BY PIP HINMAN
The International Monetary Fund is tightening the screws on President Abdurrahman Wahid to deliver on austerity measures in return for its US$5 billion bailout package.
Following a review of Indonesia's neo-liberal economic reforms, the IMF announced it would wait until a new Letter of Intent is agreed between it and the Wahid government before it reconsiders the release of a US$400 million tranche delayed since December.
Having talked of economic growth of 5% this year, the IMF and Jakarta now say it will be closer to 3%. Together with rising inflation, the declining rupiah (which has lost 20% of its value against the US dollar this year), and a projected budget deficit of between 4-6% of gross domestic product, Indonesia is still in the grip of a severe economic crisis.
The IMF is angry that the Wahid government hasn't already sold state enterprises including Telkom, the Pertamina oil company and Garuda Airlines. It has criticised Wahid for not selling off the government's 40% share in Bank Central Asia or its stakes in Bank Niaga and Bank Indonesia.
The fund has also been pushing for tax incentives for companies which restructure their debts and for quick approval of debt-for-asset swaps, which would allow public sector utilities to be snapped up on the cheap by their creditors.
The IMF is also frustrated at the government's refusal to amend the central bank law to its satisfaction. It wants laws which prevent the government from using the central bank to implement economic policy outside the fund's neo-liberal framework.
Last year, despite the deepening economic crisis, the Wahid government delivered on many of the IMF's demands, including cuts to state subsidies on electricity, fuel, fertiliser, education and generic medicines.
The IMF successfully pressured Jakarta to abandon earlier commitments to exempt key sectors of agriculture — namely, sugar and rice — from deregulation. The Wahid administration is now introducing "free trade" in rice and sugar and ending all subsidised credit for farmers, sending many more farmers into dire poverty.
But this hasn't been enough for the IMF. It is insisting that all remaining government subsidies on fuel — petrol, diesel and cooking oil — and other staples be eliminated.
It is furious that, at the last minute, Wahid backed away from an across-the-board 20% increase in fuel prices in April. With the threat of mass demonstrations hanging over it if the US$409 million fuel subsidy was cut, the government opted instead to raise the fuel price for industry by 50%.
But on April 24, finance minister Prijadi Praptosuhardjo announced the government would be pursuing austerity measures including expanding the tax base, cutting subsidies for oil and electricity, cutting back on "low priority" development projects and cutting costs associated with the implementation of new autonomy laws.
The economic crisis which hit Indonesia in 1997 has been exacerbated by the Wahid government's decision to go along with most of the IMF's austerity plans.
Between 1995 and 2000 the average cost of basic goods increased by a whopping 224%. According to statistics gathered by Indonesian Labour Consultants (ILC), in 1997 income per capita was US$1063; by 2001 it had almost halved (US$596).
The numbers of people now officially categorised as "poor" (which the UN defines as less than $2 a day) amount to some 19 million — the total population of Australia. In all likelihood, the real picture is much worse: in 1998, the ILC estimated there were 31.9 million rural poor.
According to investment bank Morgan Stanley Dean Witter, Indonesia's total debt is US$262 billion or 17% of GDP. Some 42% of all foreign earnings are allocated to debt repayment.
In February, the bank warned that Indonesia was a prime candidate for a permanent debt trap, whereby a rising proportion of its economic output goes to servicing domestic and foreign debt.
While the IMF is hell-bent on measures which will impoverish millions of Indonesian workers and peasants, it has pointedly ignored public demands to force the extended Suharto family to hand back its ill-gotten wealth — which some estimate at US$100 billion.