G20 leaders in crisis mode

LOS CABOS. “Crisis mode” seems to be the prevailing attitude among delegates and top business leaders alike gathering on the eve of the G20 Summit here at the Mexican Pacific resort of Los Cabos, as all eyes remained transfixed on the eurocrisis.

Despite slightly encouraging developments in the Greek elections, the attitude was not “if” a crisis would occur, but “when” and “how bad”. All eyes remain on the European leaders of the G20, who began arriving Sunday night (Monday morning Jakarta time).

During meetings with corporate leaders in the B20 forum on Sunday afternoon, even President Susilo Bambang Yudhoyono conceded that “the mood is tinged with pessimism”.

“I do not pretend to have a solution … However, I hope that one way or another our European colleagues will reach an agreement on vigorous measures to manage the crisis. The absence of such measures will have an unsettling consequence on all of us,” he added.

Sofyan Wanandi, the chairman of the Indonesian Employers’ Association (Apindo), when asked about the prospect of a contagion of the eurozone crisis, remarked, “I think it’s unavoidable.”

Indonesian business was well represented during the business forum, which brought together some 400 delegates. Among those present were Arifin Panigoro of Medco Group and Zukifli Zaini, the president director of Bank Mandiri.

The International Monetary Fund (IMF) projects a drop in global growth from 4 percent in 2011 to 3.5 percent this year.

The World Bank says Asia-Pacific growth will decline from 8.3 percent last year to 7.6 percent in 2012. Meanwhile, collective slower growth among developing countries will persist from 7.4 percent in 2010, 6.1 percent in 2011, to 5.3 percent this year.

Indonesia cautiously welcomes the outcome of the Greek election after political parties that support an international bailout secured the most votes.

“This is a first step in the right direction. It is better than we expected. This good news must be followed up by concrete measures, together with other eurozone economies,” said Finance Minister Agus Martowardojo on the eve of the G20 Summit here on Sunday night.

The political victory, however, would not guarantee a solution to the Greece problem, Agus said.

“There is still plenty of homework to be done, especially in fiscal stabilization, making banks healthier and making sure that there are enough funds to refinance overdue government bonds,” he said.

Trade Minister Gita Wirjawan shares Agus’ concerns.

“I hope there will be a swift and vigorous resolution to the crisis in Europe. The crisis has had a significant impact, including for us. I don’t think it is appropriate to think that we have little exposure to the crisis. The world is flat and we are affected by what everybody does,” Gita said.

Gita added that the external threat imposed by the eurozone crisis was also coupled by the possibility that China’s economic growth would further slow down, consequently affecting demand for Indonesian commodities.

“China consumes 40 percent of global commodities every year, and their economy is only one-tenth of the global gross domestic product [GDP]. With demand from some of the largest economies shrinking, this would force a reality check. Our exports would significantly drop,” Gita said.

The Central Statistics Agency (BPS) reported earlier this month that Indonesia’s trade balance plunged into the red in April for the first time in nearly two years due to an unexpected drop in exports.

The agency said that the nation’s trade deficit was US$641.1 million in April after it recorded a surplus of $920 million in January, $692.8 million in February and $840 million in March.

The impact of protracted global economic woes is also apparent in Indonesia’s financial market, as reflected by the volatility of the rupiah, prompting extraordinary measures from the central bank, which recently issued foreign exchange (forex) term deposits that attracted $700 million.

Leaders of the G20, which represents 85 percent of global GDP, will convene here for a two-day meeting starting Monday to discuss joint measures to avoid a deepening of the crisis. (Andi Haswidi and Meidyatama Suryodiningrat/ The Jakarta Post)