[Congressional Record Volume 144, Number 64 (Tuesday, May 19, 1998)]
[House]
[Pages H3367-H3368]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 IMF PROGRAM SPARKS INDONESIAN TURMOIL

  Mr. SAXTON. Mr. Speaker, Americans across our country have seen 
televised pictures of rioting in Indonesia, of social unrest and 
political unrest and, according to various news service accounts, the 
outbreak of rioting in Indonesia was triggered by price increases of 
basic commodities mandated by the International Monetary Fund. One 
recent Reuters news story notes that the IMF conditions were ``A key 
cause of the recent demonstrations.''
  The recent violence raises important questions about whether the IMF 
and its program underestimated the political fragility and instability, 
both political and social, of Indonesia. This is a relevant concern 
because political instability could well undermine the potential for 
economic stabilization.
  In yesterday's Wall Street Journal there was an article, and I would 
like to read a few lines from it. Date line, Washington:

       Last fall, Indonesia turned to the International Monetary 
     Fund for an economic life raft. Instead, the resulting IMF 
     program contributed to the turmoil now wracking the world's 
     fourth most populous nation. The IMF program failed to 
     stabilize the Indonesian economy, its stated purpose. As the 
     economy worsened, domestic dissatisfaction grew.

  And it goes on,

       Jeffrey Sachs, whose Harvard institute has long been an 
     adviser to Indonesia, has been warning for months that the 
     U.S.-backed IMF prescription was harsh and counterproductive.

  In addition, it goes on,

       Malaysian prime minister Mahathir Mohamad also blames the 
     IMF for worsening Indonesia's problems. ``The IMF is not 
     sensitive to social and economic restructuring,'' he said, 
     according to Malaysia's official news agency.

  To answer these questions, more information is needed to understand 
the International Monetary Fund program and its recent impact on 
Indonesia. Once again I call on the IMF and the Treasury to publicly 
release its staff reviews of the Indonesian bailout so that Congress, 
the public, and private experts can better understand the IMF policy 
and its effects.
  Previous problems with the IMF program were documented in the New 
York Times article last winter which reported that the International 
Monetary Fund reviewed and found that the IMF conditions had sparked a 
bank run on Indonesia several months ago. In recent days the Wall 
Street Journal has also come to similar conclusions, and I just read 
from that article.
  Given this horrific outburst of violence in Indonesia, Congress has 
an important obligation to examine the role of the IMF and the role it 
has played in contributing to this situation with, I might add, the use 
of U.S. taxpayers' dollars. While it is clear that the policies of the 
Indonesian government had caused severe economic problems, it appears 
that the IMF conditions made the situation even worse.
  The fragility of the political environment and the potential for 
violence must be adequately considered when considering these programs. 
For example, is it not evident that the IMF formally integrated a 
political risk analysis into the economic program? Obviously, it failed 
to do so. If the IMF program failed to address the potential that it 
could destabilize political, social and economic conditions even 
further, then it was flawed to start with.
  Congress has the public need and the ability to examine the IMF staff 
reviews of the bailouts to determine whether the risks of the IMF 
program were adequately considered. We have that responsibility and the 
IMF should give us the information. These documents have been requested 
repeatedly of the IMF and the Treasury Department. It has been made 
clear that they may be sanitized before their release.
  Mr. Speaker, I include the entire article from the Wall Street 
Journal for the Record:

              [From the Wall Street Journal, May 18, 1998]

          Time Will Tell if IMF Helped Save or Wreck Indonesia

                    (By Bob Davis and David Wessel)

       Washington.--Last fall, Indonesia turned to the 
     International Monetary Fund for an economic life raft. 
     Instead, the resulting IMF program contributed to the turmoil 
     now wracking the world's fourth most-populous nation.
       The IMF program failed to stabilize the Indonesian economy, 
     its stated purpose. As the economy worsened, domestic 
     dissatisfaction grew. The fund also high-lighted what the IMF 
     and the U.S. condemn as a crooked

