Suharto and IMF: It's different now
Former Indonesian president Suharto (photo Washington Post) died two days ago, less than a month after Citgroup was bailed out by the Government of Singapore Investment Corporation (GIC) and other sovereign wealth funds. It's a reflection of how the world has changed.
Recall the 1997 Asian economic crisis when the Thai baht collapsed dragging down other Asian currencies, including the Indonesian rupiah. Suharto needed aid from the International Monetary Fund and other donors who forced him to cut public services and subsidies. That heightened public discontent over government corruption and political repression and Suharto was forced to step down in May 1998.
Now the IMF no longer wields that kind of power. It has money problems of its own, noted The Economist:
By 2010 it projects a budget shortfall of about $370 million a year.
Andrew Crockett, former head of the Bank of International Settlements,(said): “The fund does well when the world economy does badly” ... Since it charged its borrowers more than it paid its creditors...
But the fund's interest earnings are drying up as it struggles to find new takers for its money. Instead of relying on the fund, emerging economies are insuring themselves by amassing reserves of their own. Some, such as Brazil, Argentina and Indonesia, have paid off their IMF loans early, at a cost, to rid themselves of its “stench”, as some people put it. Now, a loan to Ankara accounts for two-thirds of its credit outstanding: the IMF is, in effect, the Turkish Monetary Fund.
Businesses today can get as much money from sovereign wealth funds as the IMF gave to countries in distress. In August 1997, the IMF came up with a $23 billion rescue package for Indonesia. GIC alone has injected $16 billion in Citigroup and UBS recently.
The funds are now in a position to influence the market much like the IMF did in the past. And that has become a matter of concern because, unlike the IMF, most of the funds are not obliged to disclose their activities. GIC, which manages Singapore's foreign reserves, is a private company, It is now thinking of reporting its activities but "probably it won't be every year", GIC deputy chairman Tony Tan told The Straits Times.
He explained GIC had the money to invest in Citigroup and UBS because it decided to convert some of its equity holdings into cash in the third quarter of 2007:
"we were very worried about the outlook for the economies and the markets", he said.
GIC was well ahead of the curve. The market was booming at the time. The Singapore economy grew 9 percent in the third quarter before slowing down to 6 percent in the last quarter, according to the Singapore government website, Enterprise One.

