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[Premium] Chairman’s Note (01/2021)- 2021: the year ahead for ASEAN

19 Jan [Premium] Chairman’s Note (01/2021)- 2021: the year ahead for ASEAN

About this time last year, we were only beginning to get a trickle of news of a virus that would become a full blown worldwide pandemic in a couple of months. Well, we survived 2020 and in looking ahead to a new year, there are hopes for life to get back to pre-COVID days, as much as possible. This includes the resumption of economic activity and reinvigorated efforts to create travel bubbles and green lanes. Many have agonised through the negative impacts of the pandemic and are hoping for a better year in 2021 – to manage the health, economic and social fallout. Yet, broader geopolitical concerns remain and countries in ASEAN still face their own unique domestic challenges.

100 days: With Joe Biden sworn in as the 46th US president, all eyes will be on his first 100 days in office that will likely set the tone for the rest of his term. The domestic challenges facing Biden cannot be underrated. There are also states that may seek to test and “bait” the new administration. Here in Asia, we are also facing a critical 100 days as numbers are spiking. While the pandemic appears to be better controlled in this region, COVID-19 infections continue to grow and global conditions will impact us. Although Biden’s priorities will be domestic, his top picks for foreign policy and Asia are seasoned hands. Secretary of State, Anthony Blinken, has a direct line to Biden. Kurt Campbell, the NSC’s Indo-Pacific coordinator, and Katherine Tai, the US’ top trade representative, understand the nuances of international diplomacy. This is assuring for the region and China, but let’s hope no real collision or misunderstanding happens.

Managing growth expectations: Although this year will continue to present challenges – and hopefully opportunities – the various vaccines that have been developed in record time will not be the panacea that we long for. The World Health Organisation (WHO) has already warned that herd immunity will not be achieved this year. Thus expectations for economies to bounce back strongly might have to be pared down. After a global contraction of 4.3 per cent in 2020, the World Bank predicts an expansion of 4 per cent this year but that could easily fall to 1.6 per cent if infections increase and vaccinations are delayed.

Seeking recovery in ASEAN: Coming out of the economic slump is on the minds of most policymakers. In ASEAN, Brunei has taken over the chairmanship and under its theme of “We care. We prepare. We prosper.”, it wants to focus on the strategic thrust of recovery, digitalisation and sustainability. The ASEAN Comprehensive Economic Framework also outlines priority areas in which the regional bloc can support one another to improve health systems and push forward on broader economic integration. The silver lining for the region will be its growing middle class that will support domestic consumption. It is predicted to jump from 24 per cent of ASEAN’s population to 51 per cent by 2030. ASEAN is also well positioned to benefit from China’s robust rebound given geographical proximity and strong economic ties. China’s economy is expected to expand by 7.9 per cent this year following 2 per cent growth last year. 

The work that the SIIA has been doing with Singapore’s Emerging Stronger Taskforce hopes to encourage Singapore to remain outward facing towards the region. Singapore will continue to strive to keep the virus contained and simultaneously open up borders. As Deputy Prime Minister Heng Swee Keat has emphasised, ASEAN’s prospects are bright and we need to know our neighbours better. Here are some of the key issues we are watching in the surrounding key ASEAN economies:  

A critical year for Indonesia: 2021 is a crucial year for President Joko Widodo to make good on his economic promises and prevent the downward spiral of the country’s poverty rate. For Indonesia that has taken in millions of the Sinovac vaccine from China, the resumption of economic activity is of utmost importance in order to sustain livelihoods. Last year, Jokowi managed to push through the omnibus bill on job creation, meant to streamline regulation and encourage foreign investment. More recently he has replaced six ministers in a major cabinet reshuffle, two of which were forced to resign from corruption charges. The reshuffle is intended to improve the handling of the pandemic which was lacklustre in the early stages and aid Indonesia to recover from the coronavirus pandemic. 

Leadership shuffle in Vietnam: Vietnam was in the spotlight last year as it steered the region under the ASEAN chairmanship. But it was also the relative bright spot for investors in impressively dealing with the pandemic and posting GDP growth of 2.9 per cent in 2020. It is one of the few countries in the world to eke out economic expansion in a year of a pandemic. Hopes for development, reform and continued anti-corruption drive will feature as Vietnam convenes its 13th National Party Congress from 25 Jan-2 Feb 2021. Not only will we see a rejig in leadership but Vietnam will also determine policy development for the next five years. The role of the private sector is expected to be enhanced and attracting foreign investment will remain a key priority for Vietnam.

A new term for Myanmar: After a resounding victory for the National League Democracy in last November’s general elections, Myanmar will continue to focus on shoring up its economy. The Myanmar’s Ministry of Planning, Finance and Industry is expecting a 6 per cent rate of growth in fiscal 20-21. The government has emphasised a focus on agriculture to generate growth and offset losses in slowing industries such as manufacturing. Notably, Myanmar’s garment sector has been hit hard by the prolonged outbreak which has left thousands of workers unemployed. In a bid to attract investments, experts and government officials say that investors can also expect more laws to be enforced. Laws crucial to setting up a friendly business environment will be prioritised, such as that on arbitration, insolvency, investment and trademark protection.

Political limbo in Malaysia: Political question marks are bound to remain in Putrajaya in 2021. It is almost a year since Prime Minister Mahathir Mohamad’s shock resignation that led to a change of leadership and placed Prime Minister Muhyiddin Yassin in power. For now, a state of emergency that has been declared across Malaysia – supposedly in order to curb the spread of COVID-19 – could keep political wrangling at bay until August. There will be no parliamentary sitting or elections held under the state of emergency. It comes at a time when Muhyiddin appears to have lost his slim majority in parliament. 

Continued uncertainty in Thailand: Another wave of infections is spreading in Thailand since a cluster of COVID-19 cases was discovered in a shrimp market last December. Restrictions are being implemented gradually, province by province, to avoid the economic seizure brought about by widespread lockdowns. Mass anti-establishment protests led by youths in 2020 have been dampened since royal defamation charges have been brought against protest leaders. But the new wave may give citizens more ammunition to rail against the government in the longer-term. As such, political instability and fresh protests cannot be ruled out. The central bank predicts growth of 3.2 per cent this year but a key concern is that the outbreak could derail government efforts to revive Thailand’s tourism industry, an integral sector of the economy.

In our special report last year on ‘Renewed Concerns in Key ASEAN Economies’ we highlighted some of these political and economic factors that continue to bear close observation. The geopolitical aspects of great power relations will also play out in the first 100 days of the new Biden administration. More on what to expect in the year ahead will be discussed in our Year Opener on “2021 expectations: The Pandemic, US-China Relations and ASEAN Recovery” on the 28th of January. I warmly welcome you to join this webinar and I would be happy to hear your views.

Yours sincerely,

Simon Tay