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Thank you for subscribing to the Southeast Asia Insider, showcasing the best of Asia Times’ latest reporting, commentary and analysis from across Southeast Asia.
This week’s edition includes:
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ASEAN caught between
inflation and inaction
Soaring inflation, which has accelerated in the wake of Russia's invasion of Ukraine, is looming over the global economy and threatening to derail a broad post-pandemic recovery. The Association of Southeast Asian Nations (ASEAN) meanwhile, finds itself uniquely vulnerable to growth slowdowns in both the United States and China.
Regional policymakers haven’t moved in lockstep to address surging prices, stoked by supply pressures and geopolitical uncertainty. While Singapore has been an early mover to stem inflation, other regional central banks have been more circumspect, acknowledging the escalating threat from global inflation but staying committed to low-interest rates.
Asia Times’ correspondent William Pesek has closely followed how rising inflation has impacted economies from the US to the Asia-Pacific. In this week’s Q&A, he shared his thoughts on how Southeast Asia’s emerging economies risk being negatively impacted by scheduled interest rate hikes by the US Federal Reserve.
Inflation is on the rise in Southeast Asia, with rapidly increasing prices for food, energy and services. Why have central banks like those in Thailand, Indonesia and Malaysia continued to keep interest rates low amid price pressures? Could regional economies soon follow the likes of Singapore by pursuing rate tightening?
The drastic change in inflation trajectories puts Southeast Asia’s central banks in a terrible situation. It’s made exponentially worse by Russia’s invasion of Ukraine. Essentially, policymakers in the region had been siding with US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell and their inflation-is-transitory line.
We’ll never know, of course. If you go back six months, there were indeed reasons to bet that once supply chains adjusted to Covid reopenings and supply/demand mismatches were addressed, inflation might cool down. The Ukraine crisis generated new and arguably worse ones via surging energy and food costs.
There’s a bigger story at play here, one more than a decade in the making that’s raising the stakes: the ways in which governments in Indonesia, Malaysia, the Philippines, Thailand and beyond abdicated economic leadership to central bankers.
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If officials slammed on the monetary brakes, following the leads of Singapore and South Korea, they risk jacking up bond yields, slamming stocks and generating fresh economic headwinds – and getting the blame for all of it. So, they’re adhering to a do-no-harm style of monetary policy.
True, there’s a limit to what officials in Jakarta, Kuala Lumpur or Manila can do to tame supply chain-related inflation or surging prices of commodity imports. But central banking is a confidence game. It’s imperative for policymakers to put some tightening steps on the board to remind businesses, households and investors worried about overheating that “we’re on top of this.” Failure to move, and soon, will allow inflation to become far more ingrained than it ever needed to be.
Emerging Asian markets have historically been seen as the most vulnerable to Federal Reserve rate hikes and inflationary shocks. With six more rate increases already penciled in for this year, could regional economies be negatively affected?
Fed rate hikes tend to be very hard on Asia. The dollar’s powerful post-1994-1995 rally pulled tidal waves of capital away from Asia. Over time, it made currency pegs in Bangkok, Jakarta and elsewhere impossible to defend and helped set the 1997 Asian crisis in motion.
Though the region has come a long way, its export-reliant economies are still too dollar dependent and still too vulnerable to the Fed. Today’s risks might be smaller had the Powell Fed done its job. Had it put a couple of solid rate hikes on the board in mid-to-late 2021, the biggest economy might be better positioned to deal with this inflation onslaught. Instead, the Fed is dangerously behind the inflation curve.
It’s not all bad. Central bankers need political cover to tighten a tad. The more the Fed moves, the more latitude Governor Benjamin Diokno at Bangko Sentral ng Pilipinas in Manila will have to boost rates in an election year. The more Nor Shamsiah binti Mohd Yunus, governor of Bank Negara Malaysia, might feel comfortable tapping the brakes. The more Governor Perry Warjiyo at Bank Indonesia can get away with a stronger rupiah.
