Stock prices are jumping. Many have fallen sharply. Last week Composite Stock Price Index in Indonesia Stock Exchange experienced a great pressure. Investors from across the country worried about the European crisis. Fearing that the crisis spread to many countries, including Indonesia.
Besides the stock weakened, the rupiah also depressed. Rp9200 touched. If the global economic situation continues to deteriorate, a number of people predicted the rupiah could be pushed into numbers of Rp10 thousand. That bad effects of the crisis centered on Europe's far?
Economists give different answers. But all agree that the effects of the crisis would not be as bad as the 1998 crisis. Indonesia's economic fundamentals strong enough to withstand the storm from Europe.
Current conditions, said M. Chatib Basri, Vice Chairman of the National Economic Committee, has not been categorized as a crisis. New situation entered a recession phase. What does he mean? Here's an interview with Chatib Basri VIVAnews. The interviews took place Monday, September 26, 2011, through an international telephone connection. Coming to the country, Chatib attend the annual meeting of the IMF-World Bank in Washington DC.
Could you briefly describe the anatomy of the current global crisis?
You see, unlike the current state in 2008. It was a crisis triggered by the case of sub prime mortgages that eventually hit the United States economy. At the same time as many other countries that hold the instrument then the crisis quickly spread throughout the world.
I have not dared to mention the current condition as a crisis. Yesterday at the annual meeting of IMF and World Bank, my friends call it a trend of global recession.
However, if world growth falls below 2 percent probability of a recession turned into a global crisis becomes bigger. Why did this happen?
Is initially triggered by the prospect of a bleak U.S. economic growth along with the stimulus that is too low to the country's economy. They provide a low stimulus due to reducing the fiscal deficit in its budget.
This resulted in economic growth slowed at the same time because the U.S. central bank also does not do the third Quantitative Easing. [Quantitative Easing is monetary policy by central banks aimed at giving an injection of liquidity into the market by purchasing various financial assets in the money market.]
In the midst of such a situation, the condition of several European countries, namely Portugal, Ireland, Italy, Greece and Spain deteriorated. The country has a ratio of budget deficit to Gross Domestic Product (GDP) over 120 percent. Compare with Indonesia which is only about 20 percent.
The most severe is Greek. Well if it reached Greece default [default] then that would be most affected are the banks that had been providing large loans to the country. The banks are mostly from France, Germany and Switzerland.
As a result, increased bank risk. And eventually make the big banks are not willing to provide inter-bank loans because mutual distrust.
These conditions eventually made the liquidity dries up in Europe, because each bank and keep the state of their own. The banks are not strong reeling.
In the middle of the dry conditions of liquidity in the financial markets of Europe, the U.S. central bank issued a policy called Operation Twist. The operation in principle is the central bank sells short-term bonds and buying long-term bonds from the market.
Investors were interested in buying long-term bonds. Therefore, under these circumstances they choose to buy a quality instrument.
This explains why all of a sudden last week the rupiah plummeted. Foreign investors withdraw their portfolios in developing countries, including Indonesia, to buy long-term U.S. bonds.
But the pressure on the rupiah is not too high, the most severe is the Korean Won.
Pressure on the index in the stock market and the rupiah will continue?
It will all depend on the clarity of solving the crisis in Europe. Well, the problem, Europe is not easy. The question is whether they dare to bail-out Greek and banking? And do not forget the problem becomes more complicated because each country's politics are also different.
As long as Europe is not clear I think investors will likely look for quality investment as long-term American bonds.
What we must guard is not to panic the market. Because of imperfect information, markets can be panicked and could eventually happen massive sales.
If American and European crisis, how Indonesia's exports to the region?
First, do not forget our primary export is energy and commodities. And it's kind of the biggest export to China, so we can still be helped. Second, the share of our exports to growth was small, only 25 percent. Much of our growth is still driven by domestic demand.
How big is this crisis influence on the growth of Indonesia?
I am not overly concerned with growth. We've had the years of 2008 and it turns out we survive. Compare this to Singapore when it is exposed to more of a result of such a large dependence on exports.
The same thing happened last week, the Singapore currency great distress. So did South Korea's biggest drop. Together with Singapore, South Korea's dependence on exports is very large.
What I worry about is precisely the stability in our financial markets. Indonesia is now clear that there is no problem. We have only been hit by the what is happening in America and Europe.
The problem, the instability of global financial markets can be quickly transmitted. If, say, banks began to fend for themselves, then the impact could be serious.
Because, until now we do not have the Law of Financial Safety Net System (JPSK) which provides flexibility for monetary authorities to inject liquidity in the banking difficulties.
If there is no clear legal framework, Bank Indonesia government or parliament could be disputed if you want to help a bank in difficulty, as the case of Century Bank. That is, the authority can not do anything because the rules did not exist until today.
In what capacity you are present at the annual meeting of the Bank the IMF and World Bank?
I was present as an Independent Advisory Board for the Asia Pacific Regional. I was asked my views about Asia related to the current situation.
What is your advice to Asia?
First, the most important countries of Asia should provide a stimulus to the economy. Because Asia is currently strong. China for example, could still grow 9 percent, India is also strong.
Strong growth in Asia makes me quite optimistic about the probability of global growth does not drop below 2 percent is quite large. So the chances for a global crisis can be minimized.
Second, Asia is just impacts. Europe must resolve the problem, if not then all countries will be affected, including Asia.
Third, Asia must be prepared to anticipate when a crisis actually occurs. For example, Asian countries could use the facilities provided Deffered Drawdown Option World Bank. The facility allows users to sell the state low-interest bonds to the Bank if a crisis makes borrowing in the international market shot up.
