Today
Jakarta
- 27 °C
Other Publications
Global recession may have impact on RI by next year
Aditya Suharmoko , The Jakarta Post , Jakarta | Mon, 10/06/2008 9:59 AM | Headlines
DOMINO EFFECT: Bank Indonesia Governor Boediono (from left), Industry Minister Fahmi Idris, Finance Minister Sri Mulyani Indrawati and State Minister for National Development Planning Paskah Suzetta chat after their meeting in Jakarta on Sunday to discuss Indonesia's response to the U.S. financial crisis. (JP/J. Adiguna)
Indonesia may start feeling the pinch of the economic meltdown in the United States and in some European countries as early as next year, dragging down fairly outstanding growth in Southeast Asia's largest economy.
Sluggish demand from Asian countries, which constitute Indonesia's key markets, as well as a shortage in global and domestic cash availability are cited as main factors that will put the economy under pressure.
"We mostly export goods to Asian countries; but if the U.S economy is slowing down, exports from Asia will also contract, thus reducing our exports to the region," said Trade Minister Mari Elka Pangestu.
"We may feel the impact (of the slowdown) next year," she added.
Indonesia's main export destinations between January and July this year were Japan (12.35 percent), the U.S. (11.6 percent) and Singapore (9.73 percent). Total exports during this period were valued at US$64.07 million.
Despite an approval by the U.S. House of Representatives for a $700 billion bailout to help settle the banking crisis, the U.S. is already on the verge of grave recession, as indicated initially by a constant unemployment rate and a drop in labor payout.
Ireland, one of the EU's economic tigers, has declared its transition into recession, following two quarters of negative economic growth. France, the EU's second largest economy, has all the indications of being in a slowdown.
On Sunday, Acting Coordinating Minister for the Economy Sri Mulyani Indrawati met with key economic ministers, including Mari, and central bank governor Boediono to discuss the impact of the global economic meltdown.
A concerted measure to absorb the impact will be taken during a Cabinet meeting Monday, at which several noted businesspeople are scheduled to attend.
The government is slated to provide incentives for exporters to take aggressive steps to diversify their export markets and help reduce dependency on the U.S. and Europe, according to Mari.
In a bid to reduce imports of "unessential" goods to balance the country's payments, the government will slap restrictions on these imports, Mulyani said.
Indonesia in targeting 6.2 percent growth this year, with 6.4 percent expected next year.
Bank Indonesia Governor Boediono said the U.S.-led global financial crisis would prompt a shortage of liquidity for local business players as well as the government account.
The tight liquidity will make it harder for the corporate sector to get loans for expansion. Companies will also be hard-pressed to pay overseas debts due to the high cost of refinancing.
As reported earlier by this paper, the government is planning to reduce its state budget deficit over fears it will have difficulty seeking financing to fill the gap.
"The shortage of global liquidity will be felt as a result of this crisis. We must be prepared to face this over the next six months to one year," Boediono said, adding the shortage would affect economies all over the world.
He said the global liquidity shortage would only stabilize once developed economies were on a safer footing.
"We will strengthen the banking sector. Our target is to maintain sustainable lending growth that can support acceptable economic growth and controllable inflation," he said.
Central bank figures show the capital adequacy ratio of local banks in August was 16 percent, above its minimum tolerance of 8 percent. The rate of nonperforming loans was 3.95 percent, below the 5 percent limit set by BI.
To help cushion the economy and ease liquidity problems, the government will speed up spending this year, Mulyani said.
As of August, there are still some Rp 110 trillion in idle funds that could be used to boost the economy.
Rod from sydney (not verified) — Mon, 10/06/2008 - 12:02pm
Hi There,
Well written article about what is happening on the events in the USD market and how they will effect RI. Saying this, you did not go far enough in the warning your readers in RI what is going to happen. If you think that the crisis is only going to effect RI in some small way think again. Your markets will be devastated over the next six months, equity is already harder to get even in australia, imagine how hard it will be to get in RI in six months when the companies wanting to lend have credit problems and bad credit ratings, they will fold when credit becomes hard to get.
Anyways, My advice if you have cash now, is to put it under your bed and wait till it all blows over and you will be golden.
Rod.