Beijing, China, 23-10-2008

Keynote Address at The 11th Asia-Europe Business Forum

 

KEYNOTE ADDRESS
BY DR. SUSILO BAMBANG YUDHOYONO
PRESIDENT OF THE REPUBLIC OF INDONESIA

“NATIONAL AND REGIONAL RESPONSES TO
THE GLOBAL FINANCIAL CRISIS”

DELIVERED AT
THE 11TH ASIA-EUROPE BUSINESS FORUM
“SEIZE THE TREND: TIME FOR ACTIONS AND PUBLIC AND PRIVATE PARTNERSHIPS”

BEIJING, OCTOBER 23, 2008




<i>Bismillahirrahmanirrahim
Assalamu’alaikum Wr Wb</i>

Mr. Wan Ji Fei, Chairman of the 11th Asia-Europe Business Forum and Chairman of the China Council for the Promotion of International Trade,
Distinguished business leaders from the Asia-Europe Region,
Ladies and Gentlemen,

Firstly, I would like to thank the Asia-Europe Business Forum and the China Council for the Promotion of International Trade for inviting me to give the keynote address at this luncheon. It is an honor for me to be here today to address this distinguished audience of leading business people from the Asia Europe region.

Ladies and Gentlemen,
The present global financial turmoil is forcing all economies to respond and adapt. Some countries have been hit hard; others – like Indonesia -- relatively less so. But whatever your situation, there is a clear need for joint coordinated actions and increased partnership between the Government and the private sector in the Asia and European region to weather the crisis together.

At the present moment, as a result of the US financial crisis, there is a crisis of confidence in financial institutions and the tightening of financial liquidity in our markets. The impact of the financial crisis on the real sector and demand in the US and other developed countries will lead to very low economic and trade growth next year. Thus, the resulting “recession” is expected to last longer.

We have also seen a dramatic turn-around on commodity prices. In the first half of the year, the major issue was sharp increases in commodity prices, which led to doubling of the price of food and fuel, and inflation rates. Now, the situation is one of sharply falling commodity prices. While this reduced inflationary pressures, it also means declining export value for countries with commodity exports, like Indonesia.

Ladies and Gentlemen,
While the Indonesian GDP growth is expected to moderate slightly from last year, the economic fundamentals remain strong. Indonesia today is lean and fit. This is in part, reflective of the significant reforms undertaken over the decade since 1997 crisis. Indonesia has strengthened fiscal sustainability, deepened capital markets, enhanced financial regulation and supervisory frameworks, reduced debt exposure and improved the reserve positions. Indonesia has also responded to the recent macroeconomic policies, which are already showing positive signs of alleviating price pressures in the economy.

Indonesia has strong capitalization of banking and financial institutions, and limited direct exposure to the deterioration in the US and other affected credit markets. This constitutes important strengths in the current environment. Nevertheless, in view of increasing uncertainty in the global financial market, my government remains alert and vigilant.

In response to the global financial crisis, one immediate step that we did was to undertake intensive discussions with the private sector, analysts and other stakeholders such as members of the Indonesian parliament. These discussions were necessary to ensure that we were all on the same page with regard to the potential impact of the global financial crisis, and the imperative of moving quickly and comprehensively in a concerted manner.

Until now, there has been good synergy and partnership between all the stakeholders, enabling us to move in quickly and comprehensively on a response package in three main areas. The objective here is to minimize its impact on Indonesia as well as to maintain the growth momentum that we have achieved so far.

The first measure is reassuring financial markets and restoring liquidity. The government realized that we had to assure confidence of the public in the banking system. On October 13, we increased the ceiling on deposit insurance by 20 times, from Rp. 100 million (around $10,000) to Rp. 2 billion (around $200,000).

The Indonesian Central Bank has also undertaken other steps to ensure that banks have sufficient liquidity, including dollar liquidity, such as reducing the reserve requirements and extending the maturity of its foreign exchange swap facility.
We also saw sharp falls in the Indonesian stock market in the indeks of around 40 percent. Immediate steps were taken to stabilize the stock market including allowing state-owned enterprises to buy back their own shares.

The second area is adjustments in our fiscal policy. The budget deficit has been reduced from 1.9 to 1 percent of nominal GDP due to less financing availability from the conventional market sources. This year, Indonesia is embarking on its first ever issuance of syariah bonds domestically. Soon we will be in the international market to enjoy the surplus of gulf regions.
My government will ensure that priority programs for poverty reduction, ensuring food price stability, and job creation are maintained. We will also continue to be prioritize social safety net programs. These programs will help to protect the poor from the blows coming from the financial market.

