Trump’s Mexico Shift a ‘Plus Plus,’ Says Indonesia’s Indrawati

(Bloomberg) -- President Donald Trump’s decision to drop plans for tariffs on Mexico is a clear positive for the world economy and may signal a broader U.S. willingness to compromise on its trade conflict with China, Indonesia Finance Minister Sri Mulyani Indrawati said.

"That’s very plus plus," Indrawati said in an interview with Bloomberg Television in Fukuoka, Japan, where finance and central bank chiefs from the Group of 20 are meeting this weekend.

It may also signal that the U.S. and China can reach an agreement in their trade dispute, she said.

"We do hope this recognition is going to create a more reasonable policy direction," Indrawati said.

The escalating U.S.-China trade war and Trump’s threat of higher tariffs on Mexican goods had roiled financial markets and damaged global growth prospects. Officials in Indonesia, Southeast Asia’s biggest economy, have been bracing for the fallout as falling exports widen the current account deficit and put pressure on the currency.

Market Volatility

Indrawati warned that the uncertainty has triggered volatility in exchange rates, and stock and bond markets, pulling capital away from emerging economies.

There are signs that the U.S.-China tension will last for a long period and spiral into areas of national security and geopolitics.

"This is going to be longer than just trade," she said.

On the Federal Reserve, Indrawati said the central bank’s dovish shift and market expectations for interest-rate cuts are welcome developments.

"It creates a breathing space for emerging countries," she said, adding Indonesia’s central bank has policy room to adjust if needed. Yet she cautioned that a dovish Fed means there is downside risk to the U.S. economy.

Current Account

The current account gap reached a four-year high of almost 3% of gross domestic product in 2018, making the nation reliant on foreign inflows to fund its import needs.

While Indonesia’s economy has been growing at about 5%, that’s below historical averages and well short of the 7% target President Joko Widodo set five years ago. After winning a second five-year term in April, Widodo is doubling down on infrastructure spending, proposing more than $400 billion to build airports, power plants and other projects.

S&P Global Ratings recently upgraded Indonesia’s debt, citing the nation’s strong growth prospects and prudent fiscal policy. The government is forecasting expansion of 5.3% for this year, and 5.3%-5.6% in 2019.

While Asian central banks are starting to ease monetary policy to bolster their economies, Bank Indonesia is treading more cautiously to avoid undermining its currency. Policy makers are discussing the possibility of cutting interest rates but are waiting for the right time to do so, Deputy Governor Dody Waluyo said in an interview on Friday.

--With assistance from Karlis Salna.

To contact the reporters on this story: Enda Curran in Hong Kong at ecurran8@bloomberg.net;Kathleen Hays in New York at khays4@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net;Malcolm Scott at mscott23@bloomberg.net

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