Mulyani: global economy in turmoil

The Jakarta Post , Jakarta | Tue, 09/09/2008 4:30 PM | Headlines

Coordinating Minister for the Economy Sri Mulyani Idrawati said the U.S. government's decision to bail out mortgage giants Fannie Mae and Freddie Mac indicated that the global economy was in turmoil.

"This situation will affect the global economic condition," Mulyani said at the State Palace on Tuesday.

Over the weekend, the U.S. Treasury decided to place Fannie and Freddie, which own or guarantee about half U.S. mortgage debt, into a conservatorship to remove a big cloud of doubt that had been weighing on global markets. However, it will probably end up costing U.S. taxpayers billions of dollars.

Mulyani said the bail out signaled that the economic condition in the United States was in a deep slump and that U.S. Finance Minister Henry Paulson was aware how it could affect the global economy.

"If you look at the exposure, the amount is tremendously high, Rp 5,800 trillion (US$619 billion). So, we can imagine the captive magnitude," she said.

Indonesia's financial market responded negatively to the bail out with the Jakarta Composite Index down during trading by 90 points, while the rupiah dropped to 9,360 per U.S. dollar.

"We and the Bank of Indonesia are focusing on how to sustain the macroeconomic fundamentals," she said, adding that the government would continue to muster positive sentiments in the market.

"What happens now is what we call `flight to quality' where investors are looking for places that are fundamentally safe and strong in the medium and long term. This prompts them to make a run for the dollar.

"But fundamentally, the situation in other countries such as
ours, does not change much."

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