The third step is creating a conducive policy environment and incentives to sustain exports and investment for longer term growth. This is also a necessary step for safeguarding and stimulating the domestic market.

With these steps, we are optimistic we can maintain the growth momentum and mitigate the effects of the global financial crisis, maintain price stability, continue to create jobs and reduce poverty.

Ladies and Gentlemen,
The steps taken so far to respond to the financial crisis by the US, Europe and the major Asian countries such as Japan and Korea have led to encouraging signs of financial markets stability. We all hope that the measures currently undertaken can prevent further free fall of the financial system, which would have grave impacts on the rest of the world.

There are still many uncertainties in the current situation. And thus it is important for each country and region to find ways to cooperate in order to make the situation better and not worse.

The role of China as the biggest developing country in the region to overcome or minimize the global financial crisis is essential, given its capacity and stable economic conditions. After all, this is a global financial crisis that needs global action.
There are two pillars of stronger cooperation in East Asia which I wish to emphasize.

The first pillar, is cooperation in the financial sector in ASEAN plus three, Japan, China and South Korea. In the aftermath of the Asian financial crisis in 1997/98 the region has developed cooperation between the ASEAN plus three finance ministers. This needs to be strengthened and activated.

Leaders from the ASEAN plus three economies will be meeting tomorrow to discuss this. In my view, the essence of the meeting will be to endorse the Self-Managed Reserve Pooling mechanism that has come out of the so called Chiang Mai Initiative. It is imperative to accelerate this mechanism to shore up the temporary liquidity needed by any one of the ASEAN plus three countries. Such needs could become more urgent given the current situation.

The ASEAN cooperation has introduced a pooling funds for infrastructure projects in the public-private financing schemes. This initiative should bring together government and private sector to accelerate the development of public infrastructure.

The second pillar, is to ensure that trade and investment flows continue to provide a win-win outcome for the region. The Asian region is expected to be one of the regions that will continue to grow positively. This means that the region will become an important alternative export market to the developed country markets in recession. It also means we will be an increasingly important source of growth during the slowdown in the world economy.

To this end, it is important that the current trade and economic cooperation and integration frameworks will be accelerated and kept to the principle of “open regionalism”. Open regionalism is where we make progress in regional economic cooperation and integration, while strengthening our links to the rest of the world. Thus, during such uncertain times we should maintain this spirit, and not resort to regionalism which is inward looking and discriminatory. During these turbulent times we should remain open and not become more closed. We must also make a call for other regions and countries to do the same.

What I fear is that the likelihood of unilateral and unfair trade measures will increase as protectionist pressures tend to increase when economies go into recession. East Asia must have a strong voice in this in regional forums such as the Asia-Europe
Meeting, as well as in the multilateral forums that is the WTO.

Trade will continue to be an important source of growth for East Asia. Thus, it is in the interest of East Asia to ensure that the world trading system remains open and rules based.

This underlies also the importance of completing the stalled Doha Negotiations and the need for major developed and developing countries to take leadership in this regard.

Ladies and Gentlemen:
Now, let us look beyond the financial crisis.
Part of the process of drawing lessons from the crisis is to consider what we need to change in the financial sector and the financial architecture. Let me take these issues in turn.

The crisis in financial markets is the result of three failures; a regulatory and supervisory failure in advanced economies; a failure in risk management in the private financial institutions; and a failure in market discipline mechanisms.

Preventing a recurrence of these failures will require international efforts, because borders do not confine financial institutions or keep out financial turmoil.

The strengthened multilateral and regional cooperation, such as World Bank, IMF, G-20, ASEM, ASEAN and ASEAN plus three can facilitate this effort. In the multilateral forums, with our universal memberships, we can discuss the risks to global stability, surveillance mechanisms and policy response.

The World Bank can lead a consortium to provide a stand-by financing system for the budget deficit should the market can no longer provide primary financing, or should it become very expensive.

ASEAN and ASEAN+3 will play a major role in addressing common issues in the respective regions. To enhance effectiveness, we need better coordination and fewer overlaps between international organizations and better follow up on international agreements.

Ladies and Gentlemen,
We can emerge from this crisis so long as we act quickly, comprehensively, and cooperatively. The multilateral and regional forums will do their part. But much will depend on the individual country; leaders, ministers, local government, private sectors, politicians and people in general, to take the actions needed to restore confidence, stability and prosperity.

I thank you.