ISSN 2502-0722Issue 18 / December 2016

A Note From the Editor

Articles

Democracy in Southeast Asia: A Conversation Between Michael Vatikiotis and Bridget Welsh

Corruption Trends in 2016: Southeast Asia’s Governance Plight

ASEAN Economic Outlook 2017: Amidst the Global Economic Turbulence, It Is Time to Take The Lead

ASEAN Round-Up 2016

Indonesia

Myanmar

Philippines

Thailand

Vietnam

Infographic

AEC, The Story So Far...

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Project Supervisors

Rahimah AbdulrahimExecutive Director, The Habibie CenterHadi KuntjaraDeputy Director for Operations, The Habibie Center

Managing Editor

Ray Hervandi

Thinking ASEAN Team

A. Ibrahim AlmuttaqiAgustha Lumban TobingAskabea FadhillaFina AstrianaMuhamad ArifHana Hanifa BastamanRahma SimamoraTongki Ari WibowoWirya Adiwena

A note from the editorDear readers:

Welcome to the December 2016 issue of the monthly Thinking ASEAN!

As 2016 draws to a close, this month’s issue considers developments that have unfolded in Southeast Asia this year and looks at events and issues on the horizon. As such, we focus this month’s issue on three main topics: the state of democracy in Southeast Asia, corruption in the region, and the economic outlook of the region.

The opening article is the transcript of a conversation between Michael Vatikiotis, a veteran journalist and writer living in Singapore, and Dr. Bridget Welsh, who is a Senior Associate Fellow of the Habibie Center in Jakarta. Their conversation on the state of democracy in Southeast Asia traces the history of the push for democracy in the different countries of the region, current challenges and future prospects.

Dr. Welsh follows up on the conversation with this month’s second article on corruption trends in 2016 around the region. After reviewing where the region stands in international rankings of perceived corruption, she explores the close nexus between politics and business, public perception of corruption, and growing political risks for exposure.

Shirin Zahro, an analyst at the CReco Research Institute in Jakarta, rounds out this month’s issue with her article on Southeast Asia’s economic outlook next year. Despite faltering growth worldwide, Southeast Asia will remain an island of relatively high growth. This, she argues, represents an opportunity for the region to advance its standing in international trade.

As usual, we present a short infographic on the ASEAN Economic Community and a summary of the goings-on in selected countries from around Southeast Asia.

Don’t hesitate to drop me aline at thinkingasean@habibiecenter.or.id if you have comments, input, or prospective submissions.

Happy reading!

Best regards from Jakarta,

Ray HervandiManaging Editor

Thinking ASEAN is a monthly publication that aims to provide insightful, cogent and engaging perspectives on issues central to contemporary Southeast Asia and the ASEAN member states. It is a product of The Habibie Center, with the generous support of the Republic of Korea’s Mission to ASEAN.

The content of Thinking ASEAN does not reflect the official opinion of The Habibie Center or institutions related to the publication. The Habibie Center was founded by Indonesian President Bacharuddin Jusuf Habibie in 1999 as an independent, non-governmental and non-profit organization to promote the democratization and modernization of the country.

Responsibility for the information and views expressed in Thinking ASEAN lies entirely with the author(s). For comments, suggestions and prospective contributions, the Managing Editor of Thinking ASEAN can be reached at thinkingasean@habibiecenter.or.id.

The Habibie Center was founded by Bacharuddin Jusuf Habibie and family in 1999 as an independent, non-governmental, non-profit organisation. The vision of The Habibie Center is to create a structurally democratic society founded on the morality and integrity of cultural and religious values.

The missions of The Habibie Center are first, to establish a structurally and culturally democratic society that recognizes, respects, and promotes human rights by undertaking study and advocacy of issues related to democratization and human rights, and second, to increase the effectiveness of the management of human resources and the spread of technology.

