As we draw closer to the tenth anniversary of the most harrowing events of the Asian financial crisis, I decided to revisit perhaps the signature image of those tumultuous times. To the left is then-IMF Managing Director Michel Camdessus and to the right is then-Indonesian President Suharto. On 15 January 1998, Suharto signed a deal with the IMF for another bailout package full of unpopular austerity measures. CNN's introduction to a story on the signing goes like this:
Indonesian President Suharto on Thursday signed a new deal with the International Monetary Fund, sacrificing his family's interests to put his nation on surer footing for economic recovery.Suffice to say, things did not immediately get better as it wasn't until 1999 that Indonesia experienced economic growth again after experiencing negative growth in 1998. Riots over removed subsidies and over the economic dominance of a Chinese elite prevailed for quite some time.
The new deal binds Suharto to a pledge to sweep away monopolies, subsidies, tariffs and tax breaks for pet projects -- including a national car program headed by his youngest son, Hutomo Mandala Putra, known as Tommy.
"Indonesia should be able to soon begin to overcome its economic crisis," said IMF Managing Director Michel Camdessus.
The picture is laden with heavy symbolism: Western "imperialism" made Indonesia capitulate to the IMF's austerity measures, i.e. the infamous "structural adjustment" policies. Camdessus, with his arms crossed, peers over the shoulder of a visibly cowed Suharto, who would be turfed out of office later that year. Astute commenters like Nouriel Roubini see the fear of experiencing what happened to Indonesia as a reason why Asian countries have stacked up far more foreign exchange reserves than they ought to by conventional measures of reserve adequacy. Roubini says these countries have drawn the "wrong lessons" in ensuring that they never have to turn to the IMF when encountering balance of payments problems. As these countries have piled on more reserves, the IMF has become marginalized as of late in the global political economy. Some even say that the US is trying to maintain the IMF's relevance by using it as a tool to get China to revalue. You never know, though, if another cataclysmic event hits and makes the IMF spring to action again. Ironically, piling up excess reserves may be the precursor to such an event.