Author/s
24 Feb 2019

The Lee Kuan Yew School of Public Policy (LKYSPP), part of the National University of Singapore (NUS), launched the Asia Thinker Series (ATS) and hosted a discussion titled “Indonesia in the Global Trade War: Impacts on Business, Global Trade and Investment” on 31 January, 2019 in Jakarta.

Established by LKYSPP, Asia Thinker Series is an accumulation of discussions for academic experts, policymakers, and business leaders from all over the world to discuss public policy issues concerning Asia’s leadership position in global growth and economic development. As a school committed to effecting global change through thought leadership, Danny Quah, Dean and Li Ka Shing Professor in Economics believes that the Asia Thinker Series can enable people to pursue knowledge, learn from one another and understand the world better.

The event in Jakarta is the first of many discussions as part of the ATS. During this inaugural event, Dean Danny was joined by other experts including Dr. Chatib Basri, former Minister of Finance of Indonesia and Chairman of the Indonesia Infrastructure Finance; Dr. Lili Yan Ing, Lead Advisor to the Minister of Trade of Indonesia and Mr. Arif Rachmat - Co Founder & Executive Chairman of Triputra Agro Persada (TAP) Group. Mr James Crabtree, Associate Professor in Practice, LKYSPP, moderated the session.

SETTING THE STAGE - IMPACT OF THE GLOBAL TRADE WAR TO INDONESIA

Dean Danny Quah first set the context of the discussion by sharing his thoughts on the trade war. Besides pointing out that the world’s economic centre has shifted from the West to the East, he was of the view that Asia will be the world’s new economics centre while continuing to be the world’s fastest-growing region. While the West has been pushing on the issue of debt and inequality, he believes that Asia should not follow in the West’s footsteps and that they should see the trade war as an opportunity.

Adding on to Dean Danny’s context, Dr. Chatib Basri shared the impact of trade war to Indonesia. He explained that based on trade data in 2018, there was a decline in Indonesia’s GDP, particularly in the commodity and energy sectors. Through his observation, he also noticed that China’s demand in coal from Indonesia also decreased. While the government revenue has decreased, that is mostly supported by the domestic sector. In unison, both Dr. Lily and Mr. Arif Rahmat agreed that the trade war might be beneficial for the world. Dr. Lily believes that while trade is in deficit, Indonesia remains in a good situation – the export value of commodity prices are increasing and double of that of the world’s export value. In addition, Mr. Arif stated that the risks of the trade war for Indonesia are ‘Capital, Commodity and China’.

KEEP CALM AND NAVIGATE CAREFULLY

1. Change the Economic Structure

With their background in economics, both Dr. Chatib Basri and Dr. Lily stated the same analysis on how Indonesia can anticipate the trade war. The policymakers in Indonesia must take important steps, including changing the economic structure. The country cannot depend on commodities export activities anymore and must transform to be an industrial country. To allow for this transformation, policy makers need to be committed to the decision and focus on issues that relate strongly to competitiveness. Labour law reform, development of human capital, revistalising trade with ASEAN are examples of issues that they felt the government should focus on.

2. Relocate the market

The speakers also opined that the trade war will give many opportunities to Indonesia. For example, entering new agreements to develop new markets besides U.S and China would be beneficial to Indonesia. Dr Lily commented that Indonesia can benefit by learning from countries like Korea, Japan, China where they have made connections between trade and industrialisation. This will allow Indonesia to better compete with its neighbours including Vietnam and Thailand.

3. Watch the Politics Cycle

Dr. Chatib Basri added that the political movements and decisions in Indonesia will also be an important factor on how trade war will impact Indonesia in the future. Given that the trade decisions largely lie with the political parties and their vision, Indonesia’s future will change accordingly with the political landscape. For example, under President Joko Widodo, the country is focused on making Indonesia an industry-based country before opening up to the global economy. With a new president in April 2019, the questions will then be:

  • What is the next leader’s vision?
  • Will the next leader change Indonesia’s trade policies?

LIGHT AT THE END OF THE TUNNEL

The overall sentiment to Indonesia remains positive, and the panellists believe that the trade war provides new opportunities for both local businesses and overseas’ investors. To take advantage of the opportunities, Indonesia will need to change its structure and ensure that the political landscape does not adversely affect its policies.

Event is sponsored by
Lippo Group logo