The Habibie CenterJl. Kemang Selatan No.98,Jakarta Selatan 12560Indonesia(P.) 62 21 781 7211(F.) 62 21 781 7212

www.habibiecenter.or.idwww.thcasean.org

2Issue 18/ December 2016

Democracy in Southeast Asia: A Conversation

Between Michael Vatikiotisand Bridget Welsh

Dr. Bridget Welsh is a Senior Research Associate at the Center for East Asia Democratic Studies of the National Taiwan University; a Senior Associate Fellow of the Habibie Center in Jakarta; and a University Fellow of Charles Darwin University in Darwin, Australia. She analyzes Southeast Asian politics, especially Malaysia, Myanmar, Singapore, and Indonesia.

Bersih 4.0 rally at Pasar Seni, Kuala Lumpur, Malaysia, August 2015.Source: Wikimedia Commons

Michael Vatikiotis is a writer and journalist living in Singapore. After training as a journalist with the BBC in London, he moved to Asia and

was a correspondent and then editor of the Far Eastern Economic Review. He has written two

novels set in Indonesia.

Bridget Welsh (BW): Michael, why don’t you begin. Where do you think the state of democracy is in the region?

Michael Vatikiotis (MV): Well, if you take a glass-half-full approach, then I suppose you would look at the long arc of history of democracy over the last 40 years. I argue that in many countries of Southeast Asia, there has been a gradual improvement in the forms of governments that began to look more and more institutionally like functioning democracies.

So to break that down, you have of course a wave of democratization that began with the People’s Power revolution in the Philippines in the mid-1980s, which was itself an outgrowth of Portugal’s Carnation Revolution in the mid-1970s that sparked what Samuel Huntington called the “third wave of democratization.” This eventually reached the shores of Southeast Asia and manifested itself initially in left-wing movements, student disruptions and protests in the mid-1970s.

Thailand saw a crackdown on student movements that led to people fleeing into the jungle and joining the communist insurgency. Similarly in Indonesia, there was the Malari incident that led to a crackdown on campus politics. In Malaysia, too, there was student agitation in the mid-1970s. By the early 80s, things had come to a head in the Philippines with the implementation of martial law, the corruption of Marcos’ rule and the deep sense of unease that many people felt because of the way that they were treated by Marcos, either arrested, detained or worse. In 1983, with the murder of Benigno Aquino as he stepped out of a plane from Taiwan at Manila Airport, this finally welled up into a massive popular protest.

At the time I was a young journalist in the BBC. I remember covering it from London, and it was a very exciting time, especially the whole notion of “people’s power.” This was well before any of the colored revolutions that have taken place in this century. This was before the end of Cold War. It was also the very first time that CNN had covered this sort of story so far away with live camera shots of the protests. There was a sense that nothing like this had really happened before in postcolonial Southeast Asia. It was shown and reported in a very vivid manner, and it also very quickly brought an end to a very despotic ruler. Within a matter of weeks, Ferdinand Marcos was on a plane to Hawaii.

As a side note, I think it was also a very important time because up until the mid-1980s, the United States and other Western powers firmly backed autocratic regimes because they were anti-communist. This changed with the People’s Power revolution on the streets of Manila. The color of the revolution was yellow, not red. You had this mild-mannered widow of Benigno Aquino who took over. She was not threatening. She didn’t seem to be communist. This allowed the United States and other Western powers to embrace a popular revolution without having to abandon their sort of anti-communist credentials. There was a sense of relief that they did not have to support an autocrat, just because he was anti-communist.

This set the region on the path where people expected greater openness and democratization, but it was a faltering path. It led in 1989 to a rash of students’ protests in Indonesia, where there was pressure on Indonesia’s government to become more open. Soeharto grudgingly allowed more openness, but it did not really bring about democratization. Similarly in Malaysia, we saw attempts to have a more open system. This was met by a crackdown in Operation Lalang. Initial pressures on governments to be more open did not really work. Most tragically in Burma, the 1988 student uprising, which did take its inspiration directly from People’s Power, failed spectacularly and tragically so with a huge loss of life. The assumption that “people’s power” would lead to greater democratization essentially let us all down, and we experienced another decade of demi-democracy at best.

