EFFECT OF THE WORLD BANK AND IMF IN INDONESIAN ECONOMY

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EFFECT OF THE WORLD BANK AND IMF IN INDONESIAN ECONOMY 

Ayu Harisa

The development of world economy in globalization that is eliminating barriers of the free trade and economic integration be getting stronger. Encourage cooperation between countries and international financial institutions. Structuring global economic and political post-World War II through the establishment of the United Nations and economic institutions with some degree has opened the path for the involvement of international institutions in domestic problems in many countries.

World Bank and International Monetary Fund (IMF) are the two multilateral institutions intended to be reviewed based on its role and influence quite large in economic development in various countries including Indonesia. Together with the other international agencies and donors, World Bank and IMF get involved in laying the basics of policy and pattern of the Indonesia development.

World Bank and the IMF were established at the similar time and place in 1944, Breton Woods, New Hampshire, USA, and the two are often called as the Breton Woods Institutions (BWI). The World economic situation was not stabilized since the World War II raging and caused of anxiety be over again as Great Depression (1930). With this background the two institutions were established with the primary objective to build a global economic stability.

The IMF was established specifically to deal with international monetary system, particularly payment systems and exchange various currencies of the World; enabling financial transactions between countries can run well. On the other hand, the IMF is also a 'Fundraising-Institution' which is available to help in the form of provision of Tempo raring Financing for its member countries, particularly in overcoming the difficulty for balancing to the their payments ‘Balance of Payment’. In its function to control the international monetary system, the IMF has three main tasks, those are:

1. Keep the stability for exchange rate,
2. Prevent unhealthy competition among the country for their currency devaluation,
3. Correction to the problems of Balance of Payment.

Those tasks are seemed simple but have very broad implications of the global economic order.

While the World Bank (International Bank for Reconstruction and Development stand for IBRD), was originally formed to fundraise the Europe economic reconstruction after World War II. This function of the World Bank then developed into a broader, no longer limited to the reconstruction efforts due to the war for European, but also includes the Fundraising of rehabilitation due to natural disasters, education, health, infrastructure, economic rehabilitation after a period of conflict between States. World Bank provides concessional funds that are soft which terms more easily than commercial loans. Currently, the World Bank focused its programs in global poverty alleviation efforts, especially in order to achieve the target as contended in Millennium Development Goals 2015 (MDG's 2015).

The World Bank's role in Financing Development in Indonesia

In the last two decades (20 years) of the Indonesian Economic Progressing has occurred a fundamental change by the Indonesia's debt to the World Bank that is mainly the increasing in the investment or credit allocation for development of education, health, environment and social development. This is as accordance with the World Bank's mission to fight the poverty as contained in the MDG's 2015 .

There was also a change in borrowing patterns, especially at the time of Indonesia's crisis in financial, the loans are not just for ‘Project Loan’ that portion is quite large and straight into the Nation Budget as implemented as  budgetary support. In general, the number of Indonesia's debt to the bank the world has declined sharply and this trend is expected to be continued so that dependence on foreign loans may be reduced.

In 2003 the Indonesian Government decided not to cooperate with the IMF then formulate economic policy package, known as the "White Paper" to prove a serious effort to continue the economic reformation independently with monitoring control only in the hands of the government. World Bank saw the self-monitoring mechanism is potential to be run according to standards and reform of Indonesia's ability. Whereas with the KKN (corruption, collusion and nepotism) is still a major problem. Indonesia needs to seriously take steps to increase the transparency and accountability. It’s based the World Bank made the issue of transparency and accountability become elements in every project.  World Bank program focuses on three things, those are:

1. Improve the investment climate,
2. Provide quality public services for the poor,
3. Good Governance.

 One way to achieve the attainment of good governance is create a credible legal and judicial system improved prevention  for corruption measures and regulations for a transparent public finance system at all levels of government.  The Indonesian government, to strengthen oversight and accountability in public finance sector, the State Finance Act to give greater role to the CPC to conduct surveillance. In addition as the Government's seriousness in combating corruption, that is the latest now the cooperation between the FBI (Federal Board of Intelligent) and the KPK (Corruption Eradication Commission).

IMF Role in Macroeconomic Stabilization Indonesia

The IMF's role in Indonesia became very prominent during the monetary crisis. At the beginning of the crisis, the Indonesian government took various policies whose aims to stabilize the rupiah currency, fiscal consolidation, reduction of current account deficit, strengthen the banking sector and industry corporate sector. Follow-up among others are delaying or cancelling the implementation of major projects as well as reducing subsidy fuel, closing banks that are not in good condition and do the merger, as well as opening opportunities for foreign investors to own shares of more than 50 percent.

The policy makes Rupiah currency be stable for a while, but more and more companies are unable to meet its foreign debt obligations (default). The things the government is the primary consideration at that time to invite the IMF for help in the achievement of monetary and macroeconomic stability.

