Indonesian bankers say growth, inflows could be hit by Trump’s policies

5:22 am Wednesday, November 13th, 2024

JAKARTA (Reuters) – Indonesia’s growth and portfolio investment could be hit if planned policies of U.S. President-elect Donald Trump disrupt global trade and make it harder to cut interest rates, bankers at state-run lenders told a parliamentary hearing on Wednesday.

A U.S.-China trade war could take around 0.2 percentage points off Indonesia’s economic growth next year, and even more if other countries followed suit, said Sunarso, the president director of Bank Rakyat Indonesia (BRI) .

“That’s why we must be careful if the U.S. becomes protective and China also responds with a trade war like the last one, the impact will be quite significant on us,” Sunarso, who uses a single name, told the parliamentary hearing.

Both China and the United States are major trade markets for Indonesia.

BRI, the country’s second-largest by assets, had forecast economic growth of 4.9%-5.2% next year, but Sunarso said that could drop to 4.6%-4.9% if a wider trade war developed.

Darmawan Junaidi, the chief executive of top lender Bank Mandiri, said a trade war could affect global commodity prices, which often move according to demand from China. Indonesia is a major exporter of palm oil, coal, nickel, tin and rubber.

Trump has proposed a 10% tariff on all U.S. imports and 60% on Chinese-made products, which along with other planned fiscally expansive policies have raised some concerns for markets and analysts about inflation and future rate cuts.

Bank Negara Indonesia said the incoming U.S. administration’s policies could see the Federal Reserve cut rates less than previously expected.”The situation ahead is not easy with Trump winning, as reduced taxes (and) tariffs will push inflation up, making it difficult for the Fed to lower interest rates,” President Director Royke Tumilaar told the hearing.

“This liquidity pressure is a significant burden for our expansion plan,” Tumilaar added.

Indonesia typically sees capital inflows when the Federal Reserve eases monetary policy, as investors look for better returns. Times of uncertainty generally trigger outflows from emerging markets, such as Indonesia, as investors reduce risk.

Bank Indonesia (BI) cut interest rates in September, just ahead of the Fed kicking off its rate-cutting cycle. Last week, the Fed delivered a second rate cut.BI has said the Fed’s future easings and movements in U.S. Treasury yields could affect its room to cut Indonesian rates.

Indonesian President Prabowo Subianto is currently in the United States. He met President Joe Biden on Tuesday, and has spoken with Trump on the phone.

($1 = 15,765 rupiah)

(Reporting by Stefanno Sulaiman; Editing by John Mair)