Indonesia Says Global Credit Crisis Is Slowing Growth

By Aloysius Unditu

Oct. 5 (Bloomberg) -- Indonesia's government said the global credit crisis is slowing exports and may affect gross domestic product growth in Southeast Asia's biggest economy.

``The global liquidity squeeze may continue for the next six months to a year,'' Bank Indonesia Governor Boediono said today at a briefing in Jakarta. ``Bank Indonesia and the government are increasing cooperation so we can limit the impact.''

Financial turmoil may force Indonesia to revise its budget estimates for next year, Finance Minister Sri Mulyani Indrawati said. Indonesian officials met today, after U.S. lawmakers earlier approved a $700 billion bank-rescue package, to try to reduce the impact of the crisis and keep it from spreading in the $432 billion Southeast Asian economy.

The government's message is ``we are monitoring the situation and will try to minimize the impact,'' said Sim Moh Siong, a strategist with Citigroup Inc. in Singapore. ``One way to do that is to reduce excessive fluctuation in the rupiah because if the rupiah depreciates it will scare investors away and fuel inflation.''

The rupiah has dropped 2.3 percent in the past three months on speculation overseas investors will stay away from emerging market assets. The benchmark stock index has declined 33 percent this year. Markets have been closed since Sept. 30 for a Muslim holiday and will reopen tomorrow.

Currency Support

The central bank today said it will buy the currency if needed to boost the measure. Bank Indonesia has $58.36 billion of reserves, which are sufficient to meet 4.6 months of imports, Senior Deputy Governor Miranda Goeltom said today in Jakarta.

Indonesia's economic growth unexpectedly accelerated 6.4 percent in the second quarter as rising prices and demand for the nation's coal, palm oil and rubber pushed exports to a record. The government foresees growth slowing to 6.2 percent in 2008 from 6.3 percent a year earlier.

The government expects its budget deficit will narrow to 1.3 percent of GDP this year, from an estimated 1.9 percent, as spending was reduced. That makes it ``less urgent,'' for the state to sell more bonds this year, Sri Mulyani said.

Economic leaders across the world are trying to limit the spread of the fallout from the U.S. A record number of home foreclosures in the U.S. forced Lehman Brothers Holdings Inc., into bankruptcy last month, while Fannie Mae, Freddie Mac and American International Group Inc. were taken over by the government.

European leaders pledged to bail out their own nations' banks while stopping short of a regional rescue effort to deal with the global credit crisis.

To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net.