The US-China Conflict Has a Bad Impact on Indonesia

Conflict between the US and China
Conflict between the US and China causes rupiah weakening

Relations between the United States and China have been heating up lately. The heating up of the two countries turned out to be bad luck for Indonesia. The rupiah has been knocked out 3 days in a row.

This tension was caused by the chairman of the United States (US) House of Representatives (USA) Nancy Pelosi who flew to Taiwan. According to China, the move would violate the prevailing status quo.

Unfortunately, the Rupiah posted a 3rd straight day of weakness against the US dollar due to these tensions. Based on Refinitiv data, the rupiah weakened 0.13% to Rp 14,910/US$.

Bank Indonesia (BI) Deputy Governor Dody Budi Waluyo explained that negative sentiment from external factors is very difficult to avoid. So the rupiah must be willing to weaken, even though the US dollar also seems not so strong.

“The weakening in the last few days was more influenced by external factors, especially rising geopolitical tensions,” he said, quoted Thursday (4/8/2022).

“In addition to the war in Ukraine which has yet to show signs of resolution, political tensions between the US and China are also increasing. Of course, this development will affect the development of financial markets, including in the Emerging Market,” explained Dody.

From within his own country, Dody ensured that there were no issues that became investors’ concerns. The economy is recovering and the credibility of regulator policies is a strong attraction for investors to invest.

“With strong economic fundamentals, positive prospects, a credible policy mix, and good investment attractiveness, investor and market participants’ confidence in the Indonesian economy is maintained and investment will flow in the form of FDI and portfolios,” he explained.

It’s just that the global situation is so strong, not only affecting Indonesia but also the Asian and global financial markets. Bank Indonesia (BI) continues to monitor these developments.

“Amid high uncertainty, from time to time, there could be a short-term negative sentiment, especially from external factors that affect capital flows and exchange rates. BI will continue to monitor this risk and mitigate it with the policy mix,” said Dody.

It is known that relations between the US and China are heating up. A Chinese military observer said that China might take action against the plane carrying US House Speaker Nancy Pelosi flying to Taiwan. This is done when Beijing re-affirms the island is his.

In a post on state-run China Global Times, a researcher at the Chinese Academy of Social Sciences, Lu Xiang, said the move would violate the prevailing status quo. According to him, if Pelosi continues to visit Taiwan, China has the right to establish a new status quo.

“China will make the best use of the US’s mistakes, through comprehensive measures including the military, trying to completely control the Taiwan Strait situation to further promote the reunification process in the future,” the expert was quoted as saying on Sunday (31/7/2022).