US Gov’t Shutdown Unlikely to Impact Indonesian Economy
The United States government shutdown will not have a significant impact on the Indonesian economy if it lasts for only a short time, because export markets rely on the private sector, a minister said on Monday (22/01).
US senators were unable to reach an agreement on a bill to fund federal agencies through Feb. 16, which forced hundreds of thousands of employees in non-essential sectors to be on unpaid leave and more than a million people in essential sectors to work unpaid until a funding deal is renewed.
Essential workers are those dealing with public safety and national security, such as the military and hospitals.
“If it is only for the short term; it will not [impact Indonesia],” National Development Planning Minister Bambang Brodjonegoro said.
Bambang added that in the short term, the shutdown will not disrupt Indonesia’s exports to the United States as they are mostly dealt with the private sector.
Central Statistics Agency (BPS) data shows Indonesian exports to the United States accounted for 11.2 percent of the country’s total, amounting to $17.1 billion annually and dominated by a combination of commodities, such as rubber and shrimps; and non-high-tech manufacturing products, such as furniture, textiles and footwear.
Mohammad Faisal, an economist at Jakarta-based research firm CORE Indonesia, predicts that the shutdown will unlikely last for more than a month, based on previous shutdowns.
The United States has had 18 federal government shutdowns since 1976, with the longest having been for 21 days between December 1995 and January 1996.
“If it is only for the short term; it will not [impact Indonesia],”
Mohammad said the last shutdown in 2013 during Barack Obama’s administration lasted for 16 days and did not have a significant impact on the global economy, including developing countries such as Indonesia.
Getting Ready
Bhima Yudhistira Adinegara, an economist at the Institute for Development of Economics and Finance (Indef), said the government must start preparing for risk mitigation as President Donald Trump’s term in office will only end in 2021.
“This is Trump’s first year of arranging the government budget … if these keep repeating, Indonesia must have a way to mitigate the risk,” Bhima said.
If the current shutdown lasts less than 20 days, Indonesia’s foreign exchange reserves of $130 billion are still sufficient to stabilize the rupiah exchange rate, according to the latest figures.
However, Bhima said Indonesia has to increase its foreign exchange reserves as a “safety net” against external influences by promoting non-oil and gas exports and tourism.
He added that Indonesia should decrease its dependence on the US market by accelerating trade agreements with nontraditional trading partners, such as Chile, Russia and countries in Eastern Europe and Africa, to diversify the country’s markets.
For the time being, Bhima said the US dollar exchange rate will have a minimal impact on the rupiah over the next two weeks as it is still within the controlled range of Rp 13,350 to Rp 13,400.