H.E. R.M. Marty M. Natalegawa
Permanent Representative of the Republic of Indonesia
to the United Nations
At the Interactive Thematic Dialogue on the Financial and
Economic Crisis and its Impact on Development
Recommendations of the Commission of Expert on
Reforms of the International Monetary and Financial
Morning Session (10 -1 pm)
New York, 26 March 2009
First of all, I should like to commend the Commission of Experts on the Reform of the International Monetary and Financial System for their hard work over the last few months. The Commission has provided us with an excellent report and recommendations, which Indonesia regards as an important contribution to the global response to the financial and economic crisis.
The report of the Commission rightly highlights the importance of an inclusive and coordinated global response to the crisis. It points to the urgent need for market failures to be redressed, particularly in the financial market because they can have disproportionate consequences for the real economy. Indonesia shares these sentiments. Our experience of the 1997/ 98 crisis shows that disruption and instability in the financial sector can quickly undermine confidence in the real economy. This could precipitate a significant drop in GDP. Moreover, with an increasingly integrated world economy, responses to a crisis of this scale must be comprehensive, inclusive, and closely coordinated internationally.
Some of the recommendations made by the Commission to deal with the crisis are quite positive. The report has captured the sense of balance between the immediate need to promote economic recovery and the need to undertake structural reform in the international financial and economic system. The purpose of reform would be to provide more sustainable and equitable growth. Indonesia also shares the view that there needs to be greater balance between the role of the state and markets.
Let me comment briefly on the some of the immediate measures and the systemic reform recommendations advanced by the Commission. Of the immediate measures, Indonesia supports the idea of developing countries receiving additional funding. It is important for the international community to implement measures immediately to ensure liquidity in international financial markets. This will relieve pressure on developing countries’ balance of payments and enable them to undertake needed counter-cyclical measures. While Indonesia recognizes the important role of the IMF and ODA in this regard, we have however pursued our funding needs through regional and bilateral arrangements such as swap lines between central banks and the Chiang Mai initiatives.
On the need to avoid protectionist policies, Indonesia fully subscribes to this point of view. There is the need for greater political commitment to avoid such policies, particularly during the recovery period. In the context of trade protectionism, the WTO and other relevant international organizations can be asked to provide a regular report on protectionist policies being implemented by different countries. This scorecard approach can provide the political pressure for countries to avoid implementing protectionist policies.
With regard to the need to restore confidence through regulatory reforms, Indonesia also concurs with this view. Our experience during the 1997/98 financial and economic crisis shows that the confidence of the market and the business sector was quickly restored after we undertook substantial regulatory reforms in the financial and banking sectors. Ensuring greater transparency in corporate governance and having more forward-looking competition policies can also prove critical to restoring confidence.
In relation to systemic reform, Indonesia welcomes in particular the Commission’s recommendation on financial market policies. Indonesia’s perspective is that strengthening financial market policies is an important pillar to strengthen the financial system and avoid a recurrence of the crisis.
The key recommendations of the Commission pertaining to financial market policies, such as financial product safety, regulation of derivatives trading and credit, and strengthening regulatory institutions are important in addressing the mismatch between regulation and product innovation in the financial sector.
Not to be overlooked is the mismatch between global and national policy as well. International macro-economic policy coordination to solve global events is often not in sync with national policy-making. In this context, we support the Commission’s recommendation that national policy space be a respected arena. Its appeal for the strengthening of surveillance and the expansion and strengthening of the Financial Stability Forum is endorsed by Indonesia.
It has been widely recognized that reform of the international financial institutions is a key part of the reform of the international
financial and economic architecture. While Indonesia welcomes this recommendation, we would be interested to see more elaboration of the Commission’s thinking of how best to reform these institutions.
Allow me now to raise two issues that would benefit from further elaboration and clarification by the Commission.
First, the Commission advocates the establishment of the Global Economic Coordination Council, at a level equivalent to that of the General Assembly and the Security Council. While this may be useful to strengthen global policy coordination and avoid the mismatch between global and national policies, we would request further clarification on how this proposed council will relate to the ECOSOC.
Second, the Commission’s report and recommendations emphasize adherence to principles of democracy in the governance and representation as part of the reform of the international monetary and financial economic institutions. We fully support the use of these principles. But we would like the Commission to elaborate on how these principles will be implemented. We need to know how they will affect the role and participation of major economies in international monetary and financial institutions, as well as the speed with which decisions will be made.
Permanent Mission of the Republic of Indonesia to the United Nations, New York
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