Brexit - Photo: Special

JAKARTA (TheInsiderStories) – Brexit crisis deepens amid the delay of implementation and no light yet over how the agreement would end. Presenting the spirit of protectionism, British’ withdrawal from The European Union (EU) has been worrying the world, including Indonesia.

Brexit will not make the United Kingdom (UK) stops its trading with the EU. But as the access impacted, the trading intensity between two parties will fall. In the end, it will hit the UK economy and affect exports from other countries. But how’s actually Brexit impact on Indonesian economy?

The impact on emerging countries is considered would not be significant. Experts say, Brexit impact on Indonesia is considered low and only in a short-term.

Chatib Basri, an Indonesian economist and Former Finance Minister explained that Asian countries’ export to the UK is small. Especially, Indonesia only has less than two percent of exports to the UK.

The kingdom has been Indonesia’ strategic partner since 2012. According to Statistics Agency data, Indonesia’ export to the UK only amounts US$806,740 export in 2018, spiked by 90.52 per cent. In a percentage of Gross Domestic Product (GDP), Indonesia’ exports to UK is not having a big pie’ portion, only less than 1 percent.

In contrast to the tiny exports, Indonesian goods imports from the UK is much higher at US$1.21 billion. And Investment Coordinating Board stated that British’ investment to Indonesia valued $271.13 million last year, or the 14th highest among all countries.

Brexit will create a sluggish of China’ export to the EU. And in the end, Indonesian export to China will follow to be hit. This EU impact must be noticed further.

Moreover, tUK, EU, China, and India’ economic slowdown will give pressure on the global economy. Demand on energy and commodities would be weakening. Not to forget, around 60 percent of Indonesian exports relate to energy and commodities.

But Brexit impact on Indonesia is more to the market. There’s a vulnerability on the money market led by Poundsterling and Euro. US Dollar would gain power, and Rupiah will follow depressing.

The turmoil in the capital market and money market has not been a strong indicator that Brexit will have a significant effect on the Indonesian economy. Because the turmoil is more driven by sentiment factors rather than fundamental factors.

Moreover, Brexit would sway Indonesian investment inflow from the UK, especially because the Indonesian capital market is still dominated by foreign investors. However, the turmoil is temporary and will subside in the foreseeable future.

Due to the increasing uncertainty due to Brexit, investors tend to release their assets in rupiah and transfer them to safer assets in US dollars or gold. When uncertainty begins to subside and investors are able to calculate the risks that arise, funds that come out will return to Indonesia.

Amid all of that, the government believes that Brexit will not impinge on Indonesia-the UK bilateral relations as it remains in the interest of both countries to continue building cooperation. Indonesia had vowed to maintain good relations with both the UK and EU, with no change of partnership.

Recently, Indonesia has a Comprehensive Economic Partnership Agreement (CEPA) and Forest Law Enforcement, Governance, and Trade (FLEGT) License with the EU. The partnership impact will be seen after the UK officially withdraws from the EU.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com

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