Govt, BI brace for crisis to protect economy

JP/J. AdigunaPolicymakers announced last week measures to protect the economy, as they foresaw a second-round effect of the global economic slowdown affecting Indonesia next year.

Measures for the real sector include a stimulus package that could add infrastructure spending, fiscal incentives and Bank Indonesia’s (BI) lowering of the benchmark interest rate to provide low borrowing costs to encourage consumer spending and business expansion in the consumption-reliant economy.

BI has required local exporters and debtors to bring home their funds parked overseas to domestic bank accounts, in a move that will bring in more than US$30 billion and stabilize the rupiah so forex liquidity will be sufficient in times of crisis when foreign currencies normally dry up.

The central bank has spent over $2 billion of its forex reserves so far this month by intervening, buying rupiah in the market when foreigners sell Indonesian assets to convert their gains to dollars, BI deputy governor Hartadi A. Sarwono said on Sunday. The reserve is now at about $122 billion, down from $124.6 billion late last month.

“BI will remain committed to acting in the market if necessary, using several measures including direct intervention, buying government bonds both by rupiah market operation and by auction using foreign exchange,” he said in a press statement.

The nation’s financial market has recently shown high volatility with heavy foreign selling pressures, as debt troubles in European countries and a stalling economic recovery in the US prompted investors to shift to safe haven investment instruments such as US dollars and Treasuries, gold and Swiss francs.

More than 9 percent has been wiped off Jakarta’s benchmark stock index since it reached a record 4,193 on Aug. 1, and the rupiah has dropped almost 5 percent during the same period — a phenomenon that analysts considered an alarm bell for the real economy, given that past crises were started by financial market turmoil that multiplied negative perceptions of the overall economy.

“The global economy’s negative sentiment, which was triggered by poor handling of the crisis in Europe, has put pressure on short-term foreign investors who exited the [Indonesian financial market] to take profits,” Hartadi said.

When the US-led 2008 crisis hit, the Jakarta Composite Index (JCI) plunged over 50 percent throughout the year, followed by a slowdown in the real economy’s growth to 4.5 percent in 2009, down from 6.1 percent the previous year.

President Susilo Bambang Yudhoyono’s administration then launched a Rp 73 trillion (US$8.32 billion) stimulus package in the form of additional government spending and fiscal incentives through government-borne import duties and value-added and income taxes to help revive business activities and avoid employment cuts.

“The 2009 measures are still relevant for implementation [now], but we’re not yet in a ‘concerning’ category, though we remain vigilant on economic conditions in the US, Europe and China,” Coordinating Economic Minister Hatta Rajasa said.

BI projected an economic slowdown to 6.5 percent next year from the projected 6.6 percent this year, while the government considered its 6.7 percent growth target next year to be “optimal”.