Bitter Medicine for Indonesia

Can the International Monetary Fund help Indonesia make the tough decisions needed to stabilize its economy? Possibly, because the IMF wisely attached strings to the $23-billion financial aid package it arranged. To get the money, the Southeast Asian island nation agreed to take stringent steps to put its economic house in order. Whatever the immediate pain, in the long run these measures will be good medicine for some bad habits.

Financial-sector reforms include closing unhealthy banks (16 last week), cutting food subsidies and trade barriers and ending monopolies in key industries. The changes should result in lower prices for Indonesians as well as a more open economy.

Cronyism and corruption are widespread in Indonesia, and the IMF program will demand reform. Targeted are economic interests dominated by a small group of President Suharto’s relatives and close associates.

Foreign companies have long complained about conditions in Indonesia. They were, for instance, required to use Indonesian firms for all domestic shipping. And last year, the United States, Japan and the European Union filed a complaint with the World Trade Organization when Indonesia imposed high tariffs on imported automobiles and auto parts, a move taken to protect a state car company controlled by Suharto’s youngest son.

The IMF package, solicited by Indonesia to halt the slide in the rupiah, its currency, came with the tough conditions for a sound purpose. Now the nation’s first family will have to clean up its act. That’s the cost of the ticket.