Interview Sri Mulyani: Indonesian Economy Affected by China & Brexit
In today's cabinet reshuffle (27/07) economist Sri Mulyani Indrawati was appointed as Indonesia's new finance minister, replacing Bambang Brodjonegoro. One day earlier, when few were aware about this surprise move, Sri Mulyani spoke briefly to reporters - in her position as managing director and chief operating officer of the World Bank - about the Indonesian and global economy. She sees two matters that negatively affect Indonesia's economic growth: slowing economic growth in China and the Brexit issue.
Britain's decision to exit the European Union in the referendum that was staged on 23 June 2016 (the so-called Brexit) in combination with the slowing economic growth trend of China have created the 'perfect storm' that cause stagnating global growth and trade as well as slowing capital flows to emerging markets, Sri Mulyani said. In addition, the world has to deal with geopolitical conflicts, rising terrorist attacks as well as global climate change.
China's economic slowdown, which is partly due to its shift toward a consumer-driven economy, has a severe impact on the global economy. Sri Mulyani said she just visited Argentina, a country that is also plagued by economic turmoil. Argentina's current economic problems are partly explained by a 35 percent drop in exports to China. Meanwhile, many other countries and regions experience the same turmoil, including Indonesia.
The World Bank recently cut its projection for global economic growth in 2016 to 2.4 percent (y/y) from 2.9 percent (y/y). This downward revision is particularly the cause of slowing growth in commodity exporting countries. Sri Mulyani believes that this trend of slowing economic growth around the globe will last a bit longer now the Brexit issue has triggered more uncertainty in global markets. Nations should cooperate to boost certainty and improve market confidence in order to cope with China's slowdown. However, Brexit is the exact opposite of this strategy.
Sri Mulyani suggests that Indonesia needs to enhance its role in the global economy and trade. For example, the integration of ASEAN through the ASEAN Economic Community should be considered an opportunity for the nation's export performance. However, it will require improved productivity of Indonesia's human resources as well as lower costs of trading.
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