Asia Pacific's Shifting Balance

Last week's Asia-Pacific Economic Cooperation (APEC) meeting in Lima, Peru, attended by Vice President Jusuf Kalla, was Barack Obama's last APEC gathering as US President. At the meeting, Obama sought to calm fears about the US turning inward, when President-elect Donald Trump, takes office. But his efforts proved futile as Trump, at the same time, announced that he would cancel the US-sponsored Trans-Pacific Partnership (TPP) multilateral free trade agreements in the Asia-Pacific region. During his campaign, Trump repeatedly stressed his intention of protecting US factories and jobs to avoid more factory closures and jobs moving out of the country.

This protection will be in the form of an increase in trade tariffs on imported goods, including imports from the Asia Pacific region, which unfortunately will reduce Asian exports. For Indonesia, the US export market accounts for 11 percent of total exports and is the second largest export destination after China. So, if this is realized, our export earnings will no doubt be impacted. Last week also saw improvements in the US economy, which signals a likely US Federal Reserve interest rate hike by year-end. The global markets, though, has already reacted. Even here, the rupiah and the Jakarta Composite Index (JCI) weakened in tandem, soon after Trump's election win was announced in early November. Since then, the rupiah dropped to a low of Rp13,500 per US dollar level from Rp13,100 earlier, while the JCI also weakened from 15,400 to the current 15,100 level.

November 29, 2016