Indonesia bank says liquidity shortage at door step

Written by changthai11 on Wednesday, October 8th, 2008

Bank Indonesia governor Boediono told reporters on Sunday that the US-led global financial crisis would shackle Indonesia’s economic growth and prompt a shortage of liquidity for local business players.

Boediono said “the shortage of global liquidity will be felt as a result of this crisis.”

“We must be prepared to face this over the next six months to one year,” he said, adding that the shortage would affect economies all over the world.

Boediono was attending a meeting with economic ministers, discussing measures to face the negative impacts of the global liquidity crisis on the local economy.

He further explained that the global liquidity shortage would only stabilise once developed economies were on a safer footing.

The liquidity crisis in the US was prompted by a massive default in the collateralised debt market that was partly caused by loose credit regulations and monitoring during the years of former US Federal Reserve chairman Allan Greenspan.

Besides bailing out bankrupt banks, insurance companies, financial firms, the US and the EU are struggling to intervene by issuing and drafting regulations to fight financial mayhem.

Another criteria needed to bring the liquidity crisis to an end, Boediono said, is the recapitalisation of assets that have been abandoned by investors.

“And this could take up to two years,” he said.

An economic slowdown is in fact already happening, Boediono said.

“It affects our exports, so in anticipating this we should boost our exports and control our imports.”