Asia Rebuts West's Idea Of Reform

Despite need for aid, Indonesia balks at IMF's formulas on how to run economy.

As President Clinton met his Chinese counterpart Jiang Zemin in Washington this week, a very different meeting of East and West took place in Indonesia. And the clash of cultures was at least as formidable.

Representing the East was Indonesia' s government, along with a few of its neighbors - Japan, Singapore, and Malaysia. The West was the International Monetary Fund (IMF), the World Bank, and a host of diplomats and business executives in the capital, Jakarta.

The clash left Westerners wondering whether what they witnessed was just horse-trading, a rejection of Western notions of how to run a country, or a subtle Javanese effort to save face.

The IMF, backed by the World Bank and the Asian Development Bank, are wrapping up negotiations with the government over a financial aid package that would help Jakarta fend off attacks on its currency, which lost more than 30 percent of its value in recent months and dragged down the stock market with it.

Indonesia needs money, but it needs a stamp of approval from the IMF even more to regain investor confidence in this archipelago of 17,000 islands.

The IMF, criticized in Washington for bailing out reckless governments and investors, made clear it would not rubber-stamp its approval - it asked Indonesia to shut down weak banks, cut import tariffs, ax prestige projects, and curtail trading monopolies controlled by relatives and friends of President Suharto.

That much was clear. But the talks have dragged out and were suddenly upstaged by a host of meetings and phone calls between Mr. Suharto and his neighbors.

Within three days, Singapore had pledged $10 billion, Malaysia had offered $1 billion, and Japan said it would make a concrete offer within days.

On Tuesday, Suharto and his State Secretary Murdiono indicated they had found an alternative to a tough IMF package.

"We are not asking for money as we already have policies [to stabilize the currency]. We just need the IMF to look at these programs as it has experience," Suharto said. "The IMF has not set any conditions for helping Indonesia regain trust in the rupiah," the Indonesian currency.

Suara Pembaruan, an Indonesian daily newspaper, added up the pledges and concluded: "10 + 1 + Japan = Collapse of IMF program."

"It certainly makes the talks more difficult," one Western broker says. "I think [Indonesian officials] are using the aid pledges as leverage to reduce the conditions of the IMF.

"But if they get enough, they could turn a blind eye to the IMF, which would be a disaster," he adds. "It might shore up the currency, but it would put no pressure on the Indonesian officials to reform their economy. You could be sure that a lot of this money would be used to bail out the private sector."

One Western diplomat, however, cites "very reliable sources" as saying Suharto had rejected a negotiating position taken by his adviser, Widjojo Nitisastro, as going too far in accommodating IMF suggestions for cutting out prestige projects and curtailing trade monopolies.

"If you know what the vested interests are like in this country, and whose interests, you would have realized it would never work," he says. "They were never serious about the IMF. They were just buying time."

The vested interests that would be threatened by the economic reforms required by the IMF and the World Bank are indeed tremendous. The fund and the bank have objected to government funding and special tax breaks for the nation's automobile program, set up by Suharto's youngest son.

They also want a reduction in funding for production of a national aircraft, sponsored by a minister who is close to the president.

And they want Bulog, a state-owned monopoly, to give up control over imports of staple foods such as sugar, soybeans, and wheat. Bulog has passed on its import monopoly to companies controlled by Suharto's friends and children, who profit from processing fees and other benefits. The result is that many staple foods in Indonesia are more expensive than in neighboring countries.

"This is the way Suharto holds power," the diplomat says. "His whole network of patronage is based on such benefits. How would he control his cronies without it?"

But there is a third possibility. "It's all semantics," says one Western diplomat. "It may be an effort to save face. Bapak [father, a popular reference to Suharto] says the IMF is not imposing conditions, that the IMF merely supports a program that has already been adopted by the Indonesian government. Of course the IMF would not give money if this program were not implemented, but that he does not say. It's all very Javanese." (Java is the main island of Indonesia.)

Saving face is enormously important in Javanese culture, and Javanese will go through great lengths to avoid insult both to themselves or to other people. If a tourist asks the way to the train station in Jakarta, he will always get an answer - even if the other person has no idea. Claiming ignorance would be embarrassing for both.

One economist close to the negotiations suggests that Indonesia's neighbors are playing along to help Indonesia save face.

"They may say their aid is separate from the IMF, but they have actually kept the IMF informed," he says. "It can be separate but supplementary at the same time. It's just a game of words."

Like any Western politician, however, Suharto also has a pragmatic reason to save his face.

Indonesia' s population of 200 million is becoming increasingly restless with rising food prices and layoffs, caused by the drop of the currency and mounting company debts.

On Tuesday police beat back students in Jakarta, Bandung, and Malang who made a rare public rejection of Suharto's candidacy for reelection as president in March 1998. Workers have gone on strike in a number of large factories to demand higher wages to keep up with rising food prices.

"The anger will come," says Abdurrahman Wahid, leader of the Nahdlatul Ulama, a Muslim organization and the largest nongovernmental organization in Indonesia.

"And it will come precisely around the time the Consultative Assembly meets [to reelect Suharto] in March," he says. If this holds true, Suharto may need to save more than his face.

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