While countries like Indonesia, Vietnam, Bangladesh and Cambodia may benefit from relocating factories, the trade tension will cause downturns in demand and confidence as the sparring nations account for one-third of the world demand, Lembong said in Bloomberg Television interview with Haslinda Amin on the sidelines of the World Economic Forum in Davos, Switzerland, Friday.
“For Vietnam, Indonesia, Cambodia and other countries, over the last 20 years, we’ve lost so many factories to China,” Lembong said. “Having them come back is qualitatively very positive for us, in terms of jobs, in terms of balance of payment and the like.”
Indonesia is struggling to attract investment with foreign direct investment falling 20% in the third quarter from a year earlier, official data show. Lembong said last month that 2018 was probably the first year of negative investment growth since President Joko Widodo came to power in 2014.
Indonesia still has room to improve its supply side to boost the economy and more reform may be coming after the presidential election in April, Lembong said.
While Indonesia’s rupiah has gone from being one of the worst-performing currencies in 2018 to the second-best performer this year because of expectations of the Fed being on hold, it called for vigilance as the US economy could accelerate in the second half and lead to tightening again, Lembong said.
Southeast Asia’s largest economy was hit hard in 2018 by an emerging-market rout, which saw its rupiah fall to a two-decade low against the dollar, prompting the government to adopt measures, including higher tariffs on some goods. The central bank also raised interest rates six times to stem the market rout.