Recommended IMF loan can be grouped into three sections, those are :
1. The realization of a strong macroeconomic framework,
2. Comprehensive strategy to restructure the financial sector,
3. Structure policy in general including good governance.

After the economic recovery, in accordance with the mandate of the Assembly to immediately end the IMF program, has issued a series of policy packages before going after the expiration of the cooperation program with the IMF adopted by Presidential Instruction No. 5 of 2003.

As for fiscal policy-the government in order to obtain funds and the policies adopted to use the funds in the implementation of development-directed to:

1. State budget deficit decline gradually to reach the balance position;
2. Reduce the stock of government debt to GDP to reach a safe position;

3. Reform and modernization of the national taxation system to develop a reliable source

    of State revenue;
4. Increase the efficiency of State spending;
5. Development of government debt management system effective.

Streamlining policies when faced with a crisis often forced to trade off the weight between the negative impact which caused by the momentum that may be biased because of doubt lost in the decision. Many communities get involved by the given of the structural reform, to be more effective, there needs broad public support. Therefore, communication strategies need to be selected sharpshooter and intensive public consultation.

Based on the Progress Report of the Execution Functions and Powers of Bank Indonesia, the Indonesian economy in 2010 grew by 6.1%, among the imbalance of the global economic recovery.  Although the main inflation is under controlled, the Central Bank of Indonesia (BI) attention to the inflation pressure has been continued especially to the anomaly that resulted in disruption of distribution and production so that inflation went to 6.96% in 2010. In addition, Indonesia's balance of payments surplus is expected still quite large. This is supported by the problem of large flows of foreign capital, especially foreign investors and portfolio investment.

While from the side of the current transaction, exports are still high even though slower than the previous quarter and followed by imports which also shows that the current slowdown is still experiencing a surplus. The performance of the current transaction of oil and gas are got pressured due to rising the deficit balance of oil. However this is being offset and getting involved by increasing non-oil current trading performance. With these developments, defuse reserve position at the end of December 2010 reached 96.2 billion U.S. dollars, equivalent to 7.1 months of imports and the government's foreign debt payments.

However, based on the speech at the middle holding of the G7 meeting, President Susilo Bambang Yudhoyono was implied that not asking for help again to the IMF if the futher financial impact of a current crisis will further burden the national economy.

The problem is the IMF (and might also the others international economic organizations) serving the doctrinal propositions and recommendations for policies that are not widely agreed by both of the party, even in terms of capital market liberalization, because basically the IMF imposed policies that are made to the borrower countries. However every country has a choice that is the choice that they are not depended then free by the power of IMF.

World Bank and IMF In Indonesia's economy

Undeniably the World Bank and IMF have brought Indonesia to move away from the State with economic backwardness in the decade of the 1960s to be the developing countries that recorded high growth. But in the long term, developing countries currently experiencing economic instability as a result of a global conpiration of products developed countries.

Into the crisis of loan disbursed slowly that is the obligation to pay the debt. The amount of debt that increased was made the government should continue to allocate budget funds revenue and expenditure of State or the State Budget ‘To pay the debt and interest’. Composition of the budget reflects the amount of debt burden, not only drain state revenue sources but also sacrifice the interests of the people in the form of the subsidy cuts and the enforced of the state spending restrictions. Therefore, although the World Bank has the slogan "working for a world free of poverty", but despite has been operated more than 60 years in Indonesia, the poverty rate remains high. Data from the ‘Statistic Center Agency’ in 2010, there were 31 million poor people in Indonesia.

The adopted policies that issued by the World Bank which affecting the political and economic policies of a State called SAP (Structural Adjustment Program). If the State wanted to increase the debt, the World Bank ordered the Central Bank of the Borrower Countries do "change policy" (which is set in SAP). Because of SAP the World Bank influence on domestic politics and economy in Indonesia are also very becoming larger.

Losses from the loan, from the one lost in the Indonesian economy had lost a result of the oil refining and mining mineral because it was given to pay the debt and because the process of refining and mining was carried out by transnational companies and partner companies of the World Bank. On the other hand, the loss in political fields is it, in the relevance makes the government debt to be very dependent on the World Bank and influence the political decisions which made by the government.

Perhaps it is the time for the Developing Countries to rethink whether World Bank and IMF could be a solution or not. The discipline is a priority in ‘efforts to create its own economic program and execute those program’. The point we are only the ones who ultimately have to resolve Indonesia's economic agenda to be more increased in the further.

In addition, both of the World Bank and the Indonesian government see that the improvements in governance side are absolutely necessary. Only by a clear and good government, performs of the reforms in all fields are able to be done.

If this can be realized, the credibility of the government that built within the solid and support by the representatives of the people-is expected to perform the function of new referrals for the future growth of the nation's economy which is vulnerable from the symptoms of political economy.

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