KUALA LUMPUR: Planned U.S. tariffs could reduce Indonesia’s potential growth by 0.3 to 0.5 percentage points, but a 90-day pause in implementing the levies allows time to discuss solutions, Indonesia’s finance minister told Reuters on Thursday.
Minister Sri Mulyani Indrawati said Indonesia welcomes the 90-day pause as it provides an opportunity to mitigate or avoid the downside risks from tariffs to economic growth.
“The estimated current situation, before the pause, could reduce our potential growth by between 0.3% of GDP up to 0.5%,” she said in an interview on the sidelines of the ASEAN finance ministers and central bank governors meeting in Malaysia.
Higher U.S. imports, tax cuts, easier import processes and a relaxation of local content requirements are being planned by Jakarta as an offer to escape U.S. tariffs. Sri Mulyani said the deregulation measures were also part of an ongoing effort to reform Southeast Asia’s largest economy.
Indonesia has set a 5.2% GDP growth target this year versus 5.03% achieved last year. President Prabowo Subianto, however, wants to jack up the growth to 8% by 2029.
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Indonesia’s authorities have said the U.S. tariffs would have a limited impact on the economy, which relies more on the domestic market.
The U.S. was Indonesia’s third-biggest export destination as of last year, receiving shipments worth $26.3 billion, according to Indonesian government data.
Sri Mulyani said Indonesia would use the 90-day pause to come up with a framework of cooperation that was “mutually respected” by other countries, as well as working with other ASEAN countries to increase the region’s resiliency.
“We have to continue to be very prudent… Expenditure should be made more efficient, well-targeted and effective in supporting growth on the monetary side,” she said.
She said the recent pressure on the rupiah currency, which is at all-time lows, was temporary, adding the government remained focused on indicators such as corporate debt and government debt-to-GDP.
The rupiah strengthened as much as 0.83% to 16,720 a dollar on Thursday as of 0512 GMT, according to LSEG data, after hitting an all-time low for two days straight since the market reopened on Tuesday.
The stock market rebounded to above 6,000 on Thursday, up as much as 5.6%, after the global turmoil caused by the threat of U.S. tariffs caused the main index to tank on Tuesday when Indonesian markets reopened after an extended holiday break.
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