Who would have thought Indonesia would experience a can of worms this year after a first year of negative investment growth since President Joko Widodo came to power in 2014?
Big political year, US-China tensions, Fed rate hikes are several from handful matters in Indonesia’s hand this year. All we need to do is nothing more than to find a way out from those issues. If people think the ongoing trade war between the U.S and China will crack down Indonesia’s economy this year, they might be inaccurate. Otherwise the war has opened up new opportunities for Indonesia, the Southeast Asian nation's minister of industry said in January 2019. The dispute between the world's two largest economies would push companies to speed up plans to move parts of their supply chains from China to countries such as Vietnam, Thailand, and Indonesia. Luckily, Indonesia has seen the shift happening.
Numerous company producing textiles and footwear have explored the opportunity to move from China to Indonesia. The Southeast Asian country has also been exporting more steel to the U.S. despite U.S. President Donald Trump imposing additional tariffs on steel and aluminum imports in March last year. Consequently, Indonesia exports of iron and steel jumped 87.7 percent to the U.S in January through November last year according to data from country’s trade ministry. Moreover, within the same period, total exports to the U.S. grew 3 percent, the data showed.
Furthermore, in some two months the country will have its political bash after five years of President Joko Widodo presidency. The bright side shows if President Joko Widodo get re-elected again for two periods. Possibly, there will be two investment themes that will dominate his second term amidst the tension that might affect domestic economy. Rebuilding infrastructure and gaining a bigger share of foreign direct investment in Asia are his major goals. Within his administration, Indonesia’s economy grow 5.2% last year, following 5.1% growth in 2017. Indonesia weathered last year’s emerging markets turmoil better than peers in Latin America. “Good monetary policy translated into greater resilience to emerging markets stresses and its fiscal policy has improved,” says Manu Bhaskaran, director at independent research house Centennial Asia Advisors in Singapore.
Comparatively, since the Federal Reserve was hiking every quarter, Indonesia required to prevent a rout in the currency. The rupiah went from being one of the worst-performing emerging-market currencies in the third quarter of 2018 to one of the best by the end of the year. After all, this is a good sign for the future condition of rupiah. The central bank took investor confidence and the Fed policy action into account. “The decision was in line with our expectations, mainly on the back of a less aggressive Fed, but Bank Indonesia will continue to be vigilant towards external risks,” said Enrico Tanuwidjaja, , the head of economics and research for PT UOB Indonesia in Jakarta. After all, Bank Indonesia will now lean more heavily on direct intervention in the currency market to stabilize the rupiah. To be sure, BI Governor Perry Warjiyo, at a press, briefing after the bank kept the benchmark rate at 6 percent, Warjiyo said the policy stance is still “hawkish.” Officials will be “preemptive and forward looking,” he added.
What would you like to learn about next week?
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