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IFIs in Indonesia
This series of monthly factsheets on International Financial Institutions (IFIs) will include information on the World Bank Group, the International Monetary Fund (IMF) and the Asian Development Bank (ADB), focussing on their involvement in Indonesia. |
The IMF is the largest lender to Indonesia. It is an international organisation of 182 member countries. Its headquarters are in Washington. Its stated aim is to promote financial and economic stability through lending to provide temporary financial assistance to ease balance of payments adjustment. A country will ask the IMF for funds when it has an economic crisis. Conditions are attached to the loan. These are called conditionalities. The currency of the IMF is the SDR – Special Drawing Rights. As of August 20, 1998, 1 SDR = US$1.33
The IMF has been called 'the most powerful international organisation of the twentieth century, decisively influencing the well-being of the majority of the world's population' whilst others have renamed the IMF, the 'institute of misery and famine'. It was set up, like the World Bank at the Bretton Woods agreement after the second world war. According to its 'authors' Keynes and Dexter White the objective was to 'create democratic institutions to replace the power of private bankers and owners of international investment' that were responsible for the 1930's crash. However this role is now completely reversed, as the IMF and World Bank impose the neo-liberal economic model to the advantage of international money lenders, private bankers and investors. Critics see these institutions more and more as a branch of USA foreign policy.
IMF under fire
For a number of years the IMF has been criticised for increasing poverty and instability. Recent reports by the USA Congress and UK Parliament have heavily criticised IMF actions too. The World Bank's Chief Economist, Joseph Stiglitz has heavily criticised the IMF for its role in the Asian Crisis. In Indonesia the IMF has been blamed in part for creating the panic that caused the financial crisis when it forced the closure of 16 Indonesian banks and a comprehensive restructuring agreement that created investor panic. From Autumn 1999 the IMF took poverty reduction as a new main objective, it remains to be seen how much this will affect its work.
According to the IMF's own staff papers: 'It is often found that (IMF) programs are associated with a rise in inflation and a fall in the growth rate' (Kahn 1990). The Overseas Development Institute, UK summed up that IMF programs have a 'muted effect on economic growth', 'reduce real earnings', 'fail to trigger inflows of capital', 'lead to not much difference to the inflation rate', 'substantially reduce investment levels', 'have large social costs', 'create political destabilisation'.
How the loans work
There are several kinds of loans;
Conditionality - The IMF medicine
The Letter of Intent (LoI) is the document that sets out what a country will do in exchange for IMF loans, preceded by negotiations between the finance ministry and the IMF. It is usually signed by the Finance Minister and the head of the central bank. The Letter of Intent contains the full range of policies that the government must implement. It is often very far-reaching. Elements often include: budget balance target, money supply and inflation targets, exchange rate policy, trade balance and trade policy, labour law reform, civil service reform, privatisation, and regulatory changes, among other things. Sometimes a supplementary Memorandum is attached to the LoI.
The IMF adds conditions to its loans. In the short run, the IMF generally pursues these policies:
On February 4, 2000, The International Monetary Fund (IMF) approved a three-year, SDR 3.638 billion (about US$5 billion) Extended Fund Facility to support Indonesia's economic and structural reform program. Of the total, SDR 260 million (about US$349 million) was delivered on that day and further disbursements will be made on the basis of performance targets and program reviews in the period ahead. The following amounts were lent to Indonesia (actually spent) over the last years:
| Year | SDR | US$ |
| 1997 | 2.202 bn | US$ 2.92bn |
| 1998 | 4.254 bn | US$ 5.64bn |
| 1999 | 1.011bn | US$ 1.34bn |
| 2000 - 2003 | 3.638 bn | US$ 4.82 bn |
The following table shows the last three IMF agreements with GoI. Amounts actually lent are less than approved amounts – i.e the GoI did not fully accept the total funds possible.
| Type of Loan | Approval | Expiry | Amount Approved | Amount Actually lent |
| Stand-by | 5 Nov.1997 | 08/25/1998 | US$ 11.05 bn | US$ 4.86bn |
| EFF | 25 Aug. 1998 | 02/04/2000 | US$ 7.13 bn | US$ 5.03 bn |
| EFF | 4 Feb. 2000 | 12/31/2002 | US$ 4.82 bn | US$ 0.35 bn |
| Repayments since 1997 | = 0 |
| Interest Rate | = 4.1% |
The IMF has said that input from civil society on loans is difficult due to time constraints. However, NGOs can insist on meeting with mission teams and, if they are refused, they could raise this with IMF management and with the press. NGOs could also highlight policies/targets that have not been implemented, policies that have been problematic and suggest policies that could be included. The present IMF loan runs out on 31 December 2002, but can be suspended before then if targets are not met. Targets presently include Fiscal Reform Agenda, Decentralisation, Loan Recovery Strategy, Bank Restructuring, Bank Indonesia Audit, Corporate Governance Framework and Energy Policy Agenda. See http://www.thejakartapost.com:8890/imf_targets.htm
Permanent Office in Indonesia
| Resident Representatives: | Joshua Felman and John Dodsworth |
| Address: | 1st floor, Tipikal building in the Bank Indonesia complex, off Jl. Sudirman, Jakarta |
| Telephone: | 021-381-8801 |
| Main web-site: | http://www.imf.org |
| Indonesian web-site: | http://www.imf.org/external/country/IDN/index.htm |
Bird and Killick (April 1993) Does the IMF really help Developing Countries?, Overseas Development Institute briefing paper, London
George,S.(1988) A Fate Worse Than Debt, Penguin, London
Green,D. (1995) Silent Revolution: The Rise of Market Economics in Latin America, Cassell and Latin American Bureau.
International Monetary Fund (Yearly) Annual Report, IMF, Washington
Kahn,M. (1990) The macroeconomic effects of fund supported adjustment programs, IMF Staff Papers vol. 37. No.2
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