Vice President Boediono has issued a rallying cry to his government colleagues, urging them to generate fiscal policies to shield the country from the impact of the global financial crisis.
“All the government teams should work, finding the best format for Indonesia to face these global uncertainties,” Boediono said in a keynote speech on the first day of the GlobeAsia Business Summit in Jakarta on Monday.
Finance Minister Agus Martowardojo last week said that several international lenders, including the World Bank and the Asian Development Bank, had committed to help Indonesia with contingency plans to contain the impact of the latest global financial slowdown.
The World Bank has committed to a $2 billion loan to Indonesia, which it will use if conditions in the debt market worsen amid a global financial crisis. The loan was part of Indonesia’s plan to borrow $5 billion from several agencies for contingency funds as a back-up if the government finds it difficult to raise funds from the bond market to help finance its budget deficit.
Agus said the World Bank could lead syndicated multilateral loans for Indonesia. The government will ask other multilateral agencies to participate in the so-called contingency plans.
Boediono said fiscal prudence and discipline were needed. He added that Indonesia’s situation now was similar to that several years ago at the onset of the earlier global financial crisis.
“It’s like the situation in 2008. We have this contingency loan, huge amount of loan, which we can use if needed,” the vice president said.
The 2008 global financial crisis, marked by the collapse of US investment bank Lehman Brothers, caused global strife. For Indonesia, the global crisis four years ago prompted the government to spend Rp 6.7 trillion ($717 million) on bailing out the defunct Bank Century. The lender was renamed Bank Mutiara in 2010.
Boediono also called on the Finance Ministry and Bank Indonesia, the central bank, to improve coordination. The Finance Ministry is in charge of fiscal policy while Bank Indonesia runs monetary policy.
Boediono acknowledged that the government also needed to resolve lingering problems in the development of infrastructure.
“This is our high priority. We are trying to do whatever it takes to remove the problems in the infrastructure,” Boediono said. He added that both state and private enterprises were encouraged to invest in the infrastructure projects such as airports, seaports, water and toll roads.
Another summit speaker, Christopher Eoyang, managing director of Goldman Sachs, a US investment bank, said Indonesia’s economy was heading in the right direction.
“The direction is positive but on the other hand there is a lot to do,” Eoyang told the summit.
“Right now, Indonesia looks relatively good,” he said, adding that the country had the potential for prolonged growth.
The government is aiming to achieve annual economic growth of 7 percent by 2014. Eoyang said that among the positive signs was the rise in foreign direct investment since 2010.
However, he warned that the type of FDI coming into Indonesia was investments that did not involve the transfer of technology. “All commodity countries tend to have low technology content from their FDI,” Eoyang said.
Such investment, he said, lacked a “multiplier” benefit.
He added that among countries in the Association of Southeast Asian Nations, Indonesia offered the poorest environment for growth. “Good progress, more work to do,” he said.
He said governments had a crucial role in helping to foster an environment that was conducive to growth.
Eoyang said the focus should be on developing human capital and infrastructure as a way to create long term gross domestic product per capita growth.
“In the medium term, its geography, demography, its macro and micro factors looks pretty good and Indonesia has a good setup for long term growth,” he said.
The summit, attended by hundreds of corporate leaders, government officials and academics, is due to conclude today. It is organized by GlobeAsia, which like the Jakarta Globe is part of the Lippo Group.