Thus, the Soeharto Government is likely to do only the minimum necessary to receive aid. Which means Jakarta will almost certainly retain its system of pervasive crony capitalism. Were Indonesia left to its own devices, it would have to adopt all of the reforms necessary to recondition its economy and reassure foreign investors, who tend to be more careful with their own cash than are international aid bureaucrats with tax money from industrialised states.
Now that the IMF, backed by Washington and Canberra, has intervened to prop up Indonesia, as well as Thailand and South Korea, what nation cannot expect help? What standard says “yes” to Indonesia and “no” to other nations suffering severe financial distress? Other bail‐out candidates include Brazil, Malaysia, Mexico (again!), Russia, Ukraine, and, incredibly, Japan. How stable will the global economy be if prosperous nations continually underwrite economic failure? And if the world really were ready to topple into the economic abyss, there isn’t much the IMF could do about it.
Moreover, the IMF’s proclivity to bail out the profligate creates a danger of “moral hazard”. The expectation of a subsidy encourages people to behave irresponsibly. Warns economist Allan Meltzer: “Banks and financial institutions can now act safe in the knowledge that the IMF will provide a safety net to protect them from some, or even most, of their losses.”
Of course, if international taxpayers are lucky, Indonesia and other bail‐out beneficiaries will repay their loans. But even then the credit won’t be free. When the IMF channels billions of dollars to a foreign kleptocracy such as Indonesia’s, it diverts resources from other uses, such as investment by entrepreneurs in Australia.
But the IMF is addicted to wasting global taxpayers’ money. The US Congress should reject extra funding for the IMF. Otherwise, the IMF will find more irresponsible foreign debtors to bail out.