How Sri Mulyani Concludes European Crisis Impact to Indonesia

JAKARTA, KOMPAS.com - Indonesia may be affected by the second round of the European Union debt crisis because its export destinations are highly diversified, according to World Bank Managing Director Sri Mulyani.

Speaking after a meeting with President Susilo Bambang Yudhoyono at the Presidential Office here Tuesday, Sri Mulyani said Indonesia might be impacted by the European crisis when the turmoil was in its second period.

Sri Mulyani said Indonesia could be affected by the financial crisis in Europe through the trade zone because the country’s export destinations were highly diversified.

"Indonesia will be affected in the turmoil’s second round, with the impact coming down from other Asian countries," she said.

According to Sri Mulyani, the impact of the European Union’s financial crisis would spread to other countries in different parts of the world through multiple pathways, such as trade, capital flows and remittances.

But Indonesia would not feel the impact of the European crisis through the flow of remittances. Still Indonesia must be careful in facing the risks that arise from capital in and outflows because they were related to risk perceptions that could cause turmoil.

"This is more than just sentiment, and it should really be maintained. The sentiment is associated with risk perceptions, so volatility or turbulence in capital in and outflows become very important," she said.

Indonesia still need to carefully manage its budget because the European crisis was still growing and creating uncertainties at the global level, according to Sri Mulyani. "We must remain cautious, perhaps that is the most important thing to do."

Sri Mulyani also said the current economic growth forecasts on developed countries were to be corrected again. Growth in developed countries was expected to decline by 0.6 percent while the Asian region would also be affected through trade.