The role of the International Monetary Fund (IMF) in Indonesia's recovery from the 1997 Asian Financial Crisis.
The 1997 Financial Crisis represented a significant problem not just for the Indonesian economy but also, as the first part of this article indicated, for the political system. Would it be possible for any democratically-elected Indonesian government to push through the reforms deemed necessary to revive the country? The problems were exacerbated by the International Monetary Fund (IMF), which is the international organization which was designed in the wake of the Second World War to help governments deal with short-term exchange rate mismatches but which has, in the decades since its inception, taken for itself the power to demand a wide range of changes in the economic policies of the governments obliged to seek its assistance.
The problems with the IMF are many and, although on balance it is probably a necessary institution, it would be very beneficial if the creators of its thinking were changed. Specifically, the IMF tends to resemble a worker armed only with a hammer who, with only one means of tackling problems, tends to see all problems as nails to be banged as hard as possible. Consequently, each crisis means that the IMF requires governments to embark on a wide-scale program of scaling back government spending, reducing subsidies and public expenditure and the opening of the economy to international companies. These ‘reforms’ have in some cases been witnessed as so severe that countries have avoided seeking the help of the IMF, as in the case of Malaysia, or else made big play of public celebrations when loans from the institution were repaid in advance of schedule, as in the case of Thailand.
It seemed in 1997 that it would be next to impossible for the Indonesian government to force through the reforms required by the IMF. Either there would be public disorder once subsidies and public projects were withheld or abandoned or else powerful political elites would derail them to ensure the continuance of their own power. Foreign investors had already more or less given up on the country as a series of apparently politically-motivated court decisions have found against them. That the Indonesian government has managed to turn things around, not completely but to a very admirable extent, is quite a remarkable success story. It is not complete yet and the gains might even be reversed, but there is certainly hope for improvement. New laws have been aimed at making decision-making more transparent and foreign business more welcome. Perhaps more importantly, the Indonesian poor have been the recipients of at least some of those changes.