Then we had the financial crisis. In 1997, there was another round of turmoil, and again there were assumptions made about the impact of the economic financial crisis on the way it would affect authoritarian or semi-authoritarian regimes. It was assumed that now governments would need to be reformed, need to open up and be more transparent, and better serve the people. There was pressure in Malaysia. Obviously, what happened in Indonesia was that the Suharto regime fell, collapsed under the weight of its own authoritarian inefficiency. However, once again, we all felt that there was going to be democratic dividend from the financial crisis. If one recalls the first few years of the Indonesia transition, the initial two or three years were disappointing. You essentially had a bunch of people who had served Soeharto basically changed their shirts and became democrats all of sudden. There was

marginally more open government, but it took at least five years for the reform period to have an impact. Decentralization of government in 1999 was a first good step. But, don’t forget there was also a lot of violence associated in the reformasi period in Indonesia. Many people were generally unhappy with the first few years of that period.

There was no real democratic impact on the rest of the region. Burma continued to be ruled by a nasty military regime. Mahathir continued to rule the roost in Malaysia. In the Philippines during this period, there were several setbacks to democratic government in a form of attempted military interventions and impeachments of politicians. So again, while there were these promises of reform and democratization, the overall regional democratic impact was less than expected.

BW: I think if we look at the situation now, we have three different patterns. The first of which is a democratic deficit in the region’s more democratic countries, namely Indonesia and the Philippines. Here, there are demands for better governance that are not being met by democratic governments. This is true particularly over the issue of corruption, but this extends to social services and economic policies that are not addressing the needs of the masses. This has fueled authoritarian nostalgia, support for more autocratic rule. This was evident in Indonesia’s 2014 election and more recently with the election of Rodrigo Duterte in the Philippines. Large shares of these societies want more strongman rule because of a lack of effective democratic governance. Furthermore, democratic conditions in democracies are contracting, with the rise of intolerance toward minorities and violations of civil liberties.

The second trajectory is the continued stranglehold of one-party dominant systems in the region. This is the case in Vietnam, Laos, Cambodia, Malaysia and, of course, Singapore. The trend has been increasing use of authoritarian measures against opponents. While opposition in all of these countries has expanded with greater access to information and rising aspirations of new generations—perhaps with the exception of Laos—Southeast Asian governments have used their control of political systems to stay in office. From the manipulation of electoral rules to arrests and control of the media, the incumbents are holding on. Some of these measures are more blatant than

4Issue 17 / November 2016

others, such as Malaysia’s Najib Tun Razak government’s arrest of opposition leader Anwar Ibrahim and more recently the imprisonment of Bersih chairperson Maria Chin Abdullah for “terrorism”, but the trend has been across the region. We have witnessed a broad democratic recession in Southeast Asia in the past five years, especially in the one-party dominant countries.

The third pattern is one of regime change in two Southeast Asian countries. The first is military takeover in Thailand with the May 2014 coup. The Prayut government has arguably been one of the most repressive military governments in Thai history, with fear and repression deeply felt. Sadly, the other country affected by Huntington’s third wave, which began democratizing gradually from the late 1980s, is serving as the prime example of the region’s growing authoritarianism. The second has been in Myanmar, where the election of Aung San Suu Kyi’s National League for Democracy (NLD) has fundamentally opened up the system. Myanmar is facing the same troubles you spoke about just now after 1999 in Indonesia. There is violence especially on the periphery, contributing to the serious humanitarian conditions of the Rohingyas, and other concerns for ethnic minorities. There are real challenges in weakening the power of the military as well, which extends to the economy as well as the security situation. Democracy in Myanmar remains fragile.

