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09 October 2008

Indonesia far from crisis, say analysts

When the U.S. Congress approved a bailout plan last week, it was expected to ease the global financial crisis.

Fast-forward three days, and world markets, including Indonesia's, were plummeting. Coupled with the volatile rupiah, the inevitable question is raised: Will Indonesia suffer another economic crisis?

"No," is the immediate answer from economist Faisal Basri. "Indonesia's economy is stronger now because it has learned a lot from the last crisis."

In the 1997 financial crisis, Indonesia's short-term loans to foreign reserves ratio stood at 175 percent; currently, it stands at 34.5 percent, meaning the country can safely finance its short-term loans.

"Our banking sector was erratic (in 1997), it is now sturdy. Overall, even in Southeast Asia, judging from indicators such as politics and business, Indonesia is fairly stable," Faisal said Wednesday.

The global financial crisis will impact only Indonesia's currency and stock market.

"The dollar is scarce because the U.S. government is issuing treasury bonds to finance the bailout and plug its huge deficit."

His remarks echo earlier statements by President Susilo Bambang Yudhoyono that Indonesia will not see a repeat of the late-1990's crisis.

The central bank is also downplaying the possibility of a crisis.

On Tuesday, it raised its benchmark interest rate by 25 basis points for six straight months, to 9.5 percent, thus "signaling to market players that the economy is well guarded," according to Bank Indonesia senior deputy governor Miranda S. Goeltom.

Miranda said a consistent rise in the BI rate would assure the market the central bank was in control and ready to safeguard the economy.

She added BI would be in the market to monitor the volatility of the rupiah against the dollar, based on global movements.

"The weakening (rupiah) is common as long as it is orderly and on a manageable range," she said.

Still, Faisal warned, Indonesia "may eventually feel the impact of the financial crisis as the U.S. economy slows down, resulting in China shifting its export destination from the U.S. to countries like Indonesia."

How to deal with that? "Guard national borders against imports of unessential goods," he said -- the same statement made last week by acting Coordinating Minister for the Economy Sri Mulyani Indrawati.

With some people seeing opportunity at a time of crisis, Faisal said the government should start focusing on potential industries, such as those producing rattan, wood, tea, coffee, cacao and crude palm oil.

"Other countries buy raw materials from us, process and package it, then sell it at a high price. Why don't we start selling our own products?" he said.

With the real sector developing, he went on, Indonesia could have a better economy in the future, while unemployment would drop. Faisal estimated the economy would grow by 5.8 percent this year, well below the government's estimate of 6.2 percent.

He said the economy had slowed in the third quarter of 2008, as seen by a decline in exports and imports, as well as in the financial, services and telecommunications sectors.

The Institute for Development of Economics and Finance (Indef), an economic watchdog, recommended Indonesian authorities prepare a safety net in case a full-blown crisis arose.

The government needs "concrete actions" to safeguard the economy, including providing incentives for exporters and raising the deposit insurance limit from Rp 100 million ($10,325.25) to Rp 250 million, Indef economists said.

 
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