But Powell’s slow-walking to date means that some of the rate hikes Asia expects might now be of the bigger 50-basis-point variety, sending bigger shockwaves this region’s way. It was never going to be easy for developing Asia’s central banks. Washington’s complacency is making things that much harder.
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With no let-up to the war in Ukraine, China’s continued enforcement of harsh lockdowns, and now Indonesia banning exports of all palm oil derivatives, how bad could the region’s inflation get and when might prices begin to moderate?
China’s zero-Covid strategy is now generally considered the biggest downside risk for the global economy. That’s saying a lot as US inflation hits 40-year highs and the US contracted an annualized 1.4% in the first quarter. Yet it’s these kinds of economic own goals at the highest levels of government that worry me the most. In China, lockdowns won’t stop Omicron transmissibility, and yet President Xi Jinping is sticking with them at the expense of 5.5% growth hopes.
Indonesian President Joko Widodo needs to tamp down the protectionism. A ban on palm oil exports is sure to backfire on efforts to increase Jakarta’s global soft power. Since October 2014, Widodo has pledged to curb the economic nationalism that repels too many foreign investors, particularly in the all-important mining sector. Now, add food nationalism to the list of headlines that won’t help Indonesia’s geopolitical ambitions. Atul Chaturvedi speaks for many when the president of the Solvent Extractors’ Association of India calls the move “inflationary for everyone.”
The risk of governments taking steps based more on domestic optics than good economics abound. Now that Russia and the US are engaged in an arms race of sorts in Ukraine, Southeast Asia’s inflation nightmare might get worse. Case in point: Vladimir Putin cutting off natural gas exports to Poland and Bulgaria. These kinds of tit-for-tat steps are likely to keep commodity markets on edge and put developing Asia in harm’s way for the remainder of 2022 and beyond. All we can say for sure is buckle those seatbelts!
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Myanmar sentences deposed Suu Kyi to prison
Indonesia, the world's top producer and exporter of edible oil, announced a ban on exports of all palm oil derivatives on April 27, backtracking on an earlier announcement that the ban would apply only to products used in the local production of cooking oil. The protectionist move aims to bring down stubbornly high cooking oil prices, but has shocked markets and sent global edible oil prices shooting upward, spurring worries of a supply crisis. Jakarta has sought to bring down prices since January and had required palm oil exporters to set aside quantities for the domestic market. The country now risks losing billions in foreign exchange reserves each month if upholds the ban, economists say.
Execution in Singapore decried as ‘miscarriage of justice’
Nagaenthran Dharmalingam, a 34-year-old Malaysian man convicted of drug trafficking, was hanged in Singapore on April 27 after courts rejected appeals for clemency on the grounds that he had an intellectual disability. His case has garnered international attention and around 300 people held a candlelight vigil in Singapore to protest against the planned hanging, a rare show of resistance that anti-death penalty group Reprieve described as a "watershed moment" for opposition to Singapore’s use of capital punishment for drug offenses. A group of United Nations experts had urged Singapore to commute his death sentence, while the European Union called the punishment "inhumane."
Palm oil export ban roils global commodity markets
Indonesia, the world's top producer and exporter of edible oil, announced a ban on exports of all palm oil derivatives on April 27, backtracking on an earlier announcement that the ban would apply only to products used in the local production of cooking oil. The protectionist move aims to bring down stubbornly high cooking oil prices, but has shocked markets and sent global edible oil prices shooting upward, spurring worries of a supply crisis. Jakarta has sought to bring down prices since January and had required palm oil exporters to set aside quantities for the domestic market. The country now risks losing billions in foreign exchange reserves each month if upholds the ban, economists say.
Social media takedown rules tightening in Vietnam
Vietnam is preparing strict new rules requiring social media firms to take down online content it deems illegal within 24 hours, according to Reuters, a sign that the ruling Communist Party is intensifying its crackdown on online content and dissent. Social media platforms often have a few days to handle requests from the Vietnamese government, but the new amendments, which have not been made public, could result in companies that do not meet the deadlines seeing their platforms banned in the country. Vietnam is among Facebook's top 10 markets by user numbers with 60-70 million people on the platform, generating around $1 billion in annual revenue for the social media giant.
