CARI Captures Issue 553: ASEAN leaders and US President Joe Biden meet in Washington for US-ASEAN Special Summit
ASEAN, UNITED STATES
ASEAN leaders and US President Joe Biden meet in Washington for US-ASEAN Special Summit
(11 May 2022) Southeast Asian leaders have traveled to Washington D.C. to attend the US-ASEAN Special Summit being hosted by US President Joe Biden on 12-13 May. The ASEAN leaders are expected to participate in a number of events hosted by Biden and other U.S. government officials during the two-day summit, in addition to other engagements on the sidelines. Among the latter include a meeting between ASEAN leaders, the US Chamber of Commerce, the US-ASEAN Business Council, and key stakeholders from the U.S. government including U.S. Secretary of Commerce Gina Raimondo, Special Presidential Envoy on Climate Change John Kerry, and U.S. Trade Representative Katherine Tai. This is the second-ever standalone meeting of ASEAN leaders on American soil since the ASEAN-U.S. Special Leaders’ Summit hosted by President Barack Obama in February 2016. Myanmar’s military junta has been excluded from this event, while Philippines President Rodrigo Duterte has opted not to attend. Prior to the special summit, engagement between the United States and ASEAN had been found wanting. While a number of US senior officials had been dispatched to the region – notably Vice President Kamala Harris, Defense Secretary Lloyd Austin, Secretary of State Antony Blinken, and Daniel Kritenbrink, the State Department’s top diplomat for East Asia and the Pacific – direct contacts between national leaders had been infrequent.
VIET NAM, UNITED STATES
Hanoi claims it is interested in Washington’s Indo-Pacific economic framework, but needs time to study details
(12 May 2022) Viet Nam’s Prime Minister Pham Minh Chinh stated on 11 May that Hanoi was interested in helping the United States realize the aims of its proposed economic framework for the Indo-Pacific, but would need time to study the details. Chinh had mentioned that he had had discussions on Biden’s Indo-Pacific Economic Framework (IPEF) with U.S. officials earlier on 11 May, and that Viet Nam was interested in working with the US in realizing its four pillars. These four pillars included supply-chain stability, digital economy, the fight against climate change and a fourth related to labor, tax and combating corruption. Chinh noted that the concrete elements of the initiative had yet to be clarified. The US has yet to provide detailed plans for its economic engagement with Asia since former president Donald Trump had removed the US from the CPTPP regional trade agreement. At a virtual summit with ASEAN in October 2021, Biden stated that Washington would start talks about developing IPEF, which aims to set regional standards for cooperation
INDONESIA
Indonesia’s economy maintains growth for fourth straight quarter in first quarter of 2022
(09 May 2022) Indonesia’s economy maintained growth for the fourth straight quarter in the first quarter of 2022, helped by a historic rise in global commodity prices as well as a relaxation of COVID-19 rules. The Indonesian economy grew by 5.01% in the January-March period compared to the same period last year, in comparison to the 5.02% measured in the October-December period of 2021. A surge in global prices of coal, palm oil and nickel contributed to record high trade surpluses for Indonesia, a major supplier of these resources. A relaxation of COVID-19-related restrictions imposed earlier in 2022 also led to a strong pick up in economic activity. Tail risks for Indonesia’s economy include geopolitical risks, China’s economic slowdown and rising global inflation that has prompted tightening of global monetary policy. In April 2022, Indonesia’s central bank lowered its growth outlook for 2022 to between 4.5% to 5.3%.
INDONESIA
Singapore’s tech giant Sea prepares move into Indonesia’s insurance sector
(11 May 2022) Singaporean tech giant Sea prepares to move into Indonesia’s insurance sector as it battles other regional “super app” competitors, such as Grab and Goto, for dominance in Southeast Asia’s largest market. Sea is reportedly planning to acquire an Indonesian insurance company, with the likely target to be Asuransi Mega Pratama, a group recently acquired by one of Sea’s business partners. This acquisition would pave the way for Sea to enter a general insurance market worth more than US$5 billion. It would also allow Sea to better compete with rivals Grab and GoTo, who both aim to provide a one-stop shop of financial and technology services to millions of users. Both rival companies already offer insurance to users and ride-hailing drivers through partners. Sea, in some countries, also allows insurers to sell policies on its ecommerce platform. The company expects its digital financial services arm to achieve positive cash flow by 2023.
SINGAPORE, GERMANY
Singaporean carbon exchange teams up with Germany’s main bourse to launch futures trading for carbon offsets
(09 May 2022) A Singapore carbon exchange, AirCarbon Pte, is teaming up with Germany’s main bourse to launch futures trading for carbon offsets as early as 2022. This is in order to meet the growing demand from companies to hedge their risks from greenhouse gas emissions. The futures contracts would be created by Deutsche Boerse AG using carbon credits sourced by AirCarbon Pte, which would then be traded on the European Energy Exchange. Companies are using offsets to balance their emissions as they strive to meet net-zero or other carbon-reduction targets. The futures contracts would allow these companies and investors to mitigate future price risks for these offsets. The AirCarbon Exchange was set up in 2019 and began trading in 2021. Targeted at companies and accredited investors, the exchange has more than 120 active firms, and has seen more than 10 million carbon credits transacted, with about 1 million swapped over the past two months.
