Indonesia was considered to be able to manage its external debts and had relatively strong economic fundamentals, a main asset seen as an instrument to fend off the current global financial turmoil.
"Indonesia`s debts have been managed well and its economic fundamentals are solid so its economy will not be affected by the crisis in the United States and Europe. I believe that the economic turmoil in the United States and Europe is caused by the fact that those countries have a big amount of debts," Finance Minister Agus Martowardojo said.
President Susilo Bambang Yudhoyono and several ministers discussed the economic situation in the US and Europe at a limited cabinet meeting following the fall of composite index early this week.
According to the director general of debt management, Rahmat Waluyanto, the price of state securities (SBN) dropped a bit but remained under a stable category although the composite index of the Indonesia Stock Exchange (IHSG) sharply dropped by 4.99 percent to 3,725.78.
The price of the long-term state debentures (SUN) dropped by 75 to 100 basis points (0.75-1.0) while the short term below 50 basis points while the yield for the 10 year SUN is still around six percent.
In the meeting, President Yudhoyono touched the decline in the Indonesia Stock Exchange index. He said it was as part of the global economic phenomena because it also happened across the world.
Yudhoyono said Indonesia`s economy was good in terms of economic fundamentals. In view of that he said there was no need for the people to worry about the decline in the index which was triggered by market fears over the downgrading of US debt rating.
With regard to the drop of index, Finance Minister Agus Martowardojo said investors were testing Indonesia`s market and the resilience of its economic fundamentals when the country`s stock exchange was fluctuating as a result of the crisis in the US and Europe.
"To me it is normal. They are just testing the market," he said. They were monitoring general conditions and fundamentals of the market as well as policy response from countries concerned.
So the drop that had happened and foreign investors selling their shares were a normal thing. "In our term they are just testing (the market)," he said.
A similar opinion was also voiced by Bank Mandiri economist Destry Damayanti who said that it was normal for a market turmoil to happen in a country which adopted an open economy.
"It`s something reasonable for a global crisis to have an impact on the domestic market, but what we have to do is to increase alertness," Destry said.
Moreover, a number of Indonesian economic indicators remain strong so that its economy could grow higher.
The indicators include its foreign exchange reserves which reached 122.7 billion US dollars and good export performance with a balance of trade remaining surplus.
The flows of direct foreign investment were still running well while the government ahs also taken a speedy action to set up a protocol for crisis management to respond to the global economic turmoil.
After all, Indonesia in the last ten years had been able to manage its debts, particularly in maintaining its normal debt-to-GDP ratio.
Finance Minister Agus Martowardojo said Indonesia in the last ten years had been able to reduce its debt-to-GDP ratio from 80 percent to 26 percent in 2011. Countries which had experienced a slow economic growth like the United States had a debt-to-GDP ratio reaching 100 percent, followed by Greece (147.3 percent), Portuguese (103.1 percent), Ireland (102.4 percent), Italy (124.8 percent) and Japan (227.8).
"We have been consistent in managing the soundness of our debt-to-GDP rate where 10 years ago it was 80 percent. Now it is 26 percent, meaning that it has declined. In other countries, the ratio increases as high as 100 percent, even in Japan it rise to 200 percent," the minister said.
He said that the performance of Indonesia`s capital market, banking and fiscal policies was good in term of the economic fundamentals. This indicated that Indonesia`s economy is stable.
In spite of these facts, Indonesia remains to prepare anticipatory steps in the face of the possibility of the world financial market developing further.
"We are preparing anticipatory steps if the United States and Europe are imposing high rate interest rates to collect funds. This can have implications for the world financial market," the minister said.
The government has created a protocol for crisis management to safeguard state securities in case of a reversal.
For this purpose, President Yudhoyono will explain the government`s anticipatory measures when he delivers on Tuesday, Aug 16, 2011, his state address on the 2012 draft state budget.
Yudhoyono said the 2012 draft state budget had incorporated anticipatory measures against all possibilities, including risks that might arise in the present world financial turmoil.
(T.A014/H-NG/O001)
Reporter: by Andi Abdussalam
Editor: Priyambodo RH
Copyright © ANTARA 2011
