Indonesia hails G20s push for global safety net

Indonesia, Southeast Asia's largest economy, pins high hopes on Korea’s initiative to establish a global financial safety net and produce tangible outcomes from the G20 Seoul Summit on Nov. 11 and 12, Indonesia’s top envoy in Seoul said in a recent interview with The Korea Times.

Indonesian Ambassador to Korea Nicholas T. Dammen talks to The Korea Times about his high hopes on Korea’s initiative to establish a global financial safety net and produce tangible outcomes from the G20 Seoul Summit on Nov. 11 and 12. / Korea Times photo by Shim Hyun-chul

By Lee Tae-hoon

Indonesia, Southeast Asia's largest economy, pins high hopes on Korea’s initiative to establish a global financial safety net and produce tangible outcomes from the G20 Seoul Summit on Nov. 11 and 12, Indonesia’s top envoy in Seoul said in a recent interview with The Korea Times.

“The emerging economies need a global safety net to counter problems related to the balance of payments, as well as also to address the challenges within a state budget hampered by a crisis,” Indonesian Ambassador to Korea Nicholas T. Dammen said.

He said developing countries, including Indonesia, are highly vulnerable to external shocks, and would need access to special financial facilities, such as the International Monetary Fund (IMF), to better cope with the impact of another global economic crisis.

In the previous summit in Toronto, Korea, as chair and host of the next summit, proposed the creation of a safety net as a main agenda item of the G20 Seoul Summit.

The importance of the issue has heightened following a debt crisis in southern Europe that originated in Greece.

Indonesia has been a staunch supporter of Korea’s drive to form a global financial safeguard.

“Indonesian President Susilo Bambang Yudhoyono urged G20 leaders in the Toronto Summit in Toronto in June to consider a mechanism for a global financial safety net,” the ambassador said.

Indonesia, however, is against the idea of imposing a global, universal bank levy as a safeguard because it believes the new tax may add an excessive burden on banks and undermine the banking industry.

In the previous summit, G20 leaders agreed to abandon the idea of a global bank levy and allow each nation to set its own standard to protect taxpayers, reduce risks from the financial system and endure possible market turbulence.

Bitter experience with IMF

There was no global system that could prevent the spread of financial panic when Indonesia was hit by the Asian financial crisis, which began with the collapse of the Thai baht in July 1997.

“The monetary crisis was so severe in Indonesia that it became a social and political crisis. It even toppled the government and President Suharto who was in office for more than three decades,” Dammen said.

“The country has yet to fully recover from the trauma.”

He said leaders of the G20 should support Korea’s initiative to build an effective financial safety net that overcomes the limitations of the existing systems.

The ambassador noted that Indonesia has learned a lesson from the bitter experience that it had with the IMF during the 1997-‘98 Asian Financial Crisis and that it now wants to help other countries avoid a repeat of such a serious financial meltdown caused by a sudden outflow of funds.

Unlike Indonesia, many advanced countries, including the United States, expressed opposition to Korea’s call for a global safety net for fear of a “moral hazard,’’ according to Lee Chang-yong, vice-chief of the G20 Summit Preparation Committee.

They, however, began to understand its importance as Greece's fiscal plight spread throughout the eurozone early this year.

During the G20 Finance Ministers and Central Bank Governors Meeting held in Gyeongju, North Gyeongsang Province on Oct. 22 and 23, Korea’s initiative to build a safety net received strong support from participants, including the head of the IMF.

IMF reforms

Dammen stressed that the IMF must carry out quota and governance reforms, which are critical to its institutional legitimacy.

“Quota reform should bring us closer to the goal of achieving legitimate IMF representation based on countries' economic weight in the world,” he said.

Experts say the overrepresentation of advanced countries in the IMF has been a considerable cause of the global imbalance. The United States and Japan currently hold 17.1 and 6.1 percent of quotas, respectively, while EU member states have 32 percent.

“The emerging market is increasingly integrated in the financial global system,” the ambassador said, adding that its financial sector significantly contributes to the stability of the global market and its sustainable growth.

In the previous summit, the leaders of the G20 nations agreed to shift at least 5 percent of IMF quotas to developing countries to give a greater say to underrepresented emerging countries and to complete the initiative by the Seoul Summit.

At the G20 Gyeongju meeting, participants agreed to shift an over-6 percent share of the voting rights at the IMF to developing countries to reflect their growing economic clout and improve its governance and credibility.

The ambassador suspects that such efforts may still fall short of ensuring fair and balanced decision making in the international lending institution.

“Reform is undergoing smoothly at the World Bank because more than half of its managing directors are from emerging countries, including former Indonesian Finance Minister Sri Mulyani,” he said.

“In contrast, the IMF's managing director has always been a European, raising the question whether the fund can adequately represent the interests of Indonesia and other developing countries.”

The incumbent IMF managing director is Dominique Strauss-Kahn from France.
Dammen also complained that emerging economies, such as Indonesia, can no longer access multilateral loan facilities available to less developed countries because of their rapid economic expansion.

Trade barriers

In the face of the global financial crisis, the Doha Development Round must be concluded as soon as possible, and protectionism and unilateralism must be avoided in order to make trade "the most powerful tool for growth and production,” the ambassador said.

“Indonesian President Yudhoyono had called for the completion of the Doha Round negotiations at the G20 Toronto Summit in June this year,” he said.

“The completion of the Doha Round negotiations would mean the establishment of an international trade arrangement that could serve as an alternative source for global economic growth.”

Observers say the Seoul Summit will likely give new momentum to the nine-year-old Doha Round negotiations.

The Doha Round, which started in 2001, aims to correct some of the imbalances in the global trading system by laying down a multilateral deal on tariffs, as well as other measures.

Under the current draft, rich countries would lift barriers to their food markets and cut farm subsidies while developing countries, excluding the poorest, would open their markets to more products and services.

Anti-corruption efforts

The ambassador said Indonesia’s anti-graft agency in collaboration with representatives from G20 is designing a working plan on corruption eradication to be presented at the summit next month in Seoul.

“At a meeting of the G20 anti-corruption working group in Songdo, Incheon this month, Indonesia and France were chosen to become the joint chair of the group,” he said.

The ambassador noted that participants of the meeting discussed the creation of a strong and effective anti-bribery regime, promoting the protection of whistleblowers, recouping corrupted assets, and the prevention of access by corruptors to global financial transactions, including money laundering.

“It has also been agreed upon that G20 will create a forum that would develop and implement an initiative that will make the private sector across the globe fight corruption,” Dammen said.

“The business world will be included as one of the stakeholders of the anti-corruption drive and a strong commitment to anti-corruption is very fundamental.”

Bilateral relations

The ambassador said Indonesia and Korea have enjoyed close and friendly relations since its inception in 1966 and they have gained greater momentum in the past few years.

The two countries established a Joint Commission chaired by their foreign ministers on June 9, 2006 and signed “The Joint Declaration on Strategic Partnership to Promote Friendship and Cooperation between the Republic of Indonesia and the Republic of Korea” by the leaders of the two countries on Dec. 4, 2006.

“It is well-recognized that the two countries are complementary to each other,” Dammen said.

He noted that Indonesia’s abundance of natural resources and rich biodiversity coupled by large labor forces and market potential will bear fruit should they be well-guided by Korean high-technology, capital and skilled management.