The last FKP Seminar in July 2016 was hosted by the Ministry of Foreign Affairs (KEMLU) in Jakarta. This time, the FKP seminar tries to examine the probably impacts of the British vote of exit from the European Union (“Brexit”) on Indonesia, especially on economic matters. There were three speakers: Kasan Muhri (Indonesia Ministry of Trade), Fithra Faisal Hastiadi (FEB Universitas Indonesia) and Sudrajat Usman (Asosiasi Pertekstilan Indonesia).
According to Kasan, there are two main reasons behind the Brexit. First, people want to stop the flow of non-European Union migrants who attempted to reach UK. Second, it is a call for sovereignty against common policies by the European Union (EU) in agriculture and trade.
As the fifth-biggest economy in the world with shares about 3.9%, the exit of UK from EU has a wide impact across the world, especially Indonesia. Fithra explained that Brexit also had some cost to be paid. When the UK leaves the EU, Britain’s economy is set to gain by 24% but also loose by 40%. Moreover, Kasan explained that the Britain’s economy will meet uncertainty, resulting in foreign investment crowding out and the Pound currency depreciated.
As for the Indonesia, there are several impacts on the economy. First, a UK financial market shock could be an opportunity for the influx of capital inflow to Indonesia. Second, the weakening of the Pound can cause Indonesia’s export products relatively costly in the UK market. Third, access to UK export markets will depend on changes in the Common Policy on Agriculture and Trade after Brexit. On the textile and textile product perspectives, the Brexit will give a small influence on the Indonesian textile exports in general. However, it is possible the export from Indonesia to UK will increase if the tariff preferences are 0% to the UK market for countries who were ex-partners to the UK under the EU.
The impact of Brexit on Indonesia-UK relationship has several conclusions. First and foremost is that the continuation after Brexit is still full of uncertainty both for the UK and the EU as well as for other countries, including Indonesia. Second, in the short term impact of Brexit can be seen in the financial sector, but the continued impact in the long term is still full with uncertainty. Lastly, to increase exports to the UK after Brexit, it is necessary to undertake a bilateral Free Trade Agreement (BFTA) with the UK.