2020: A challenging year


IO – President Jokowi has a lot these days to contemplate in the coming new year.  As his new cabinet continues to settle in, the president and his men must anticipate a wide array of challenges, first and foremost being the negative impact of a stagnant global economy that is unlikely to grow any faster than the previous year’s 2.5%.

   This bodes poorly for Indonesia–with the global GDP growth rate at its weakest point since the 2008 financial crisis, Jokowi will find it extremely difficult to attract foreign direct investment or boost exports.  Economists are forecasting GDP growth in the United States will fall sharply from 2.3% this year to 1.6% In 2020, while in the European Union it is expected to slide from 1.2% to 1% next year.  These slowdowns mean overall demand in advanced economies will falter, which In turn translates into fewer export opportunities for companies doing business in those markets.

  China, which surpasses the United States as Indonesia’s top export destination and has emerged in recent years to become an increasingly important source of foreign direct investment, is facing economic problems at home, as well.  China’s GDP growth is poised to fall below 6% in 2020, its slowest rate in two decades.  Unlike in the past, economists don’t expect the Chinese government to provide a major stimulus: with China’s banks burdened with unhealthy balance sheets, there is a limited appetite for pumping more cash into the economy.  

  Slower growth in China will affect not only Indonesia’s exports, it will also have an impact on how much Indonesia can rely upon China to provide financing for infrastructure projects through its Belt and Road Initiative.  Even over the past year, Beijing’s overseas lending flattened out and the value of new overseas construction projects declined.

  The problem for Jokowi, including his peers in the region, is that global growth rates below 3% and China growing below 6% are expected to become the new norm.  If Indonesia in particular is to reach previous growth rates of 6% or more in the near future, then new and better growth strategies will be needed.

  Making matters even more complicated is America’s political crisis.  With Trump’s impeachment in the US Congress now certain, the drama moves into the Senate for trial.  Trump will be more than likely acquitted by the Republican-majority Senate and he will therefore manage to stay in office.  Yet that does not mean the political climate will cool down.  The looming 2020 presidential election will cause even more partisan bickering and distractions in the White House at a time of rising global instability.  

  One scenario is that revisionist nation stares such as Russia and China will see Washington’s dysfunctionality as an opportunity.  Russia could easily attempt to meddle in the US presidential election (again) or it could try its hand in the Baltics (again).  An assertive China flexing its muscles in Asia, especially in the South China Sea, could place a bet that Trump will, at all costs, try to avoid any conflict in an election year.  

  This thinking will surely be part of the calculus of America’s enemies, as well–such as Iran and North Korea–and therefore increase the likelihood of provocations. Iran could intensify its proxy wars in the Middle East, and Kim Jong-Un could easily up the ante in its nuclear arms program as it already has done by conducting ballistic-missile tests.

  Although Indonesia is not a direct player in North Asia or the Middle East, it will certainly cost its economy– as it will other nations—should a serious foreign policy crisis emerge next year.  Jokowi must be prepared.