‘Why doesn’t the World Bank or the IMF just bail them out?’ she asked, not displeased with the opportunity to hold some discussion which might, in some way, contribute to her overdue story.
‘Their case is different to that, say, of Mexico, Jo.’ He looked around for the waiter and, having gained his attention, indicated that they would have another round. ‘How much do you understand about the workings of the IMF?’ he inquired.
‘Not as much as I should, considering my profession,’ she admitted.
Hamish instantly admired her for her honesty. He had struck few journalists who would have suggested anything but the contrary.
‘A quick lesson, then?’ he asked, not patronizingly.
‘Providing you promise not to bore me to death,’ she smiled, and for a moment Hamish acknowledged that Mary Jo certainly had a refreshing directness about her manner.
‘Okay, here goes,’ he started, pausing only to sip the remaining whisky.
‘Firstly, the IMF is charged with the responsibility for safeguarding the stability of the international monetary system.’ He moved slightly, making himself more comfortable before continuing.
‘I have found that, with the exception of a small circle of financiers and economists, the IMF’s activities are considered to be shrouded in mystery.
More often than not, it is confused with the World Bank but, in fact, it is something of a cooperative institution with almost two hundred members.
These are countries which have joined voluntarily, believing that the IMF is perhaps the best forum for buying and selling their currencies, thereby stabilizing the flow of capital around the world. The IMF maintains, although some would argue that this is not the case, that it has no effective authority over the domestic policies of its member nations.’ Mary Jo raised an eyebrow at this.
‘I’ll explain a little later,’ he said, accepting the fresh whisky and taking a quick mouthful. ‘The IMF offers its members rational advice to assist whenever this is believed beneficial. For instance, some nations splurge a considerable proportion of their foreign exchange on military purchases. When the IMF identifies such problems or activities, it offers friendly advice, and rational argument to dissuade the nation in question from continuing on this course. The IMF can’t force any of its members to adopt any specific policy except, of course, the requirement that contributing nations disclose information relating to their monetary and fiscal policies. The members agree that the IMF should maintain some authority over their payment policies as history has proven time and time again, that without a global monitoring body, today’s system of payments in foreign exchange would fail.’
Hamish rested momentarily, observing Mary Jo to determine if she followed. Satisfied that she understood, he continued.
‘Each currency has a value in terms of other currencies, whether this be the Baht, the Franc or even the crumbling Rupiah. Whether it’s a government or a multinational company, business depends on the effective flow of capital which is controlled through the exchange of each countries currency. The genesis for the need for an organization such as the IMF can be found back in the events of the Great Depression of the 1930’s, when banks failed by the thousands and world trade virtually collapsed. Those who could still afford to do so changed whatever money they had into gold. This later created another problem when national treasuries, as was the case in the United Kingdom, failed to meet the demand for gold. This eventuated in the U.K. leading the way for the abandonment of the gold standard. Confusion reigned.
Some countries, mainly gold producers, maintained their currencies tied to gold, while others could not, creating uncertainty in the value of their money. This, in turn, caused complex problems whenever these nations attempted to exchange their currencies with those still tied to the precious metal. The old-fashioned method of payment was reintroduced by some nations, using the barter system instead of money. World commerce became very confused as it was almost impossible to determine the value of one currency, in relation to another.’
‘There were a number of unsuccessful conferences called to resolve the problems associated with currency exchange but these failed to address the real issues. It was not until a joint British-American proposal resulted in the formation of the IMF in 1944, that the world had some semblance of order applied to the international exchange systems.’
‘I thought Indonesia once withdrew from the IMF?’ she interrupted.
‘Yes, that’s true,’ he agreed, ‘as did Cuba and a number of Eastern Bloc countries at that time. But,’ he added, ‘all of these rejoined with the exception of Fidel.’
‘And the IMF does not have the power to just lay down the law, say, to Indonesia and direct them to toe the line or they won’t receive any assistance?’ she asked, uncertain that she had heard correctly before.
‘That’s what they claim, sure,’ he answered. ‘Each member country deposits whatever funds they consider appropriate. The more they sub-scribe, the greater the say they have in IMF affairs, and the more they may borrow in times of need. The largest depositor is the United States, giving it some twenty percent control over all votes. Obviously, this then gives the American Government the strongest voice in determining policies.’
‘The members may borrow up to three times their own deposits with the IMF, which has its own line of credit of twenty-five billion dollars for such emergencies. This, together with its cash reserves, would normally cover any of its members immediate needs. However, Indonesia requires considerably more than it is really entitled to receive, and certainly well in excess of earlier bail-out packages such as that provided to Mexico.’ He looked to see if she still followed his explanation.
‘It’s okay, I’m keeping up,’ Mary Jo advised.
‘Good. It’s important to understand that IMF members are expected to follow a basic set of economic guidelines, pursuing policies that will benefit the country, and the IMF as a whole. Although the IMF has no means of coercing delinquent members, it can apply considerable moral pressure to ensure that they abide by the rules.’ Hamish could see from her look of disdain that she correctly interpreted the situation.
‘In other words, toe the line or you won’t receive any funds?’ she suggested.
‘Or worse,’ he replied. ‘The offending nation could have its membership terminated.’
‘And where does that leave Indonesia?’ she asked, confident that she knew already what his reply would be.
‘In the proverbial,’ he answered. ‘Unless the Indonesian Government accepts that they must initiate radical reform, it’s my guess the IMF will refuse to provide any further funding. One would have to agree, Jo, that under the current circumstances it would be futile to give these people more money when it’s obvious that so much is just siphoned off by those in power.’ Mary Jo nodded in agreement. She intended writing more about the corruption she had already evidenced during her brief stay.
‘Just how bad is it here?’ she persisted.
‘My guess is that we might see a major meltdown if the IMF and World Bank dig their toes in and insist on the reforms necessary for Indonesia’s long-term survival. Let’s just say, I’m not recommending further investments here for the time being. Hell, it’s less than a month since I last visited and the rapid deterioration evident over those few weeks is, to say the least, startling.’ Mary Jo guessed that his current visit was not going too well. Curious, she steered the conversation towards his own activities.
‘How is Perentie Limited faring here?’ she asked, taking Hamish by surprise. He collected his thoughts, lifted his whiskey and swallowed the remaining Chivas before responding. He knew he must be circumspect, more so as this attractive woman survived off information she extracted from casual conversations such as theirs.
‘I’m