Shock From Trump's Unexpected Victory Recedes, Local Companies Look Forward to Business as Usual


NOVEMBER 10, 2016

Jakarta. Local businesses expect little change in Indonesia's trade and investment relationships with the United States, one of its largest trading partners and sources of foreign direct investment, following Republican Party nominee Donald Trump's shock victory in the US presidential election on Wednesday (09/11).

Trade between Indonesia and the US has been declining in the past five years, a fact which the US State Department blames on a lack of infrastructure and a series of protectionist regulations in Indonesia — and poorly implemented ones at that.

President Barack Obama had lobbied Indonesia to join his Trans-Pacific Partnership, designed to boost investment and trade between 12 Pacific Rim countries, including the US. President Joko "Jokowi" Widodo agreed to initiate talks on a deal last year, for fear of losing access to the US market to neighbors Vietnam and Malaysia.

But since President-elect Trump had promised closed borders and more protectionist measures during his campaign, which won him the White House in a shock upset over Hillary Clinton, there are now fears that the two countries would have to start all over again.

"It's likely that talks would have to start from the very beginning again, but Indonesia is too big an economy for the US to ignore. Let's just see what happens in the first 100 days of the Trump presidency," Chris Kanter, the deputy chairman of Indonesian Chambers of Commerce and Industry (Kadin) told the Jakarta Globe on Wednesday.

For now, most businesses expect trade would continue as usual.

"We're not worried [about Donald Trump winning the election] as only 5 percent [of our revenue] comes from the US," Iwan S. Lukminto, president director of Indonesian textile and garment producer Sri Rejeki Isman, said.

Iwan added that the company, known also as Sritex, actually expects export to the US to increase in 2017, but refused to give an exact figure.

Indonesia exported mostly knit and woven apparel, rubber, electrical machinery and footwear to the US with total shipment reaching $19.6 billion in value last year, down 1.1 percent from $19.4 billion in 2014.

The largest economy in Southeast Asia imported aircraft, soy beans, seeds, fruit, machinery, animal feed and electrical goods from the US. The import was worth $7.12 billion last year, down 14 percent from $8.3 billion in 2014, according to data from the US Department of Commerce.

University of Indonesia economist Lana Soelistianingsih said Trump's promise to bring back manufacturing jobs to the US may not have much real impact on the country's investment overseas.

She said Trump will likely want to loosen up the superpower's fiscal policy, cutting corporate taxes to bring back US businesses which have established factories overseas for years.

However, the move may not work as well as the flamboyant billionaire imagined, as labor costs in the US are much higher compared to those in Asian and African countries.

"In the end, Trump has to face reality and will have to be more selective with his protectionist trade policies once he starts his presidency," Lana added.

Markets overreact

The Jakarta Composite Index rebounded 1 percent on Thursday (10/11), almost recouping all of Wednesday's losses as Asian markets went into shock after Trump's stunning come-from-behind victory.

Fund manager Eastspring Investments Indonesia said Trump's unexpected win did stoke some uncertainties in the financial market, but it might have been an overreaction rather than a long-term effect.

The US economy is expected to grow 1.5 percent to 2 percent and inflation there is set to rise. Trump's proposed corporate tax cuts could mean a wider budget deficit but it may also boost consumer spending in the world's largest economy, Eastspring said.

Meanhwile, the Indonesian economy's fundamentals remain sound, the fund manager said. President Jokowi already said economic growth in the fourth quarter would accelerate 5.1 percent to 5.2 percent year-on-year, from 5.02 percent in the third quarter.

In addition, inflation remains under control at 3.31 percent year-on-year in October, and current account deficit has narrowed to 2.02 percent.

"We believe, in case of correction in the financial markets being offset by changes in fundamentals, now is still a good time to invest in Indonesia," Eastspring said.