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The Advantages And Disadvantages Of The Trade War Between The United States And Canada On The Indonesian Economy
Monday, 03 Feb 2025
The President of the United States, Donald Trump, has signed an order to increase import tariffs on Canada, Mexico, and China. The dynamics of the global economy are expected to indirectly affect Indonesia's economy.
Wijayanto Samirin, an economist from Paramadina University, stated that Indonesia is unlikely to experience direct benefits or losses from the escalating tensions of the global trade war. However, these economic dynamics could influence the exchange rate of the rupiah.
At a certain point, Wijayanto believes that Foreign Direct Investment (FDI), which refers to cross-border investment transactions over a specific period, may face obstacles. "The fluctuations in the global economy could lead to instability in the exchange rate of the rupiah and global commodity prices, as well as hinder the flow of FDI and portfolio investments; this will have repercussions for our economy," Wijayanto remarked to detikcom on Sunday, February 2, 2025.
He emphasized that a critical consequence of this trade war will arise when the Indonesian government seeks to refinance or replace existing loans with new ones. "The most crucial aspect is that this occurs at a time when we need to refinance debt and issue new debt amounting to IDR 1.575 trillion in 2025, with a similar amount anticipated in 2026," he explained.
As a result, Wijayanto indicated that Indonesia may need to raise interest rates. He even suggested the possibility of a worst-case scenario, where foreign investors might divest from Government Securities (SBN) and Bank Indonesia Rupiah Securities (SRBI).
Additionally, Bank Indonesia (BI) previously reported that the 5-year CDS premium for Indonesia as of January 30, 2025, was 74.74 basis points, an increase from 72.93 basis points on January 24, 2025.
Furthermore, based on transaction data from January 30, 2025, non-residents recorded a net sale of IDR 0.82 trillion, which included a net sale of IDR 0.40 trillion in the stock market, a net sale of IDR 0.43 trillion in the SBN market, and a net purchase of IDR 5 billion in SRBI.
