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WB, IMF predict Indonesia to benefit from US recovery
Indonesia will benefit from a healthier US economy as it would give the Southeast Asian nation the chance to increase its exports to the North American country, the World Bank and the International Monetary Fund (IMF) have predicted
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ndonesia will benefit from a healthier US economy as it would give the Southeast Asian nation the chance to increase its exports to the North American country, the World Bank and the International Monetary Fund (IMF) have predicted.
The recent rebound in the US economy, which hit three-year high growth of 4.6 percent in the second quarter, will translate to higher demand for imported goods there, benefitting its trading partners such as Indonesia, according to Ndiamé Diop, an economist with the World Bank.
'The recovery in the US is big news for Indonesia and those products that Indonesia exports to the US will see higher demand, Diop said on Wednesday, adding that the archipelago will also see a boost in FDI inflows from the US if the new administration boosts infrastructure reform.
However, he noted that there might be fewer economic benefits from trade to Indonesia compared to its Asian peers such as Malaysia, Thailand and South Korea, which all have an edge in technological goods exports.
This is because the US is one of the world's largest importers of technological goods, while Indonesia's exports to the country mostly come in the form of commodities such as palm oil, coffee, rubber, tea, fish, tobacco, textile, footwear, among others.
Indonesia must improve its competitiveness if it wanted to benefit most from the high economic growth in the US, Diop argued.
The US is Indonesia's second-largest trading partner after China. From January to August this year, Indonesia exported US$10.5 billion worth of goods to the US, according to data from the Central Statistics Agency (BPS). Indonesia's total exports account for 23 percent of the gross domestic product (GDP).
According to BPS data, the country's exports during the eight-month period totaled $117.42 billion, a 1.52 percent decline compared to figures in the same period last year. Of the total, non-oil and gas exports dropped 1.29 percent to 96.64 billion year-on-year during the eight-month period.
- US economic growth hit three-year high of 4.6 percent in the second quarter
- Recovery in US gives RI opportunities to increase exports
- RI gains will be less than those received by Malaysia, Thailand
Indonesia's total exports account for 23 percent of GDP.
Nevertheless, the recent rebound in the US economy has not been responded to warmly by Indonesian policymakers, who are worried that the US Federal Reserve, the US central bank, will raise its interest rate in response to the strong economic recovery.
Although a US interest-rate increase was likely to increase volatility in the Asian financial markets, the domestic Indonesian economy could see uplift if the monetary tightening was carried out in proper manner, said Benedict Bingham, IMF senior resident representative for Indonesia.
'A lot will depend on US monetary policy, if it plays out smoothly, then the US recovery will have a net benefit [to Indonesia],' Bingham told The Jakarta Post on Wednesday.
'In terms of policies, the new administration needs to make the economy more competitive and shift exports away from commodities to manufacturing,' he suggested. 'You have to make sure the macro pillar is steady and fiscal reforms go ahead.'
In addition to receiving economic benefits in the trade channel, Indonesia is expected to see stronger FDI inflows if recovery in the US economy is sustained.
The US was Indonesia's fifth-biggest foreign investor in the third quarter this year, with US companies having realized $302.7 million in investment in the archipelago from July to September, data from the Investment Coordinating Board (BKPM) showed.
