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From Trump's tweets to trade war, all affect Indonesia
Finance chiefs and country leaders around the world are facing ever-changing global economic dynamics and risks ranging from the United States-China trade war and Brexit uncertainty to limited monetary policy options and US President Donald Trump’s tweets
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span>Finance chiefs and country leaders around the world are facing ever-changing global economic dynamics and risks ranging from the United States-China trade war and Brexit uncertainty to limited monetary policy options and US President Donald Trump’s tweets. Indonesia is no exception.
“If we talk about advanced countries’ policies, particularly the US, we see that every tweet by President Trump affects not only [market] sentiment but even economic expectations and projections,” Finance Minister Sri Mulyani Indrawati told a seminar in Jakarta on Thursday.
“For a country with such a big economy, whatever happens to it will affect its surrounding and even the world,” she stressed.
Many of the tweets posted by the Republican president have indeed added some volatility to global financial markets, increasing risks for emerging economies like Indonesia.
This prompted two large Wall Street banks to create tools for measuring the market impact of such messages.
Analysts at JPMorgan Chase & Co. have created an index to quantify what they say are the growing effects on US bond yields. Its Volfefe Index, named after Trump’s mysterious covfefe tweet from May 2017, suggests that the president’s electronic musings are having a statistically significant impact on Treasury yields, Bloomberg reported.
Meanwhile, Citigroup Inc.’s foreign exchange team reported that these micro-blogging missives are also becoming “increasingly relevant” to foreign exchange moves.
Local economists echoed Sri Mulyani’s caution.
“Trade war-related issues, Brexit, yuan depreciation and President Trump’s tweets — all of them play a role in this [recession] fear,” the Bank Central Asia (BCA) research team wrote in a note.
Fear of a recession has been spreading around the world as major economies, such as the US, Germany, Japan and Singapore, have shown signs of weakening GDP growth amid escalating trade tensions.
The International Monetary Fund warned Thursday that the US-China tit-for-tat tariff war could slash global economic output by 0.8 percent in 2020 and trigger additional losses years after that. IMF spokesman Gerry Rice said global trade tensions were beginning to weigh down dynamism in the global economy that was already facing difficult challenges, including a weakening of manufacturing activity not seen since the 2007-2008 global financial crisis, Reuters reported.
“We are talking about recession, we are talking about the trade war, we are talking about Federal Reserve interest rates. These are all related to [issues from] America spilling over, because it is a systemically important country,” Sri Mulyani said. “America and China are the biggest and second-biggest economies. If these two behemoths’ relationship is inharmonic, it will definitely affect or spill over to the rest of the world.
Indonesia’s cooling economic growth will soften further with the global slowdown, according to the World Bank’s presentation to President Joko “Jokowi” Widodo earlier this month, a copy of which was obtained by The Jakarta Post.
“A global recession would be damaging,” said the Washington, DC-based institution. It projected domestic economic expansion to weaken to 4.9 percent next year and 4.6 percent in 2022.
The country’s GDP growth slid to its lowest level in two years of 5.05 percent in the second quarter. The government has set itself a goal to achieve GDP growth of 5.2 percent this year.
Sri Mulyani said the government had prepared itself to face such a risk as economic downturns were a recurring aspect of the economy.
“We prudently protect our fiscal policy. We make sure our spending is more and more efficient. We push public-private partnerships. It’s all because we want to keep our fiscal space safe,” said the former World Bank managing director.
She pointed to this year’s budget deficit and debt ratio targets of 1.84 percent and 30 percent of the GDP, respectively, which are lower than those of many developed countries, as one of the government’s efforts to maintain fundamental domestic economic stability.
Jokowi has also instructed ministries to identify obstacles and regulatory bottlenecks in a bid to create a business-friendly economy to attract foreign direct investment (FDI). This is in line with the World Bank’s suggestion.
“The main recommendation to the Indonesian government is that, in the current environment, the best way to protect Indonesia is by financing the [current account deficit] through FDI, as opposed to portfolio inflows,” said World Bank country director for Indonesia and Timor-Leste Rodrigo A. Chaves after meeting the President.
Economist Anton Gunawan advised the government to boost investment through nonfiscal measures, such as relaxing the labor laws and cutting bureaucratic red tape.
“The key to this entire situation is investment. Consumer spending is still sustained — the government pushed that recently to ensure it doesn't slip below 5 percent — but that’s not enough,” he told the Post. (prm)
