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Indonesia Prepares to Mitigate Effects of Possible Global Economic Downturn

Indonesian Vice President Boediono, also former governor of the central bank, gestures to reporters upon arrival before the start of the televised speech of President Susilo Bambang Yudhoyono at Freedom Palace in Jakarta, Indonesia, March 4, 2010.

Indonesia's vice president says the government is taking a number of steps to mitigate the impact of a global recession that he says is likely to happen if the United States and Europe do not adopt strong measures to restore fiscal discipline.

Speaking to journalists in Jakarta, Indonesian Vice President Boediono, who holds a doctorate degree in economics, voiced concern that another global economic slowdown may soon occur.

“The chances of financial disruptions and global recession similar to those in 2007 and 2008, if not worse, have increased,” Boediono said.

In Europe and the United States, he said, there is a gap between the fiscal strategies needed to deal with growing national debts and the political will to do what is necessary.

In European countries like Italy, Greece, Ireland and Portugal, huge deficits and increased borrowing costs that are tied to the falling value of the euro could trigger a recession and lead to the break up of the euro monetary union.

Although Britain maintains it own currency, it has cut projections for the growth of its economy this year and next. And, Indonesian Vice President Boediono said the recent failure of United States' congressional deficit reduction committee to reach a bipartisan agreement has left world markets uncertain.

Indonesia's economy is currently projected to grow at a rate of more than six percent next year, but could be adversely affected by downturns in Europe and America, he said.

“Currently our fundamentals are good, but we are fully aware that, if the global situation continues to worsen, our room of maneuver may quickly disappear,” he said.

Quoting a local adage he said Indonesia must be ready with the umbrella before the rains comes.

Indonesia must prepare for tightening of liquidity and the slowing of international investments and loans, said Boedino. And he announced the government plans to increase its foreign exchange reserve, help domestic banks maintain lines of credit and prepare a fiscal stimulus package that can be implemented, if needed, to keep domestic industries alive and people employed.

Although Indonesia is planning for the worse, Vice President Boediono expressed hope that Europe and the United States can resolve their political paralysis to prevent another global economic meltdown.