Impact Trump Presidency on Foreign Direct Investment in Indonesia
Donald Trump becoming next US president in January 2017 will not affect foreign direct investment (FDI) in Indonesia according to the Indonesia Investment Coordinating Board (BKPM). Trump's election caused a huge wave of uncertainty in financial markets worldwide. However, the BKPM remains committed to its investment realization targets (including both domestic and foreign direct investment) of IDR 594.8 trillion (approx. USD $44.7 billion) in 2016 and IDR 631.5 trillion (approx. USD $47.5 billion) in 2017.
Also Mark Mobius, Executive Chairman of the Templeton Emerging Markets Group, is optimistic. He says there is the potential for lower taxes and a more business-friendly environment in the USA, the world's top economy. This could result in more active efforts by US companies to expand business domestically and internationally, particularly into those emerging markets with high-growth rates, sound fiscal policies and positive demographic trends. Indonesia meets these criteria: economic growth is expected to accelerate structurally above 5 percent (y/y) in the foreseeable future, authorities apply prudent fiscal policies, while the country can also rely on a demographic bonus.
Generally, US entrepreneurs are content seeing a Republican entering the White House as Republicans tend to limit government involvement and support lower taxes. For US and global businessmen there are several advantages and disadvantages of having Donald Trump as 45th president of the USA. Although we will have to wait until (at least) January 2017 before knowing definitely to which direction Trump will take the US economy and politics, he already shared some of his ideas about the US and global economy. Moreover, it should be easier for him to implement new policies because he can rely on a Republican-controlled Congress.
Donald Trump's Ideas about the Economy
Lower taxes; by setting too high corporate taxes US authorities (Democrats) have made it unattractive for big firms to stay in the USA (or for foreign firms to move to the USA). Trump supports a lower corporate income tax rate, perhaps even cutting the rate from 35 percent to 15 percent, a move that would make the USA business environment much more competitive and therefore could also generate millions of jobs. Trump may also offer an attractive tax rate to those companies that are willing to repatriate their foreign assets into the USA.
Infrastructure; a large part of American roads and bridges are currently in poor conditions as the various states lack funds to do maintenance work on local infrastructure. It is estimated that 60,000 American bridges (some 10 percent of the total amount of bridges in the USA) need some fixing. Trump wants to invest heavily in the nation's infrastructure, including airports, tunnels, and the water-supply, a program that would also generate millions of new jobs in the US economy. However, it will require about USD $3.6 billion in investment to get the job done by 2020. Trump wants the private sector to contribute about USD $1 billion.
Red tape; for every new regulation during his presidency Trump wants to scrap two existing ones because less bureaucracy (red tape) will improve the business climate and give rise to more investment. Hence, Trump may become the biggest reformer since Ronald Reagan. Generally, Republicans believe that less government involvement will boost the economy. Backed by the Republican-controlled Congress he may be able to realize his reforms although it is unlikely that he will scrap whole laws. Particularly the US financial sector is expected to be freed from too much government involvement. After the crisis in the late 2000s the Obama administration implemented strict regulations in the US financial sector to prevent the outbreak of another crisis. However, as this sector and the recovery of the US economy remain fragile, Trump should not cut too drastically in financial regulations.
However, there are also a couple of issues - possibly implemented by Trump - that can impact negatively on the global economy.
Climate change hoax; Trump calls the issue of climate change a hoax that is started by China with the aim to undermine the US manufacturing industry. It is expected that Trump wants to rapidly exit the Paris deal as well as Obama's Clean Power Plan. The latter calls for a shift to renewable and clean energy, away from fossil fuels such as coal. Trump, on the other hand, wants to boost the coal sector. Many analysts say Trump needs to realize that climate change is not a hoax.
Protectionism & anti-globalization; Trump is not a supporter of globalization and therefore free trade deals are a thorn in his eye. The North American Free Trade Agreement (Nafta) and Trans-Pacific Partnership (TPP) may be thrown away soon after he becomes president. Earlier Trump said 50,000 US factories have been closed ever since China became a member of the World Trade Organization (WTO), implying that millions of US jobs have been lost. Therefore, Trump wants the USA to develop its own manufacturing industry. However, whether protectionism will resolve anything is unknown as the global supply chain is highly integrated. For Indonesia it would be a missed opportunity if the TPP is thrown into the bin.
Unrest & economic instability; Trump is a controversial character and seems impatient. He has already changed some of his viewpoints on various topics and therefore it remains uncertain what he wants to do (and whether he remains committed to his earlier viewpoints/strategies). This uncertainty causes some economic instability. Moreover, Trump has made anti-immigrant statements (particularly anti-Mexican and Muslim immigrants). When parts of the population are pitted against each other, it causes damages to the economy. Meanwhile, given the US will focus on domestic issues rather than acting as the leading global peacemaker and "democracy-bringer", authoritarian rulers around the globe will have some more freedom.