With the weakening state of the global economy, it is no surprise that the insolvency potential for 2013 remains unfavorable in many markets. Any prediction that the world had maneuvered away from the economic crisis was clearly debunked when the global economy grew by only 2.6 percent.

This year, the global audience will remain fixed on the eurozone and its efforts to pull out of recession. According to Atradius' latest Economic Outlook report, risks to the global economy remain high both as a result of the escalating crisis in the Eurozone and the ongoing fiscal consolidation in the United States.

Regardless of increased liquidity, banks are still hesitant to lend - thus potentially impeding an important source of economic growth. The global growth forecasts for 2013 were gradually scaled back to 2.6 percent: a level supported by Asia (4.8 percent growth), Latin America (3.4 percent) and, to a lesser extent, the United States.

Growth within Asia (excluding Japan) is expected to increase by 6.6 percent in 2013, with Indonesia comfortably sitting at the throne as the star performer of Southeast Asia. Having been exposed relentlessly as the region's new magnet for overseas investors, the country has managed to record growth of more than 6 percent per annum since 2010.

It is difficult to undermine the long-term strength of Indonesia's emerging power, and the nation is well-positioned to outperform its peers with its rising middle class. Increasing income levels - the result of years of good economic performance - have contributed to the rise of the middle class in Indonesia (estimated at more than 30 million in a country of 242 million), and this will additionally bolster domestic consumer spending in the short and medium term.

Thanks to its economic resilience, Indonesia has also successfully booked a record-setting number of realized investments last year, mostly from direct foreign ventures as possible capital flights. Data from Indonesia's Investment Coordinating Board showed that in 2012, foreign direct investment jumped to a new record high of Rp 206.6 trillion, and is expected to reach Rp 270 trillion in 2013.

But this is hardly the time for Indonesia to sit back and relax.

In the short term at least, Indonesia will struggle with the need for structural reforms as well as regulatory measures. Infrastructure and business environment need to be improved, corruption combated, political conflicts reduced. Despite continuing strong solvency and liquidity, Indonesia's external position is now more vulnerable because of its current account deficit and increasing private sector external debt. A status downgrade from Standard & Poor (S&P) has sparked outcry, immediately triggering economists to alert that the country is facing an economic slowdown.

To live up to the global expectation, Indonesia needs to convince the world that it will continue to be the safe haven for investors, such as by climbing up the World Bank's Ease of Doing Business list, where Indonesia currently still ranks 128th out of 185 countries.

It must be kept in mind that insolvencies in the Eurozone may debilitate European companies' partners in Asia. Businesses need to reduce their exposure to bad debt, ensure a more stable cash flow and effectively turn risk capital into growth capital.

By placing concern on those facts, the importance of managing trade risk to secure financial stability cannot be understated. For businesses to protect themselves from payment default, risk assessment and good credit management are essential to flag risks before a transaction is conducted.

As there is no infallible strategy to safeguard companies from insolvencies and problematic receivables, credit management tools such as credit vetting, collections, political risk insurance, and credit insurance can help promote a steady cash flow and financial stability

The first alternative in managing risk is credit vetting. The potential for payment default or cumbersome debt due to insolvency is always a risk when trading on credit, thus the process of assessing the creditworthiness of customers is vital. With this information, suppliers have the distinct advantage of making informed decisions when it comes to how much credit customers should be allowed as well as the credit period.

Another crucial element is payment collections. To tackle overdue debts head-on, accounts can be segmented by size and amount owned. In addition, early payment notices provide amicable yet firm reminders. Furthermore, riskier accounts can be placed on "watch lists" and constant follow-up with customers can help ensure timely payments.

Businesses also need to step up their protection against political risks. Risk mitigation protects balance sheets against immense financial loss due to business interruption and non-payment arising from political events (strikes, riots, terrorism, and so forth). Having political risk insurance protects companies from risks that could impede the company's overall financial growth when it expands to politically vulnerable markets overseas.

Lastly, businesses should protect themselves from the possibility that their partners may default or refuse to pay in cases of bankruptcy or insolvency. The best protection is credit insurance, a basic business protection that ensures monies owed become monies paid. It also becomes an investment in a better enabled business rather than simply an exercise in cash recovery. As the Eurozone continues to be embroiled in its economic woes, Indonesian exporters need trade credit insurance to insulate them from significant impact in case their European partners fail to pay.

Financial crisis in other parts of the world has created capital flight phenomena, which shows how globalization is not only an engine for international economic growth, but also a potential trigger for trade risks. Domestically, Indonesia has almost every capital that other countries envy, such as strong domestic market and a seemingly endless supply of resources.

However, in a period of semi borderless state and economy, insolvency due to crisis remains a threat especially in an ever-changing region such as the Asia Pacific.

The global economic outlook remains uncertain and vulnerable to changes, and the slightest shifts in the global economic environment will bring a ripple effect to the nation. While foreign investors still show strong optimism, it should be kept in mind that the black cloud of potential economic meltdown still lurks behind even the most hailed emerging economy.

The writer is Southeast Asia regional manager at Atradius Credit Insurance N.V.

By Michael Frigo, Singapore

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