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Jakarta Post

Restoring capital flow and resisting protectionism

  • John A. Prasetio


  /   Wed, March 18 2009   /  02:33 pm

Indonesia, like other emerging economies, has large external financing needs to develop and modernize its economy. Unfortunately, a disorderly deleveraging toward the last three months of 2008 triggered a massive reversal of capital flow. As global banks retreat into domestic lending and domestic financial markets, both the government as well as the corporate sector in Indonesia are put under increasing strain. Financing their activities has become more difficult, more uncertain and more expensive. There are concerns as to how corporations will be able to roll over maturing debts in the coming months. In a nightmare scenario, this difficulty in accessing cross-border funding due to the drying up of foreign funds could lead to a massive financing shortfall, followed by a serious spiralling of corporate insolvency and wealth destruction. It is, therefore, crucial that the I...