Mission Indonesia

Statement by the Indonesian Delegation at the Discussion on “Successful Trade and Development Strategies for Mitigating the Impact of the Global Economic and financial Crisis”, The Second Session of the Trade and Development Commission UNCTAD

May 03, 2010 Posted under Economy, Development and Environment 

 
  •  My delegation would like to take this opportunity to commend the UNCTAD Secretariat for preparing the background note for the discussion this afternoon, which have provided an excellent insight into the trade and development strategies needed to address the impact of the global financial crisis.

 

 
  • Now, my delegation would like to share Indonesia’s experience in dealing with the recent economic and financial crisis. Although we have successfully managed to preserve positive economic growth, as compared to other countries, our economic performance during 2008-2009 has declined. Indonesia’s economic growth in 2009 recorded at only 4.3% compared to a growth of 6.1% in the year previously. As an illustration, during the first quarter of 2009, the total value of export from Indonesia shrank 17.70% from the total value in the previous quarter. (This was largely due to the lower value of oil and gas export (23.85%), and the drop of non-oil and gas export value (16.67%)).
  • Unlike other countries, Indonesia has been spared the worst impact of the recent financial crisis, as has been outlined by the Secretary General of UNCTAD in his opening remarks which hopefully can not be said to be business as usual. Even though we experienced a decline in economic growth and export-import performance, we still enjoy a trade surplus which amounted to USD810 million. This was largely due to a sound trade policy of enhancing export and galvanizing domestic trade and economy, mostly by implementing a series of deregulations. Exporters, particularly small and medium exporters, are assisted with a simpler L/C requirement and mandating export payment for certain product (coffee, CPO, cocoa, rubber, mining products) to use L/C in domestic banks. At the same time, the government reduced import consumption, develop and restructure manufacturing industry.
  • Indonesia has learned the hard way from the financial crisis of 1997-1998. The government has been implementing an economic policy that is strongly pro-business, pro-job creation, and pro-poor. Moreover, this time round, the government was quick to respond to the global crisis by combining both monetary and fiscal policy instruments in order to minimize impacts in the year that is important politically, due to the general election scheduled in 2009. Swift action and lack of panic in the handling of rapid depreciation of the Indonesian rupiah since August 2008 have made all the difference, and the country has managed to avoid the sudden meltdown as happened in 1998.
  • The Indonesian policy with regard to the crisis primarily consists of maintaining prudent fiscal and finance policy, and reducing the impact of the crisis to the grassroots economy.

 

In the arena of fiscal policy, several actions have been undertaken, among others;

 

1.       Providing a range of tax incentives to boost economic activity.

2.       Accelerating government spending through improved flexibility in tendering and procurement process.

3.       To ensure foreign exchange stability, the Government takes measures to manage state-owned enterprises foreign exchange transactions, maintain sufficient level of foreign exchange reserves, requiring greater disclosure on large sized purchase of foreign currency against IDR to curb speculative pressures.

4.       Whilst at the international stage, we negotiate currency swaps.

 

 

B. The Government’s finance policies were to

 

a.      Extend the provision of credit and lending instruments to small and medium enterprises (SMEs).

b.      The Government has also taken measures to enhance financial institutions’ lending capacity, which include allowing banks to use performing loans as collateral against short-term borrowings and reducing the required reserves that a Bank must hold.

c.      In the effort to support the banking and capital market system, the government provided increased government funds and offers a limited deposit guarantee scheme (up to IDR2 billion).

d.      At the same time, the Government has also strengthened the supervisory and enforcement capacity over capital markets.

e.      In the meantime, the Central bank as the financial sector authority has played its key role by lowering interest rates.

 

C. To reduce impact of the crisis to the grassroots community

 

a.       The Government provides the fiscal stimulus package in early 2009, adding IDR2 trillion to the original package proposed by the government, amounting to IDR73.3 trillion (2,6% of GDP). The fiscal stimulus packages aims to increase the household buying power, strengthen the resilience of the private sector, and create job opportunities for unemployed/laid-off workers by launching labour-intensive infrastructure projects.

b.       The Government also targets job creation through critical anti-poverty programs, which serve not only as a medium to absorb the unemployed but also as a conduit for local infrastructure development.

 

  • In conclusion, the Asian financial crisis of 1997-1998 had served as a lesson to Indonesia that has proven to be most valuable in dealing with the recent global financial crisis, by affording Indonesia with more than enough resilience to withstand the massive impact. The Indonesian economic growth of 4.3 percent in 2009--that was better than those of developed countries in non-crisis situation--and a budget surplus of IDR38 trillion (approximately USD4.2 billion) we enjoy at the end of 2009 were some of the testimonies to the sound economic policy that has been put in place.

Thank you.
 

 

Geneva, 3 May 2010