David E. Sanger

This selection was excerpted from an article by New York Times staff reporter David Sanger, "As Economies Fail, the IMF Is Rife with Recriminations," published in the Times on 2 October 1998.

On a steaming January [1998] day, Michel Camdessus, the IMF's top official, slipped into Djakarta to the private residence of President Suharto and sat down for a four-hour meeting to tick off, line by line, the huge reforms Indonesia would have to implement in return for tens of billions of dollars in emergency aid. Two previous deals had collapsed when Mr. Suharto ignored the fund's conditions, so Mr. Camdessus insisted that he strike a deal directly with Mr. Suharto, then Asia's longest-serving leader. It was a meeting of men who knew different worlds of power politics: Mr. Suharto rose as a general in central Java and Mr. Camdessus went up through the bureaucratic ranks of the French Treasury on his way to becoming head of France's central bank.

"It was all there," a senior IMF official recalled. "He was told he had to dismantle the national airplane project, the clove monopoly, all the distribution monopolies."

At one point, Mr. Camdessus looked at the impassive Mr. Suharto and said, "You see what this means for your family," a reference to their vast investments in the country's key industries.

"He said, `I called in my children and they all understand.'"

But within months, that exchange in Djakarta came to symbolize the IMF's twin troubles: its inability to understand and reckon with the national politics of countries in need of radical reform and its focus on economic stabilization rather than the social costs of its actions.

Mr. Suharto had no intention of fulfilling the agreement. It was, one of his former Cabinet members said, "a delaying move that was obvious to everyone except Camdessus."

Perhaps one reason why the fund sometimes appears tone-deaf is that its senior staff is almost entirely composed of Ph.D. economists. There are few officials with deep experience in international politics, much less the complexities of Javanese culture that were at work in Indonesia. Historically, experts in politics and security have gravitated to the United Nations, development experts to the World Bank, and economists to the IMF--creating dangerous gaps in a crisis like this one.

As a result, the fund had only a rudimentary understanding of what would happen if its demands were met and all Indonesia's state monopolies were quickly dissolved. While that system lined the pockets of the Suhartos and their friends, it also distributed food, gasoline, and other staples to a country that stretches for three thousand miles over thousands of islands. To help balance the budget, the fund demanded a quick end to expensive subsidies that keep the price of food and gasoline artificially low. But that, combined with the huge currency devaluation that sparked the crisis, resulted in high prices and shortages that fueled riots that continue to this day [killing more than 1,200 people], as millions of Indonesians lose their jobs.

The fund--unintentionally, its officials insist--also sped Mr. Suharto's resignation, insisting on the elimination of "crony capitalism," code words for removing the Suharto family from the center of the economy. Ultimately, that may prove to be Indonesia's salvation, if the new government can contain the rioting against the ethnic Chinese minority--whose money is desperately needed to save the country's fast-shrinking economy.

"It is worth noting," Stanley Fischer [first deputy managing director of the IMF] said this week, "that our programs in Asia--in Indonesia, Korea, and Thailand--only took hold after there was a change in government."

Nonetheless, the Indonesia experience has revived the argument that the fund is so focused on stabilizing banks and currencies, on preventing capital flight and freeing up markets, that it is blind to the social costs of its actions.

[Editors' Note: Indonesian president Suharto resigned on 21 May 1998 after thirty-two years in power and was succeeded by Vice President B. J. Habibie.]