KSSK promises ‘vigilance’ in anticipating impacts of US-China trade dispute

Counting costs: Finance Minister Sri Mulyani (second left) shares a light moment with (from left) Financial Services Authority board of commissioners chairman Wimboh Santoso, Bank Indonesia Governor Perry Warjiyo and Deposit Insurance Corporation commissioner Destry Damayanti at the close of a press conference in Jakarta on Tuesday, July 30.(Antara/Galih Pradipta )
The prolonged trade spat between the United States and China has shaken the world’s financial markets, disrupted the global supply chain and suppressed economic growth in many countries, including Indonesia.
Finance Minister Sri Mulyani Indrawati said that US-China trade tensions were the primary consideration for regulators when discussing external risks to the domestic economy, adding that the dispute could potentially spill over to other countries that served as hubs for Chinese exports to the US.
“This factor has weakened international trade and dimmed prospects for global economic growth,” Sri Mulyani said on Tuesday, during a press conference in Jakarta that announced the results of the assessment of the Financial System Stability Committee (KSSK) on the national economy.
The KSSK – comprising the Finance Ministry, Bank Indonesia (BI), the Financial Services Authority (OJK) and the Deposit Insurance Corporation (LPS) – vowed to remain vigilant in monitoring potential threats to Indonesia’s financial stability. The committee also stressed assurances that its latest assessment had determined that the financial system remained stable.
It also has pledged to work toward boosting Indonesia’s economic growth to achieve this year’s 5.3 percent target amid the slowing global economy.
“With maintained stability, all of BI’s policy instruments are directed at supporting and encouraging the economic growth momentum,” BI Governor Perry Warjiyo said during the press conference, adding that the accommodative policies were also expected to increase loan disbursements.
The central bank eased its policy rate this month by 25 basis points (bps) to 5.75 percent, with Perry hinting that more cuts were on the way if needed.
On the same occasion, OJK board of commissioners chairman Wimboh Santoso welcomed BI’s latest rate cut and expressed his hope that banks could channel more loans in a bid to accelerate economic expansion.
“We hope the financial sector can be more conducive in channeling its financing to positively influence economic growth, job creation, [and] export-oriented, import substitution or environmentally friendly [businesses],” he said.
“The [US-China] trade tension is one external factor that could disrupt Indonesia’s economic growth through exports as well as investments to various export-related sectors,” said Asian Development Bank Institute economist Eric Sugandi.
Separately, University of Indonesia economist Fithra Faisal Hastiadi highlighted that the country’s manufacturing industry lagged in competitiveness compared to its regional peers, which could further impact the GDP amid rising tensions.
Indonesia ranked 45th in the Global Competitiveness Index 4.0 that the World Economic Forum (WEF) released last year, tailing behind Singapore (2nd), Malaysia (25th) and Thailand (38th).
Aside from the US-China trade dispute, Japan and South Korea have also become embroiled in a trade spat over Japan’s plan to “normalize” its currently “simplified” procedures for some of its high-tech export commodities to South Korea, as reported by Reuters.
The global trade tension has prompted the International Monetary Fund (IMF) to revise down its world economic growth projection by 0.1 percentage point to 3.2 percent for 2019 and down again to 3.5 percent for 2020. It also trimmed the 2019 projection it announced in April for the ASEAN 5 (Indonesia, Malaysia, the Philippines, Singapore and Thailand) by 0.1 percentage point to 5 percent.
“Weak trade prospects – to an extent reflecting trade tensions – in turn create headwinds for investment,” the IMF stated in its July update to the World Economic Outlook. “Business sentiment and surveys of purchasing managers for example point to a weak outlook for manufacturing and trade, with particularly pessimistic views on new orders,” it said regarding soft global trade.
US-China trade tensions have particularly hit export-reliant country Singapore, which has a trade-to-gross domestic product (GDP) ratio of 326 percent. The country booked its biggest decline in six years in its June exports and recorded its slowest growth rate in a decade during the second quarter, Reuters reported, suggesting that “a technical recession and monetary policy easing could be just around the corner”.
Investment Coordinating Board (BKPM) data shows that Singapore has been the number one source of foreign direct investment to Indonesia in this year’s first half.
By: Marchio Irfan Gorbiano