The Indonesian Economy and IMF/World Bank : Structural Adjustment, Democratization, and the Age of Bottom-up Development(PAPERS READ AT THE AUTUMN CONFERENCE SYMPOSIUM, 2001:Policy Dimensions of Neo-Liberalism)

This paper studies Indonesia's economic involvement in globalization and neo-liberalism through its relationship with the IMF and the World Bank. The IMF and World Bank were deeply involved in the set-up of the Soeharto Regime, especially in formulating the IGGI (Inter-Govermental Group on Indonesia) system that supported the Government budget every year by borrowing money. People's control over the Government was extremely weak, and national elites were plundering government resources, although they also tried to supply the people with ample consumer goods at cheaper prices. When the Government sought further financial assistance from the World Bank at the beginning of the 1980s, the World Bank attempted to apply a structural adjustment policy that deregulated the trade and investment regime in Indonesia. The deregulated banking sector promoted an in-flow of portfolio money that supported the private-sector-initiated infrastructure development and thereby boosted the economy, something that the World Bank praised in every year's report. However, monetary institutions had not developed in proportion to quantitative growth. Under poor surveillance, the banking sector made vast amounts of bad borrowing loans during the monetary crisis of 1998. In order to save the banking sector, the Government issued national bonds to the point where the national debt exceeded GDP. Based on the ideology of civil society, the IMF and World Bank prompted the Government to undertake further deregulation of trade and investment, improve the judicial system, and practice good governance. However, priority was given to the sale of big companies controlled by IBRA(Indonesian Bank Restructuring Agency) to foreign investors. The IMF' s hasty policy engendered political instability that in turn cost the economy its chance of rapid revival. However, despite continuing corporate troubles and capital out-flow, the national economy recorded modest growth (4%) and solid capital formation (18%) in 2000 and 2001. Chinese capital relying on its self-financing network contributed to growth, and similar self-financing by pribumi non-Chinese capital among micro, small and medium-scale firms also developed under the economic crisis. These sectors that propped up the Indonesian economy are based on informal and community networks. These networks and newly appearing people's organizations among farmers, laborers, and small entrepreneurs, which feature in moves towards democratization and decentralization, may be able to check the negative effects of globalization and neo-liberalism in Indonesia.