The Impact of Tying Loans Aid
Criticism of IMF’s Aid in Indonesia during Financial Crisis1997-1998
Didin Kristinawati
1. Introduction
In early 1990s Indonesia was one of high-performing Asian economies. According to World Bank’s annual report, in 1997 Indonesian economy grew around 8%. The development program emphasized on industrial sectors, and the country emerged as newly industrializing economy under the five times elected incumbent, President Soeharto. However, by July 1997 Indonesian rupiah suddenly depreciated to Thai baht, the Malaysian ringgit, and the Philippine peso, and other foreign currency as well. And continue to depreciate even after its float, as foreign creditors and investors reduce their investments to Indonesia.
The drastic weakening of rupiah leads speculators to panic and selling rupiahs for US dollars. Drastic drop in direct investment, flight of capital of domestic and foreign entrepreneurs intensified the crisis. Followed by political atmosphere, the demands for changing in Indonesia’s leadership became tremendous. Students and civilians demonstrated along the road and occupied House of Representatives proclaimed economic and political reforms. Within six months, Indonesia’s economy collapsed to two digits negative growth rate. The government needed short term aids and had limited choice, loans taken up to finance the budget and overcome acute liquidity crisis, and called International Monetary Fund (IMF) for financial assistance. The government signed Letter of Intent of IMF standby loans which practiced of tying loans conditions. If balance-of-payments and budget deficits have reached such levels that creditors are alarmed about the repayment of their loans, governments have no choice but to negotiate a stabilization program with the IMF (Körner et al, 1984).
This paper will elaborate the impacts of tying loans by the IMF in Indonesia. Begin with a brief description of industrialization in section two, depicting the development in Indonesia which considers economy’s growth as main indicator of development achievement. The economic and political crisis section three explains the situation in Indonesia during financial crisis and the movement reforms in 1998, which leads to the financial aid by the IMF to deal with socio-economic and political riots. In section four, the implementation and impact of IMF aid’s prescription to Indonesia will be discussed. Section five try to critic to what extend does IMF contributed to economic recovery during financial crisis or even for long term development and concluding remarks presents in section six.
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Review Essay
Rural Development and Cultural Consideration in the Perspective of Szirmai, Appadurai, and World Bank
Didin Kristinawati
Introduction
Rural development is a broader concept than agricultural development. Rural development covers transformation not merely economic changes, but also changes in social context. The economic activities of rural development vary from agricultural to industrial sector. However, since agriculture is the defining characteristic of rural areas – where majority of the world’s poor lives in -, improvement in living condition in rural areas requires significant efforts to increase agricultural production.
Production and productivity may be raised through expansion of production factors i.e. labor, land, equipment, through intensification of land use, or contributing new input and technologies of production. Implementation of new technology or new program needs to consider local cultural setting into account. Otherwise, it will result resistance among poor rural society, the program failed, and sustainability development is not achieved.
The further question is how to comprehend the cultural setting which development projects have to function, and how to manage culture to come in useful for development. There are several researchers and intellectuals analyze the dynamics of development and the role of culture within society. This review essay compares development approach – specifically rural development- between Szirmai, Appadurai, and the World Bank. First, author will give summarize of their works and then compares how they take culture into account in rural development.
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