With the crisis in Europe worsening and political uncertainty rising ahead of a crucial vote in Greece, Asian governments are bracing themselves for the worst.
Most Asian economies, including Indonesia, remain fundamentally sound but with markets and investors on a knife’s edge, there is no certainty that the region will escape the turmoil that will erupt if Greece exits the euro zone. The fallout will be severe and the threat is very real.
Given the severity of the situation, it is heartening to know that central banks and governments in the region are ready to act if the need arises to protect their economies.
They’re ready to use stimulus spending and cut interest rates, and some have tapped into reserves to protect jobs and shore up their economies.
Indonesia’s Ministry of Finance said it will tap into last year’s Rp 24 trillion ($2.6 billion) surplus, if needed. The government can also utilize the $2 billion contingency loan commitment from the World Bank as an insulator.
Analysts and economists have warned that regional markets will be affected by a bad outcome in Europe, with the rupiah possibly weakening to the 10,000 level against the US dollar.
To prevent such an outcome, the government’s response to any market deterioration must be swift and decisive. In such times, strong leadership can mean the difference between financial disaster and merely short-term gyrations.
We hope that the G-20 leaders meeting on Monday in Mexico will send a strong message to global markets that they stand shoulder to shoulder in dealing with growing uncertainty. More critically, they must reassure their citizens that they have the political will, unity and fortitude to do what is right, not just what is politically expedient.