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Indonesia faces 'downside risks'

Barbed wire bars access as several thousands of Indonesian workers march to the presidential palace in Jakarta yesterday during a rally meant to urge the goverment to increase their wages.

Barbed wire bars access as several thousands of Indonesian workers march to the presidential palace in Jakarta yesterday during a rally meant to urge the goverment to increase their wages.

Jakarta advised to watch out for 'worrisome' situation in US, Europe



Despite its stellar economic performance, Indonesia should beware of certain "downside risks" resulting from the evolving global economic situation and should take necessary measures to minimise its impacts, according to the International Monetary Fund (IMF).

Due to the interconnected nature of the international arena, no country is immune to the impact of the global crisis and therefore, Indonesia should maintain a prudent monetary policy and a flexible exchange rate to help counter external risks, IMF managing director Christine Lagarde said during her visit to Indonesia.

In addition to these measures, the country should try to attract more investment, particularly in infrastructure projects, to accelerate the pace of its economic growth, she added.

In this interconnected world, Lagarde said, no country was immune to crisis in one part of the world.

Downside risks remain, as recovery in most advanced economies has been complex and the overall economic situation is "worrisome", she said, citing the United States and the European Union as sources of the contagion.

In the US, downside risks could result from the so-called "fiscal cliff", Lagarde said on the second day of the Asean-Latin Business Forum being held in Jakarta.

The "fiscal cliff" is a combination of the yearend high spending cuts and tax hikes prepared by the US government.

Across the pond from the US, uncertainty persists despite the efforts of EU leaders to tackle the debt problem, she added.

Lagarde cautioned that amid uncertainty in the global economy, there was a trend of rising protectionism as noted by a recent World Trade Organisation report.

In the report, released in April, the global trade governing body highlighted rising protectionism in G-20 economies since mid-October last year, as 124 new restrictive measures were put in place, impacting around 1 per cent of world imports.

Argentina, for example, tweaked import rules on bottle caps and water balloons, while India banned cotton exports. Following the report, the US also recently criticised Argentina and Indonesia for putting up new import restrictions.

"This is the sort of temptation that I strongly encourage you to resist as much as you can," Lagarde said.

Coinciding with Lagarde's visit, Coordinating Economic Minister Hatta Rajasa said Indonesia would contribute US$1 billion (Bt31 billion) to the IMF.

Central bank Governor Darmin Nasution said the contribution would be in the form of purchasing IMF bonds. The manner of purchasing would follow the international consensus, where the bond value would be considered as the buyer's foreign exchange reserves.

To tackle the downside risks of the current crisis and increase its preparedness to respond to the needs of its members, the IMF is expanding its new resources to tackle the fallout from Europe's debt crisis.

So far, it has obtained commitments of up to $456 billion, with the latest coming from a number of emerging economies including Brazil, Russia, China, India and South Africa and G-20 countries during its recent summit in Los Cabos, Mexico.

Mexican President Felipe Calderon said during the summit that it was the first time the fund had been capitalised without the US, which reflected the importance of the emerging markets.




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