THE US government must find a swift resolution to its budget impasse because the longer the stalemate continues, the more impact it will have on its trading partners in the Asia Pacific Economic Cooperation (Apec), a regional advisory body has said.
Uncertainty over economic and budget measures in the US was ranked as the fifth biggest risk to the growth of Apec economies, according to a survey conducted by the Pacific Economic Cooperation Council (PECC), which questioned 560 opinion leaders in the region.
Topping the survey was concern over economic slowdown in China. “As the survey was conducted nearly two months ago, the uncertainty over the US debt ceiling could have ranked even higher if recent developments were taken into account, PECC secretary general Eduardo Pedrosa said on Friday.
At present, President Barack Obama and the US Congress remain in a deadlock over the short-term extension of government funding, which has caused a partial shutdown with thousands of American civil servants out of work. The stalemate forced Obama to cancel his trip to the Apec summit in Bali.
Analysts have estimated that the government shutdown could reduce US economic growth by nearly 1 per cent this quarter, a situation that might trigger negative repercussions across the region, given the country’s stature as the world’s largest economy.
The International Monetary Fund (IMF) has forecast the Asia-Pacific region to grow at 3.5 per cent this year, but downside risks are expected because of the bleak outlook in global trade, which is now exacerbated by the US government shutdown.
The US, for example, is Indonesia’s third-largest trading partner, accounting for $10 billion, or 10.2 per cent, of the total year-to-date exports of Southeast Asia’s largest economy.
“While recovery does seem to be underway, a return to the high growth of the pre-crisis period is not on the cards, especially growth reliant on exports,” the PECC stated in its report.
Nevertheless, observers said that the shutdown of the US government, which would spark bearish sentiment for US Treasury bills and its currency, might be a blessing in disguise for some emerging economies and their currencies.
The negative outlook in the US economy means that there would potentially be a reversal of capital flows back to emerging markets as the country’s central bank could have to maintain its financial stimulus package even longer to spur economic growth.
It would eventually provide breathing space for countries like Indonesia, whose currency was severely hit due to recent massive outflows of foreign funds. The US Federal Reserve’s (the Fed) plan to scale down the stimulus package has caused foreign capital outflows from emerging markets, resulting in a sharp drop in share prices and the value of their currencies, including the rupiah. The plan was cancelled because the Fed found no significant evidence of US economic growth.
“It might be quite good for us,” said Suryo Bambang Sulisto, chairman of the Indonesian Chamber of Commerce and Industry (Kadin), referring to the US shutdown. “The dollar could weaken and thus the rupiah could be stronger”.
Since the US remained Indonesia’s third-biggest trading partner, the impact of the shutdown on the archipelago’s exports would be insignificant as Indonesia still had big markets such as China and Japan as alternatives, he noted.
The shutdown would also unlikely impact US foreign direct investments in Indonesia because it would be government offices, not the US-based private sector, that would feel the biggest pinch, Mahendra Siregar, the newly appointed chairman of the Investment Coordinating Board said.
By arrangement with The Jakarta Post/ANN