17 February 2020 (closed)
USD/IDR (13,777) +42.00 +0.31%
EUR/IDR (14,865) +32.28 +0.22%
Jakarta Composite Index (5,867.52) +0.58 +0.01%
Today (23/06), some 46.5 million UK voters are expected to show up for a massive decision. Since UK Prime Minister David Cameron announced that he will respect the outcome of the referendum, the decision whether the United Kingdom will leave the European Union is in the hands of the UK voters. The latest polls still indicate that the outcome of the referendum is too close to call. The first reliable preliminary reports about the outcome of the referendum are expected to be published on Friday morning around 05:00 am local UK time, or 11:00 am local Jakarta time.
On Thursday morning 07:00 am local UK time voters can start to cast ballots. They will have time until 22:00 pm local UK time. A record 46.5 million voters registered to join the referendum, a figure that exceeds the 46.4 million voters that casted ballots for the 2015 UK parliamentary election.
If voters decide that the United Kingdom needs to leave the European Union then it is likely to trigger a major shock throughout global financial markets. This would imply a flight to safe haven assets such as the US dollar, Japanese yen, gold and government bonds. Particularly British assets - stocks and the British pound sterling - would plummet in case of the so-called "Brexit". It was reported in local UK media that in the days ahead of the referendum UK citizens have been purchasing euros and US dollars in anticipation of a possible further plunging pound sterling.
Investor George Soros expects to see a "Black Friday" in case UK voters decide to break away from the EU. This Black Friday could become far worse than "Black Wednesday" in 1992 when the UK government had to devalue its currency by 15 percent.
However, it remains difficult to predict the effects - particularly the long-term effects on the UK - in case the UK decides to leave the EU, simply because such case has never happened before.
Advantages of a Brexit:
- Sovereignity; the United Kingdom will become free to negotiate and engage in international cooperation and trade relations, for example with individual EU member nations or with the world's key economies such as the USA, China and India.
- Immediate cost saving; the United Kingdom will save about 13 billion pound sterling per year (contribution paid to the EU budget). These funds can instead be used to develop the domestic economy. However, the UK also receives about 4.5 billion pound sterling in spending through its EU membership.
- The United Kingdom will become free to organize its health care and employment regulations (many UK companies support this issue).
- The United Kingdom will be able to set its own immigration policies. Currently, the UK cannot refuse to welcome people from EU member nations.
- Britain could re-invent itself as a Singapore-style supercharged economy.
Disadvantages of a Brexit:
- By being a member of the EU, UK businesses can take advantage of non-tariffs when exporting to EU member nations. The majority of UK exports (some 51 percent) goes to EU member nations.
- By being a member of the EU, UK businesses also benefit from (free) trade deals between the EU and other world powers, for example the USA.
- The pound sterling could depreciate by 20 percent against other major currencies. UK GDP growth is also expected to be curtailed.
- For big financial centers the UK will no longer be the gateway to the EU. UK-based car-makers may also cease production as exports to the EU become more costly.
- Per year it costs each UK household 340 pound sterling for the UK to be a member of the EU. However, alledgedly, gains per UK household are much higher when being a member of the UK.
Impact of Brexit on Indonesia?
Being an emerging market Indonesia is vulnerable to global economic or political shocks as these shocks trigger a flight to safety, implying that Indonesian stocks and the Indonesian rupiah would come under heavy pressure in case of a Brexit (particularly as foreign investors hold a large portion of Indonesian stocks). However, the impact of a Brexit-inflicted shock is temporary and Indonesian assets should soon see a rebound, particularly as assets become undervalued.
The Indonesian government and cental bank (Bank Indonesia) do not seem to have prepared any additional strategies or tactics to mitigate the impact of a Brexit. Indonesian Finance Minister Bambang Brodjonegoro was quoted saying "a Brexit will have limited impact on Indonesia". He added that the global financial sector wil be impacted by a Brexit. However, Indonesia only forms a small part of that system.
Robert Pakpahan, General Director of Debt Management at the Ministry of Finance, also dismissed any long-term effects of a possible Brexit on Indonesia. However, on the short-term it may affect rupiah liquidity and demand for stocks listed on the Indonesia Stock Exchange.