Monday, June 25, 2007

Ten Years After Crisis Swept Indonesia

It is ten years after financial crisis hit ASEAN countries on mid 1997. We have seen great improvement in the region and particularly in Indonesia as a result of successful structural reformation in corporate sector, regulatory bodies and also contribution from regional cooperation. Still, there is a crucial point whether Indonesia’s current crisis prevention mechanism is sufficient to anticipate any further crisis.

Regional Integration on Trade and Finance

One great lesson from the crisis is the awareness of Asian policy makers of regionalism. The ASEAN+3 have agreed on the issue of multi-lateralization of CMI – putting foreign exchange from the member in one place on May 2007. Progress also has been made toward free trade agreements among East Asian economies. Japan and South Korea have almost reached FTA agreements with ASEAN and Japan reaching the EPA Framework agreement with ASEAN on May 2007.

I think regionalism has opened new opportunities for long-term economic engagement in various sector and also strengthen the regional stability. What we need to do is to support the regional movement to enable the integration on earlier period of time.

IMF and Multilateral Assistance

Indonesia resorted financial assistance from IMF which imposed austerity measures with raising interest rates and cutting public spending that in fact only exacerbated the crisis. It was the worst bail out program of IMF which left the world with one big question over the quality of IMF policy maker and the contribution of IMF to regional development.

I have read few articles stating that at this regional economic level, IMF is not relevant to emerging economies such as Indonesia and I could not agree more on with this statement. Obviously, multilateral assistance is necessary when the crisis happens however we should seek from regional cooperation instead of IMF. Again, it is our government task to enable this cooperation for multilateral assistance.

Foreign Direct Investment and Capital Inflow

While the impact on FDI in Indonesia was particularly marked prior to crisis, there are particular vulnerabilities in heavy reliance of FDI. Recently, there is strong evidence that capital inflow is increasing with better composition of foreign direct investment, foreign portfolio investment, external commercial borrowings and increasing contribution from nonresident Indonesians deposits.

With all bad experiences on offshore short-term loan, I think many corporate borrowers have changed their strategic decision on how to get trade and project financing. Transparency and political freedom has brought the opportunity for more corporate borrowers and domestic banks to get financing from various global and regional financial institutions. With more competitive financial market, borrowers could get lower cost of capital and better terms of payment.

Household Saving and Retail Investment

On my view, one thing that makes Indonesia is stronger than before is the democracy level. Prior to crisis, there were acute problems in cronyism, nepotism and corruption while on the other side almost everything ruled by one political group. After ten years, Indonesia has reached a better stage of exercising democracy and there are valid facts that cronyism, nepotism and corruption not on favor anymore. This has increased the confidence level not only at the investor side but also at the Indonesian people. It needs a very big and systematic rumor to make people rushing the bank or the market.

It is the first task for the government to enhance its risk management system and for the Indonesian people to broaden their investment knowledge and behavior. The government must ensure that all investment products are secure and regulated at the first place and the people must know that they could not expect high return on less risk and secure investment.

1 comment:

laling said...

Yup Too bad to remember about crisis economy 1997 occurred in Asean and especially in my country Malaysia..When everything is look good ,most share/stock market on well growth..suddenly I got shock when watching news forex exchange for Ringgit Malaysia down to RM5.8 equal to 1 USD..before that is about RM2.50.Oh No..Look too bad that time,panic everywhere..Lucky my previous PM Tun Dr.Mahathir take prompt action to fix and lock the currency without lend single cent from IMF..Now 10 years past we as Malaysian still suffer to gain prosperity back as same before crisis.What the world!!