Indonesia is worried about being targeted by Donald Trump in a wider protectionist push, as trade tensions between the United States (US) and China continue to escalate, a senior minister said.
The Southeast Asian nation’s large trade surplus with the US may invite further scrutiny by the Trump administration even as the spat between the world’s two biggest economies offers potential gains to Indonesia, Planning Minister Bambang Brodjonegoro said. A prolonged dispute may also weigh on Indonesia’s current account deficit, foreign inflows and currency, he said in an interview in Jakarta on Tuesday.
World markets were rattled this week as China and the US announced tit-for-tat tariffs on hundreds of goods, adding to concerns about potential spill-over effects for countries across Asia. Indonesia, which last year ran a trade surplus of US$10.7 billion with the US, was previously included in a probe ordered by Trump into countries suspected of abusing the trade relationship. The country’s access to a US preferential trade program is currently under review.
“Indonesia and China have similarities, only at a different scale. Both of us create a deficit for the US side,” Brodjonegoro said. “Now the question is, how can we approach the US so that Indonesia will not be part of their idea of trade protectionism and how can we take advantage of potential declining Chinese exports to the US.”
Intensive lobbying
Indonesian officials are "intensively” lobbying the Trump administration to remain part of the Generalized System of Preferences, Brodjonegoro said. The program is designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries. Earlier this year, the US indicated it would remove India from the program.
“We are still discussing, lobbying, making sure that we will be safe from this kind of treatment," Brodjonegoro said. “I cannot say it’s positive but we haven’t heard negative things, so far. But you never know,” he said, citing the case of India.
The uncertainty over trade relations with the US comes as Indonesia seeks to boost exports to help curb its current account deficit, often cited as a key vulnerability for Southeast Asia’s biggest economy. The deficit was 2.6 percent of gross domestic product (GDP) in the first quarter, above the central bank’s projection of a 2.5 percent average for the year.
“We know the escalation of this trade war could impact the currency. So, there will be pressure on the current account deficit, our portfolio inflows and in the end our currency,” Brodjonegoro said.
Rate cuts
The current-account data and trade war concerns prompted the rupiah to weaken to a four-month low against the dollar on Tuesday, paring gains made in recent months following last year’s emerging-market rout.
The market volatility may prompt the central bank to delay interest-rate cuts, Brodjonegoro said, speaking days before Bank Indonesia’s monetary policy decision on Thursday. A majority of economists expect the bank to keep its benchmark rate unchanged at six percent.
“We might have to wait a little bit for any relaxation of the interest rate,” Brodjonegoro said. “The central bank and the government need to look at the volatility in the global market. I don’t think reducing the rate would be helpful given the volatility.’
President Joko Widodo is expected to be confirmed as the winner of the 17 April election when official results are announced next week. As he prepares for a second five-year term in office, he’s moderated his growth ambitions, forecasting expansion of as much as 5.6 percent in 2020. While that would be the fastest pace since 2013, it’s well below the seven percent Widodo targeted ahead of his first term five years ago. - Bloomberg