[[Page H3368]]

     brand of capitalism practiced by the Suharto regime, 
     undermining its legitimacy and emboldening the opposition.
       Whether the IMF, in the end, is seen as a villain that 
     provoked widespread suffering or a catalyst for constructive 
     change depends largely on what happens in Indonesia over the 
     coming weeks and months.
       IMF critics, led by outspoken Harvard University economist 
     Jeffrey Sachs whose Harvard institute has long been an 
     adviser to Indonesia, have been warning for months that the 
     U.S.-backed IMF prescription was harsh and counterproductive. 
     ``The IMF program was really badly designed and made a bad 
     situation worse,'' says Steven Radelet, a Sachs colleague.
       Malaysian Prime Minister Mahathir Mohamad also blames the 
     IMF for worsening Indonesia's problems. ``The IMF is not 
     sensitive to the social cost of economic restructuring,'' he 
     said, according to Malaysia's official news agency.
       But the Indonesian government hurt itself, too. It 
     backtracked on pledges it made publicly to the IMF, 
     undermining the confidence of both domestic and foreign 
     investors. It vowed to dismantle unpopular arrangements that 
     enriched Suharto cronies, but then rebuilt them under 
     different names. And, at a pivotal moment, it flirted with a 
     controversial currency-board approach to monetary policy. 
     After a parade of international leaders pressured Indonesia 
     to live up to its agreements, Mr. Suharto relented, 
     underscoring his weakness to the newly emboldened opposition.
       Then earlier this month, Mr. Suharto's new cabinet 
     ministers changed direction and implemented IMF-backed 
     increases in fuel prices much faster than the IMF demanded, 
     sparking the recent riots. Although the IMF program allowed 
     for the increases to be spread out over a month, some prices 
     soared as much as 70% overnight. ``We didn't set a precise 
     date for [removing subsidies]. The date was chosen by the 
     government,'' an IMF official says.
       Despite occasional misgivings about some elements of the 
     IMF approach, the Clinton administration strongly defends the 
     fund. ``The IMF didn't create the Indonesian economic and 
     political crisis,'' says Mr. Clinton's national security 
     adviser, Sandy Berger. ``Indonesia created the economic and 
     political crisis. The International Monetary Fund came in to 
     try to help restore stability and put it on a path back 
     towards growth.''
       At their annual summit this weekend, leaders of the Group 
     of Seven large industrial nations and Russia, put the onus on 
     the Suharto government. ``Successful economic reform and 
     international support for it will require political and 
     social stability,'' they said in a statement, and urged the 
     Indonesian government to open a dialogue with opposition 
     leaders over reforms that address ``the aspirations of the 
     Indonesian people.''
       Inside the IMF, some argue that the fund's willingness to 
     confront not only fiscal and financial policy issues, but 
     also the corruption of the Suharto regime, is hastening long-
     overdue social change. Indeed, IMF programs in Korea and 
     Thailand, they argue, may be succeeding precisely because 
     they coincide with political reforms--a new democratic 
     government in Seoul, constitutional reforms in Bangkok. Mr. 
     Suharto's departure wouldn't be mourned at the IMF.
       But it's also clear that IMF advice failed to revive the 
     Indonesian economy and may have worsened a bad situation. 
     Last year's demand that Indonesia close 16 troubled banks--
     meant a signal that the government was finally addressing 
     problems in the financial sector--backfired. Depositors 
     pulled funds out of other banks, further weakening the 
     system.
       Harvard's Mr. Radelet said the IMF's emphasis on ending 
     monopolies and closing government projects that are owned by 
     friends and family of Mr. Suharto didn't address some 
     fundamental economic problems. For months, for instance, the 
     fund did little to help restructure Indonesian companies' 
     huge foreign debt, which prevents them from getting the added 
     financing needed to run their businesses and from taking 
     advantage of a weak currency to increase exports.
       The IMF has until early June to decide whether to disburse 
     another $1 billion to Indonesia, as part of a $43 billion 
     bailout package it cobbled together for the nation. 
     Indonesian authorities have said they plan to roll back some 
     of the price increases that sparked riots. But that by itself 
     isn't expected to put the IMF's added lending in jeopardy.

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