MALAYSIA
Malaysia unexpectedly raises interest rates in order to head off price pressures
(11 May 2022) Malaysia’s central bank raised its overnight policy rate by 25 basis points to 2%, as it seeks to head off price pressures that risk hurting demand in the economy. With Malaysia’s economic recovery set to strengthen this year due to the easing of COVID-19-related restrictions, Bank Negara Malaysia (BNM) was able to raise rates fairly early. While headline inflation at 2.2% has stayed benign and is the lowest rate in Southeast Asia, core inflation (which strips out volatile food and fuel costs) rose 2% in March 2022 year-on-year – a level last seen in August 2019. Food inflation jumped 4% year-on-year, the most since December 2017. The decision by BNM caught the market by surprise, given its previous announcements about the lack of necessity to react to supply-driven inflationary pressures.
THAILAND
Thai baht falls to weakest rate against the US Dollar on 12 May, being monitored by central bank
(12 May 2022) The Thai Baht fell to its weakest rate against the US Dollar on 12 May, with the Bank of Thailand arguing that the movement of the baht has had limited impact on inflation and the economy. The central bank claimed it was closely monitoring the situation, and argued that it was not necessary to use interest rates to manage the baht since it was moving in line with other regional currencies. The Bank of Thailand intends to relax rules for foreign exchange service for non-banks to help companies more efficiently hedge and manage risks. The measures will come into effect on 13 May, and will help make overseas transactions easier while simplifying hedging for businesses so there can be more efficient risk management. More measures will come into effect over the next few years, with a focus on services for non-banks.
RCEP Monitor
AUSTRALIA
Rising wages puts further pressure on Reserve Bank of Australia to raise interest rates
(10 May 2022) Rising wage growth is expected to put further pressure on the Reserve Bank of Australia (RBA) to raise interest rates, after its first rate rise last week since 2010. The National Australia Bank’s (NAB) monthly business survey showed business conditions booming, albeit with greater inflationary pressures due to the higher cost of materials and labour. According to the NAB, labour cost growth hit a record 3% in quarterly terms in April, the highest since records began in 1997. The RBA forecasts inflation to peak around 6% later in 2022. According to Peter Tulip, chief economist at the Centre for Independent Studies and a former RBA official, a jump in wage growth from 2% to 5% would suggest the labor market is too tight, and that fiscal and monetary policy would need to be tightened ‘very severely’. The RBA now predicts wage to grow at 3% by the end of 2022, six months earlier than it forecast in February 2022 – and reach 3.7% in the forecast period to June 2024.
CHINA
China’s export growth slows to single digits in April 2022 amidst tighter COVID-19 curbs
(09 May 2022) China’s export growth slowed to 3.9% in April 2022 year-on-year, in comparison to the 14.7% growth reported in March 2022. The growth was the slowest since June 2020. Imports were unchanged year-on-year in April, improving slightly from a 0.1% fall in March 2022. China posted a trade surplus of US$51.12 billion in the month, compared to the US$47.38 billion surplus recorded in March. Very stringent restrictions imposed to contain China’s largest COVID-19 outbreak in two years have led to severe supply chain disruptions, including clogged highways and ports and factories being forced to suspend operations, as well as restricted economic activity in dozens of cities including the commercial hub of Shanghai. Growth is also being weighed down by heightened risks from the Ukraine war, persistently soft consumption, and a prolonged downturn in the property market. China’s unemployment rate has neared a two year high, with authorities promising more help to shore up confidence and ward off further job losses. Some analysts have even warned of rising recession risks, arguing that policymakers must provide more stimulus support unless Beijing eases its zero-COVID-19 policy.
SOUTH KOREA
South Korea pledges additional US$230,000 to global COVID-19 response initiative
(12 May 2022) South Korea’s new president Yoon Suk-yeol pledged on 12 May to provide an additional $300 million won (US$232,744) to a global initiative to fund COVID-19 tests, treatments and vaccines for poorer countries. His funding pledge would bring South Korea’s total donations to the Access to COVID-19 Tools Accelerator (ACT-A), sponsored by the World Health Organization (WHO) and other aid groups, to US$510 million. Yoon stated that South Korea would help secure sufficient supplies of vaccines for those countries in urgent need, and their safe, rapid administration. Yoon also expressed support for the establishment of a financial intermediary fund, a global project pushed by the United States and Indonesia to boost pandemic preparedness. The ACT-A program is seeking a US$23.4 billion budget for its work until September 2022, but leaders of the initiative stated in February that only US$814 million had been pledged.