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Statement October 6, 2018

World Bank Statement on Oct. 4 Nikkei Asian Review Article

WASHINGTON, October 6, 2018 – The World Bank report covered in a Nikkei Asian Review article on October 4 does not state that Indonesia currently faces “acute liquidity risk” as asserted in the headline and the story. On the contrary, the report clearly states that “Developing EAP economies, by and large, have stronger economic fundamentals than do... other EMDEs that have been affected by recent financial market turbulence.”

These strong fundamentals are clear in the case of Indonesia. Its banking system remains profitable, well-capitalized, and appears resilient to further financial volatility. Domestic liquidity is ample and liquidity risks, as they pertain to the domestic financial sector, are not acute. Of the short-term external debt of the non-financial private sector, much (23% of total short-term external debt) is in the form of trade credits, which are collateralized by export proceeds and a stable source of financing. All of these factors imply that liquidity risks at present are low.

The headline in the Nikkei article and the quote in the story come from a section of the report that elaborates on the potential risks to regional economies if there were significant financial contagion from other emerging market economies. So, this scenario refers not to the most likely case going forward but rather one in which capital outflows accelerate as a result of contagion. It is meant to highlight the challenges that emerging market economies could face if the global environment were to deteriorate significantly.

The World Bank has consistently recognized the strength of Indonesia’s macroeconomic framework, as well as the decisive and coordinated response of its fiscal and monetary authorities to heightened volatility. 

The misrepresentation of the World Bank report by Nikkei is highly regrettable.

 


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