‘US$ is just too domineering’
Indonesia lamenting the dollar’s over control in world trading
WASHINGTON: Mounting trade tensions and stresses in emerging markets are starting to take a toll on the world economy.
The International Monetary Fund this week cut its outlook for global growth for the first time since 2016, predicting 3.7% expansion this year and next compared with a forecast of 3.9% three months ago.
Those issues are dominating talks at the annual IMF and World Bank meetings which began in Bali, Indonesia yesterday, as well as a stock-market rout that’s spread from the US to Asia.
Thomas Lembong, chairman of the Indonesia Investment Coordinating Board, opened up the Bloomberg Modern Markets conference with a broadside against the dollar.
He notes tectonic shifts against the greenback, citing comments from Russian President Vladimir Putin and others, about the need for alternatives to the dollar and the need for an alternative trading system.
He said the dollar causes complications for emerging economies, though it’s not going away anytime soon. Indonesia has been swept up in the market turmoil triggered by rising US interest rates and a stronger dollar, which has pushed the rupiah down 11% this year.
“The challenge today is not its dominance but it’s over dominance,” he said.
Earlier, Lembong also said the US stock-market sell-off was good for emerging economies as it means the US will be less of a draw for capital and it lessens the need for the Federal Reserve to raise interest rates.
IMF Managing Director Christine Lagarde pointed to the dollar’s strength as the main culprit for the weaker Chinese currency.
“If you compare the position of the renminbi relative to the dollar, it’s one particular story which has also a lot to do with the strength of the dollar,” Lagarde told reporters.
“If you compare this same currency, the renminbi, with a basket of currency, there is a bit of depreciation, but certainly not as much.”
Lagarde said a currency war would not be welcome news, but she also suggested China has been moving in the right direction.
“We are seeing more and more – China included – countries that actually let their currency fluctuate, and that certainly has been the case over the last three years as far as China is concerned,” she said.
“We do have instruments to actu- ally measure the external-sector situation, and we hope that the recommendations that we have given to China, in terms of letting the currency fluctuate, will continue to be approved and agreed and implemented by China.”
World Bank President Jim Yong Kim said he’s concerned about developing economies losing out from deepening trade tensions, which are being escalated by the US-China tariff conflict.
Trade is among the biggest downside risks to the global economy, Kim told reporters on Thursday in Bali, Indonesia – an emerging economy that he cited as one under threat by a trade dispute.
“We’d see a clear slowdown in the economy and the impact on developing countries would be great,” said Kim. “We’re working with every single one of our countries to prepare them in case it gets worse.”
Developing nations make up about 48% of world trade, up from 33% in 2000, while the number of people living in extreme poverty has been reduced by half since 1990 to now just about 1 billion, according to the World Bank.
Trade has helped boost the quality of jobs in poorer nations, generated stronger economic growth and driven productivity increases, according to a 2015 report the bank released with the WTO called The Role of Trade In Ending Poverty.
“Trade is critical, because that is what has lifted so many people out of extreme poverty,” said Kim.