischer to Hort Kohler and Anne Krueger.

What to expect? The working relation between the GOI and the Fund under President Megawati seems to be in better shape. The Fund has been learning some lessons from managing crisis in Indonesia as shown in its views on budget deficits, corporate debts, and social implications of the crisis. The Fund has been working on streamlining its structural conditionality. Similarly, the Indonesian economic team has been showing the willingness to make adjustments required.

However, the problems and challenges facing them have been much more daunting, due to the continuing past practices of policy inconsistency and worsening world economic prospects. For example, facing a slowing down of the national economy the government cannot automatically resort to the conventional policy of fiscal stimuli or loose monetary policy. With a budget that already suffering from deficit, any fiscal stimuli is constrained already. And, with the size of budget deficit is predetermined in the performance criteria, the constraint is automatically binding. Like wise, lowering interest rate or adding base money is constrained by the performance criteria. The degree of freedom in macroeconomic management is very limited, due to the existing Fund-supported program.

Flexibility in both the Fund as well as the monetary authority should be in order here. It is curious that lately the Fund Representative in Jakarta made a public statement that in effect asking for the central bank to reduce interest rate. Some empirical studies have been demonstrating the ineffective use of high rates of interest to stabilize exchange rates20.

Of course, to the claim that high rate of interest is not an effective instrument to defend the exchange rate, one could cite how Hong Kong successfully saved its currency against the onslaught of speculative attack in October 1997. High rate of interest is indeed not impacting negatively on economic growth in a very short period of time. However, high rate of interest for a long period is definitely detrimental to economic growth. Problem will arise, when the high rate of interest is extended for a long period.

During the crisis we observe a shift from a problem of bank liquidity problem to solvency problem n a very short period. An instrument, which may work effectively in the short run could cause problem in the longer period. A high rate of interest, which may be effective in the short run to strengthen the currency, could easily creating negative implication in the long run.

The new Fund policy of focussing on its core functions is definitely a step in the right direction. Included in it is its concern over the issue of ownership of the Fund-supported program. The more cumbersome the conditionality, the more pressures by the super powers to impose their own agenda on the structural conditionality of the Fund-supported program, the more difficult would be for the government to stay consistent in the program implementation.

Until September 11 all the problems and challenges facing President Megawati originated from the previous administration. However, the terrorist attack in the US and the US-led response that triggers world economic recession has been causing additional challenges to the President and her Cabinet.

In 1999 the world economy was in a better shape, the US economy was still actively playing locomotive to the world economy. The two other Asian countries implementing Fund-supported program took the advantage to get out from the downward spiral of the crisis, and managed to start their path towards recovery. Indonesia under President Wahid missed the chance then.

This time there is no strong US economy to serve as a locomotive to make the necessary pull. The Megawati government, which successfully made a sensible start, seems also stalling to follow up the good start with the right steps to accelerate. The past government missed the chance to start a recovery process. The present government made a good start, but the more daunting challenges seems to be more overwhelming that seems to make the government gives up before entering a recovery process.

If there is any optimism, it has to be very cautious indeed.

Table A
Indonesia's Financial Position in the Fund
As of October 31, 2001

General Resources Account:

SDR Million

%Quota

Quota

2,079.30

100.0

Fund holdings of currency

9,552.43

459.4

Reserve Trache position

145.48

7.0

SDR Department:

SDR Million

%Allocation

Net cumulative allocation

238.96

100.0

Holdings

84.36

35.3


Outstanding Purchases and Loans:

SDR Million

%Quota

Stand-by arrangements

2,660.11

127.9

Extended arrangements

4,958.50

238.5

Latest Financial Arrangments:


Approval

Expiration

Amount Approved

Amount Drawn

Type

Date

Date

(SDR Million)

(SDR Million)

EFF

Feb 04, 2000

Dec 31, 2002

3,638.00

1,160.80

EFF

Aug 25, 1998

Feb 04, 2000

5,383.10

3,797.70

Stand-by

Nov 05, 1997

Aug 25, 1998

8,338.24

3,669.12

 

Projected Obligations to Fund (SDR Million; based on
existing use of resources and present holdings of SDRs):


Overdue

Forthcoming


Oct 31, 2001

2001

2002

2003

2004

2005

Principal

366.9

1,834.6

979.3

678.1

774.8

Charges

72.3

207.8

159.6

135.6

113.2

Total


439.2

2,042.4

1,138.9

813.7

888.0

Source: IMF

Table B
Indonesia's Transactions with the Fund
from January 01, 1984 To October 31, 2001

Year

General Resources Account

Structural Adjustment Facility/Trust Fund
Enhanced Structural Adjustment Facility/Poverty Reduction and Growth Facility