IMF warns of ‘stagflation’ rippling through Asia
Anne-Marie Gulde-Wolf, acting director of the International Monetary Fund’s (IMF) Asia and Pacific Department, warned that Asian nations face a "stagflationary" outlook marked by higher prices and lower growth. "Monetary tightening will be needed in most countries, with the speed of tightening depending on domestic inflation developments and external pressures," she was reported as saying. Asian nations have increasingly limited policy space to respond as the war in Ukraine continues to exacerbate commodity prices and China's economic slowdown is adding to pressure on regional growth, while Asia’s huge dollar-denominated debt also poses a challenge amid expected interest rate hikes.
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Up and up for Singapore’s decade-high inflation
Nile Bowie | April 29, 2022
Consumer prices in Singapore are at a decade-high and projected to “pick up sharply” in the coming months according to the Monetary Authority of Singapore (MAS), as the trade-reliant city-state grapples with global supply constraints, soaring commodity prices and a tight domestic labor market.
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Cambodia on middle path between China and Vietnam
David Hutt | April 29, 2022
Cambodia’s trade with China and Vietnam is booming as both powers compete for geo-economic influence. But If Cambodia-Vietnam trade becomes more on par with Cambodia-China trade, can Phnom Penh be expected to take more into consideration Hanoi’s geopolitical sensibilities, which are often in direct opposition to Beijing’s?
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Singapore must become the carbon neutralizer for Asia
Bo Bai | April 28, 2022
Singapore is home to more than 70 organizations that provide carbon services – the highest concentration of service providers in Southeast Asia. As an early mover in the sustainability arena, Singapore can position itself as the linchpin of global carbon-trading operations to complement its status as a major logistics and trading hub.
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US-ASEAN Summit opens up UNCLOS ratification issue
James Borton | April 27, 2022
When President Joe Biden and his White House welcome Southeast Asian leaders on May 12 for the start of a two-day US-ASEAN Summit, it is worth noting that they will be commemorating the 45th anniversary of the relationship, one that validates the administration’s Indo-Pacific Strategy as well as charting the future direction of the US with ASEAN’s 10 member states.
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Asia’s democrats testing their term limits
David Hutt | April 27, 2022
One of the more remarkable aspects of recent Southeast Asian history has been the staying power of political term limits. That is despite elected leaders in the region weighing ways to prolong their stay in power. Continuity in high office also means continuity for those lower down the pecking order, from corrupt elites to political appointees.
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US cannabis firm to light up Thai weed scene
Richard S Ehrlich | April 25, 2022
Thailand became Southeast Asia’s first country to legalize medical cannabis in 2018. Now, a Las Vegas-based cannabis company has become the first foreign franchise to jointly open a medical marijuana clinic in Thailand, treating Parkinson’s, Alzheimer’s, cancer, eating disorders and insomnia in Bangkok’s flashy tourist zone.
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America: A Singapore Perspective
Edited by Tommy Koh and Daljit Singh
Straits Times Press, December 2021
The United States of America is the largest investor in Singapore. And in 2019, it channeled more resources into the city-state than it put into both China and Japan. That year, the value of US direct investments in Singapore was US$288 billion, or about 4.8% of US direct investments abroad. This illustrates the economic significance of the US to Singapore. Beyond that, the US is also a very important partner of Singapore in security, education and culture.
And so, Singaporeans should learn more about the superpower, thought Professor Tommy Koh, Singapore’s Ambassador-at-Large who had served as its Ambassador to the United States, and Daljit Singh, visiting senior fellow at the ISEAS–Yusof Ishak Institute. They gathered 27 other writers with a good understanding of America to pen a collection of 29 essays, America: A Singapore Perspective.
The compendium reveals insights into the various aspects of the US: its governing, election and political systems; business and economy; defense and foreign policy; as well as culture and culture wars. It includes a foreword written by Ambassador-at-Large Chan Heng Chee, who had also been Singapore’s Ambassador to the United States.
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