What Will Donald Trump’s Presidency Mean for Indonesia’s Economy?

Awkward. That may best describe Indonesian policymakers’ response to Donald Trump’s election as 45th president of the United States last week. While President Joko “Jokowi” Widodo extended congratulations, his finance minister Sri Mulyani Indrawati was more circumspect and maybe more telling.

“We respect the choice of the people of America,” she told the media the next day. “It is best to think about our own country and let them think about theirs.”

Both leaders are certain to find themselves managing the fallout from policy bombshells dropped by the one-time reality TV star during his 18-month campaign for the White House. Debt fueled infrastructure spending, protectionism and a ban on Muslims from entering the United States are sure to complicate an already fraught bilateral relationship.

“It’s early days yet. It’s unclear whether or how the rhetoric of campaigning will translate into the rhetoric of governing,” says Keith Lovard, an analyst at security consultancy Concord

Already markets are voting with their feet by selling assets and currencies deemed risky and opting for safer harbours. The day after the election, the rupiah posted its biggest fall since 2011, forcing Bank of Indonesia (BI) to intervene. The Jakarta Composite Index has slumped 4 percent since Nov 9.

Interest rates, if not rising, have at least stopped easing. This week BI put a halt to its year-long exercise of easing interest rates. Worries that the US will blow out its deficit to build new roads, bridges and ports, however necessary they may be, have fanned expectations that the Federal Reserve will raise rates faster than it already planned. Southeast Asia’s largest economy is already growing at an underwhelming pace as Sri Mulyani tamps down spending. A more expensive cost of borrowing will put the brakes on consumer spending, too.

Trump’s election platform, at least in part, centred on re-negotiating trade treaties and protectionism. This seems to have helped sweep members of his party to power in the US congress and also throughout a majority of states. Republicans control legislatures in 32 states. This lock prompted Indonesian business representatives to meet with their US counterparts this week.

What they found, according to Roesiani Rosan, the chairman of the Chamber of Commerce and Industry of Indonesia, was that not only the Trans Pacific Partnership was all but dead, but most trade agreements were now up for review. “That’s a possibility,” says Rosan.

To be sure, economically, Indonesia is somewhat removed from the impacts of a Trump presidency.

This country, once briefly the childhood home to his soon-to-be predecessor, Barack Obama, wasn’t on Trump’s radar during the election. Rather, Trump’s suggestion of unilateral tariffs on Chinese-made consumer goods and his focus on trade deficits with other big Asian economies like Japan will have knock-on effects for Indonesia’s exports of energy and minerals. The extent of the damage won’t be clear until after Trump assumes office, at least in January.

Perhaps what sets Indonesia apart from the rest of the world is the impact of Trump’s anti-Muslim rhetoric. As a republic with the world’s largest Muslim population, Indonesia is at the front line when Trump muses of Muslim registries, or outright bans on immigration. Should Trump make good on his promises, US businesses and government can’t count on a warm reception in Indonesia.

And there is every reason to expect Trump to follow through. Trump’s party will eventually have command of all three branches of government in part because of his anti-Muslim rhetoric. This month Trump appointed, as chief strategist, Steve Bannon, executive chairman of Breitbart News, often criticized for its race baiting content. Not expecting Trump to at least try to deliver on the very policies that swept him to power seems so much wishful thinking.

At risk may be Indonesia’s experiment with democracy. During the election campaign, Trump’s opponents criticized his proposed ban on Muslims because it risked provoking jihadists or alienating Muslims. This scenario risks playing out in Jakarta. Following his questionable indictment for blasphemy, Jakarta Governor Basuki “Ahok” Purnama is struggling to staunch the haemorrhaging of support of mostly Muslim voters. A spokesman for his campaign says he sees the same ethnic and religious fractures that opened up in the United States during the presidential campaign as in the United Kingdom during the vote on EU referendum.

“It’s not just Indonesia. This is happening in America and in Britain. People are fragmenting along ethnic, national and religious lines,” says Raja Antonio, Ahok’s campaign spokesman. “Do we choose people who are the same religion or do we move forward? I think the people of Jakarta are rational.”

It stands to reason that anti-Muslim rhetoric from the President of the United States may undermine that hope for rationalism.

Of course, Trump’s election spells opportunity for some. For Golkar Chairman Setya Novanto and Geridra vice chairman Fadli Zon, it was vindication. Both men were reported to the parliamentary ethics committee for allegedly endorsing Donald Trump at a campaign rally in New York while on a government junket.

Novanto was later forced to resign as parliamentary speaker after the same ethics committee opened a probe into whether he illegally sought shares in mining giant Freeport. Novanto denied those allegations.

Trump’s election is potentially good news for Hary Tanoesoedibjo, a former investment banker and business partner of the Suharto family. Tanoesoedibjo controls the MNC media and property group.

MNC, which has extensive land holdings, entered into an agreement last year with Trump Hotels Collection regarding two high-end resorts in West Java and Bali. MNC shares surged after Trump’s election. That reaction may yet prove premature. Trump’s relationship with MNC is barely a year old. It’s unclear whether much money has flowed to MNC under the auspices that may only be a licensing and management contract.

That hasn’t stopped Novanto and Fadli Zon. In contrast to Jokowi and Sri Mulyani, who will need to deal with the fallout of a Trump presidency, the pair heaped praise on Trump for his win and on themselves for having chosen the right side of history.

Said Novanto, according to media: “Now it is proven that what I did was in the best interests of the Indonesian state.”

Awkward.

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Jeff moved to Jakarta earlier this year after stints as a business reporter in Tokyo and Sydney. After more than a decade in newsrooms, he turned to freelance writing specializing on infrastructure, sustainable development and finance. http://www.jeffreyhutton.com/ Follow Jeff on Twitter @jeffreyhutton


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