Trump and Asia; Growth prospects in India and Indonesia – CAA Weekly

The Trump Presidency – Tax reforms will be the first test for Asia

• The incoming Trump Administration will work with House Republicans to implement a tax reform package that could include a Border Adjustable Corporate Tax. This border tax, by taxing imports and subsidising exports, raises the risk of trade tensions and threatens the exports and foreign investment so vital to Asian economic development.
• In its current form, the proposed tax probably contravenes WTO regulations. As major trading nations are likely to counter with similar taxes of their own or other forms of retaliation, the growth of world trade could be compromised. Its other effects are difficult to predict but, at least initially, the US Dollar could strengthen and foreign investment flows to emerging economies could weaken.

India: Don’t count India out just yet

• The demonetisation exercise in Nov 16 has disrupted economic activity across multiple sectors, with consumer spending and real estate activities hurt the most. While monetary easing is an option, what the authorities really need to do is to enact further administrative measures to ease the effects of the cash crunch.
• The damage to Prime Minister Modi’s political standing has been muted, so far. Modi has benefited from divisions within opposition parties and the ineffectiveness of the Congress party, the former ruling party. State assembly elections in Uttar Pradesh, India’s largest state, could well deliver Modi a substantial political success in early March, giving him the political capital to push much needed economic reforms.

Indonesia in 2017: Accumulation of positives enhances long-term growth prospects

• Following years of below-trend growth, Indonesia is on track to achieve higher and more sustainable growth rates under the judicious management of current President Joko Widodo (Jokowi). His three major policy initiatives are beginning to yield results, albeit slowly:
• The first is fiscal prudence which has provided the room for necessary infrastructure expenditure. The second is improved governance which has improved the nation’s business environment. And the third is the tackling of infrastructure bottlenecks, which has got off to a slow start but is beginning to move ahead.
• President Jokowi faces political challenges but has so far been able to contain them. He continues to strengthen the coalition backing him and will be able to push through more vital policy reforms in the future.

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