GRA

SAF/PRGF/TF

Total

Purchases

Charges
Paid

Loans

Interest
Paid

Purchases and Loans

Charges and
Interest Paid

Disbursements

Repurchases

Disbursements

Repayments

Disbursements

Repayments

2001

309,650,000

1,009,008,000

298,860,659

0

0

0

309,650,000

1,009,008,000

298,860,659

2000

851,150,000

0

398,846,600

0

0

0

851,150,000

0

398,846,600

1999

1,011,000,000

0

267,539,445

0

0

0

1,011,000,000

0

267,539,445

1998

4,254,348,000

0

133,963,634

0

0

0

4,254,348,000

0

133,963,634

1997

2,201,472,000

0

0

0

0

0

2,201,472,000

0

0

1992

0

115,725,000

3,483,910

0

0

0

0

115,725,00

3,483,910

1991

0

231,450,000

22,770,767

0

0

0

0

231,450,000

22,770,767

1990

0

115,725,000

43,374,701

0

0

0

0

115,725,000

43,374,701

1989

0

0

39,938,336

0

0

0

0

0

39,938,336

1988

0

41,962,259

30,602,157

0

0

0

0

41,962,259

30,602,157

1987

462,900,000

0

16,778,898

0

0

0

462,900,000

0

16,778,898

1986

0

0

3,206,764

0

0

0

0

0

3,206,764

1985

0

379,500,000

19,179,361

0

0

0

0

379,500,000

19,179,361

1984

0

3,637,741

28,853,985

0

0

0

0

3,637,741

28,853,985

Source: IMF.

Table C
Government of Indonesia's Letters of Intent to the IMF

No. Date of Issue Title
Megawati’s Government
1. 27/8/2001 Indonesia Memorandum of Economic and Financial Policies
Wahid’s Government
2. 7/9/2000 Indonesia Memorandum of Economic and Financial Policies
3. 31/7/2000 Memorandum of Economic and Financial Policies, Government Indonesia and Bank Indonesia
4. 17/5/2000 Indonesia Memorandum of Economic and Financial Policies
5. 20/1/2000 Indonesia Memorandum of Economic and Financial Policies
Habibie’s Government
6. 22/7/1999
7. 14/5/1999 Indonesia Supplementary Memorandum of Economic and Financial Policies
8. 16/3/1999

Indonesia Supplementary Memorandum of Economic and Financial Policies (Fourth Review Under the EFA)

9. 13/11/1998

Indonesia Supplementary Memorandum of Economic and Financial Policies

10. 19/10/1998

Indonesia Supplementary Memorandum of Economic and Financial Policies

11. 11/9/1998

Indonesia Supplementary Memorandum of Economic and Financial Policies

12. 29/7/1998 Third Review Under the Stand-by Arranement
13. 24/6/1998

Indonesia Second Supplementary Memorandum of Economic and Financial Policies

Soeharto’s Government
14. 10/4/1998 First Review Under the Stand-by Arrangement
15. 15/1/1998 Memo on Economic and Financial Policies
16. 31/10/1997

Memorandum of Economic and Financial Policies (Request for Stand-by Arrangement)

REFERENCE

Azis, Iwan J., 2001, Modeling Crisis Evolution and Counterfactual Policy Simulations: A Country Case Study, ADB Institute Working Paper, No 23, Tokyo : ADB Institute
Boorman, Jack, et al, 2000, Managing Financial Crisis: The Experience in East Asia, IMF Working Paper, No. WP/00/107, Washington DC:IMF
Djiwandono, J. Soedradjad, 1998, Bank Indonesia and the Recent Crisis, BIES, Vol. 36, No1, 47-72.
Enoch, Charles, et al, 2001, Indonesia: Anatomy of a Banking Crisis Two Years of Living Dangerously, 1997-1999, IMF Working Paper, No WP/01/52, Washington DC; IMF
Goldstein, Morris and Dennis Weatherstone, 1998, The Asian Financial Crisis, Washington DC: Institute for International Economics, Policy Brief 98-1
Guitian, Manuel, 1997, Banking Soundness: The Other Dimension of Monetary Policy, in Banking Sounds in Monetary Policy: Issues and Experiences in the Global Economy, Charles Enoch and John H. Green, Eds. Washington DC: IMF.
Haggard, Stephan, 2000, The Political Economy of the Asian Financial Crisis, Washington DC: Institute for International Economics.
International Monetary Fund, 2001, The IMF at a Glance, Washington DC: IMF
International Monetary Fund, 2001, Conditionality in Fund-Supported Programs Overview, Washington DC: IMF
International Monetary Fund, 2001, Conditionality in Fund-Supported Programs- Policy Issues, Washington DC: IMF
International Monetary Fund, 2001, Structural Conditionality in Fund-Supported Programs, Washington DC: IMF.
Kim, Dae-Hwan, 2001, Globalisation and an _MF-Controlled Economy: The Case of Korea, (mimeo)
Lindgren, Carl-Johan, Gillian Garcia, and Mathew I.Saal, 1996, Bank Soundness and Macroeconomic Policy, Washington DC, IMF
Lindgren, Carl-Johan, et al, 1999, Financial Sector Crisis and Restructuring Lessons from Asia, Washington DC:IMF

