Indonesia extra cautious over financial fallout in Vietnam
The ASEAN+3 countries had prepared precautionary measures for the financial crisis. -Jakarta Post/ANN
Learning from the experience of the 1997 Asian financial crisis, Indonesia is closely monitoring developments in Vietnam with the latter ASEAN member at risk of falling into a financial crisis that may drag down other countries in the region.
President Susilo Bambang Yudhoyono said in a press conference after the Asia-Pacific Economic Cooperation (APEC) Summit on Sunday that he had received reports of the situation and had consulted with his economic ministers about the problems.
"The trouble [in Vietnam] should be a lesson for us, particularly in gauging the resilience of our economy against a financial shock," said Yudhoyono.
"Indonesia and other fellow ASEAN members will be ready to help Vietnam through the crisis without the country having to seek a bailout from the International Monetary Fund [IMF]," said Yudhoyono.
He also said that assistance would be given through the ASEAN+3 mechanism, in which China, Japan and South Korea had forged a deal with ASEAN members to jointly weather the financial crisis without having to seek multilateral funds outside the region.
The deal would allow a member country access to a standby loan to address short-term liquidity problems in the region and supplement existing international financial arrangements.
The ASEAN+3 countries had prepared precautionary measures for the financial crisis by pooling a cooperation fund worth at least US$120 billion (S$150 billion) under the Chiang Mai Initiative framework, signed in 2000.
Vietnam risks becoming the biggest Southeast Asian economy to seek an IMF rescue loan since the late 1997 Asian financial crisis, as it moves to support a faltering banking system, Bloomberg reported on Thursday.
According to a report by the economic committee of the Vietnam National Assembly, as quoted by Bloomberg, the country may need IMF aid to recapitalize its banks and must act quickly to clean up bad debt or risk "prolonged stagnation".
The financial system, the assembly suggested, would need an injection of at least US$12 billion.
However, Vietnam's central bank deputy governor Le Minh Hung said that Vietnam had no reason to seek loans from the IMF, given that the country's macroeconomic situation was stable.
The concerns are unlikely to be downplayed by most of the region's policymakers, who are still gripped by the trauma of the financial crisis that forced ASEAN members Indonesia, Thailand and the Philippines to seek bailouts from the IMF. The crisis first emerged in Thailand.
"Unless no wide-ranging measures are put in place, it could be contagion in terms of sentiment within the region's financial sector. In terms of trade, our exposure with Vietnam is small," said Trade Minister Gita Wirjawan.
Deputy Finance Minister Mahendra Siregar said the problems plaguing Vietnam were similar to Indonesia's during the 1997 crisis.
He said the trigger of the crisis centred on a lack of prudent governance in banks, thus creating an excess of bad debts owned by related-party shareholders and recalcitrant businessmen.
"We should not downplay the impact of the trouble in Vietnam amid uncertainty in the global economy," he said.
As the host of the APEC Summit in Bali next year, Indonesia has initiated the forming of an early detection system against financial crises in order to be better prepared for weathering the trouble.
"With the system in place, APEC will have the capability to absorb financial shocks. That's why we need better policy coordination and responses. We expect to be able to draft this mechanism during the summit in Bali," said Yudhoyono.
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