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1Actually in 1983 and 1986 the government of Indonesia used compensatory financing facility (CFF), a facility provided by the Fund for its members suffering from balance of payments disturbance due to sudden drop of commodity prices that adversely impacting their foreign exchange earning from exports. Indonesian usage of this facility then was occasioned by drastic drop of oil and commodity prices that caused severe pressure on the balance of payments.
2These two are similar, except for the duration of the repayment, which is longer in the case of an extended fund facility.
3See, Conditionality in Fund-Supported Programs-Overview, http://www.imf.org/external/np/pdr/cond/2001/eng/overview/index.htm, February 20, 2001.
4See J. Soedradjad Djiwandono, Bank Indonesia and the Recent Crisis, BIES, Vol. 36 No., 47-72.
5Carl-Johan Lindgren, et al., Financial Sector Crisis and Restructuring Lessons from Asia, Washington DC: IMF, 1999, page 18.
6Manuel Guitian, Banking Soundness: The Other Dimension of Monetary Policy, in Banking Soundness and Monetary Policy: Issues and Experiences in the Global Economy, Charles Enoch and John H. Green, eds., Washington DC: IMF, 1997
7Carl-Johan Lindgren, Gillian Garcia, and Mathew I. Saal, Bank Soundness and Macroeconomic Policy, Washington DC: IMF, 1996.
8I found the two books published by the IMF, Carl Johan-Lindgren, et.al, Bank Soundness and Macroeconomic Policy, Washington DC: IMF, 1996, and Charles Enoch & John H.Green, eds. Banking Soundness and Monetary Policy: Issues and Experiences in the Global Economy, Washington DC: IMF, 1997, plus an earlier book edited by V. Sundararajan and Tomas J.T. Balino, Banking Crisis: Cases and Issues, Washington, International Monetary Fund, 1991; are very instructive for those interested in this subject.
9See Preface and Part I of the book, Carl-John Lindgren et.al. , Bank Soundness and Macroeconomic Policy.
10See, Morris Goldstein and Dennis Weatherstone, The Asian Financial Crisis, Institute for International Economics, Policy Brief 98-1, March 30, 1998.
11Michel Camdessus, The Challenges of a Sound Banking System, Charles Enoch and John H. Green, Banking Soundness………p.539
12Carl-John Lindgren, et al. Bank Soundness and Macroeconomic Policy, ……p.5
13See, Carl-Johan Lindgren, et al., Bank Soundness… table 2, page 26. On the main issues confronting Indonesia in coping with banking system management and banking reform prior to the present crisis, see my paper, The Banking Sector in Emerging Markets: The Case of Indonesia, published in Charles Enoch and John H. Green, eds. Banking Soundness………, PP 335-352.
14Carl-Johan Lindgren, et al., Bank Soundness and Macroeconomic Policy,…….p.9
15It became an infamous occasion when so many newspapers published the picture of President Soeharto signing a letter of intent in the presence of the Fund Managing Director Michel Camdessus, who watched the signing with his arms cross-folded. It is an innocent posture in the Managing Director's French culture, but seen as humiliating to many Indonesians
16See Letter of the IMF Managing Director to IMF Heads of Departments and Offices, Streamlining Structural Conditionality, Washington DC: IMF, September 18, 2000, and Structural Conditionality in Fund-Supported Programs, Washington DC: IMF, February 16, 2001 (http://www.imf.org/external/np/pdr/cond/2001/eng/overview/index.htm).
17Stephan Haggard, The Political Economy of the Asian Financial Crisis, Washington DC: Institute for International Economics, August 2000, page 8.
18It should be noted that Bank Indonesia did not enjoy its independent status until the enactment of the new central bank law in May 1999.
19Dae-Hwan Kim, Globalization and the IMF-Controlled Economy: the Case of Korea, a paper presented in the Asian Studies Program, the National University of Singapore, July, 2001 (mimeo)
20See for example Iwan J. Azis, Modelling Crisis Evolution and Counterfactual Policy Simulations: A Country Case Study, ADB Institute Working Paper 23, Tokyo: ADB Institute, August 2001.

Singapore, 28 November, 2001.