MV: The question to answer is why. If we

move from glass half-full at the end of last century to the glass half-empty at the beginning of the 21st century, the question is what can explain the democracy deficits? To be honest, it is quite hard to find a simple explanation that embraces the breadth of situations in the region. I believe we must categorize the failures. I think the first failure is institutionalization. In all the countries where we see democratic progress, one of the weakest elements of the reform program has been institutionalizing the changes that have been made. That is mainly because the nature of political culture in Southeast Asia is personal. It largely involves groups of followers owing allegiance to individuals whether they are in bureaucracy or in the political establishment. There has never been a need to institutionalize these networks, because they are fluid and rest on a great deal of patronage. It is very paternalistic, and in a paternalistic system, you do not actually want to build an institution that would succeed you. I think this sort of combination of personality politics and leadership has contributed to a lack of institutionalization.

For me, the best example is Indonesia. It is one of the tragedies of Indonesia. While there is no real question that Indonesia’s democratic foundation is firm, and no one would say that there is a danger of moving back to the system that they had before: an authoritarian leader who would be unaccountable or even perhaps the military playing a role in politics—although I think one can never completely rule

these out.

BW: Indeed, we should never say “never.”

MV: Yes. If you look at the real weaknesses of the system and its hostage to extreme elements of prejudice, whether they are racial or religious, it is because the political parties are weak. There are no platforms to speak of. The institutions for mature political debates and exchange are simply underdeveloped and not respected.

You have at the same time successful decentralization. Many people would argue that the strengths lie here. The elections at the regional and local levels are among the most successful. They are bringing forward the future politicians. They have already given Indonesia a president. Having said that, institutional weaknesses plague Indonesia’s democracy and those of the region.

BW: I would take this issue of institutionalization a little bit further, Michael. It is not just about the relationship between the personal and institutions in places like Indonesia and Philippines and in political parties, but rather we see the weakening of political institutions that did exist. Previously functioning institutions have become personalized.

Perhaps the best example is that of Malaysia where the line between the dominant party UMNO and the system is not there anymore. Essentially, all of the checks on executive power have been removed in

The elections at the regional and local levels are among the most successful. They are bringing forward the future politicians. They have already given

Indonesia a president.

a systematic way as power has become concentrated around the person who holds the executive office. The office is the person and the person is the office. We see this pattern throughout the region, in Cambodia and Singapore as well. In the latter, institutions function but they closely reflect the leadership of the PAP.

MV: Well, I tend to agree, but I would break it down into two different factors. One is whether or not this was avoidable or unavoidable. I think in the case of Malaysia, it was avoidable because the institutions and checks were working. Mahathir weakened many of them, with his very firm, autocratic style of rule. Don’t forget there was this interregnum with Abdullah Badawi when many different power centers and institutions came alive again because he allowed them to.

BW: Because he was so weak rather than due to any genuine desire for democracy. He needed to look like a reformer to win power, but when he left office, there was actually very little substantive reform.

MV: Because he was weak. Najib came to power in 2009, essentially promising further reform. Many people of the time, including myself, saw Najib as a competent parliamentary politician but weak. He was weak as a personality and therefore did not seem as necessarily much of a threat if things would not go his way. As we see, things did not go his way. The precipice that Malaysia has fallen down from in terms of the undermining of the last remaining institutions of democracy essentially was brought about by the 1MDB scandal. He suddenly found himself led in that direction.

BW: Najib was doing the leading. He is the key person in the 1MDB scandal. He was weak and greedy and has abused his office to prevent prosecution.

MV: Exactly, because of that, the 1MDB scandal, he has completely turned everything on its head for democracy in Malaysia. He needs to defend his position to assure that he does not go to jail. I have known Najib for many years. I do not recognize him now at all. He is a man who is actually more English than Malaysian. He does not even speak the Malay language properly, who essentially was led there because of the wife.

BW: There is this tendency to blame her, as women are often blamed. It is a partnership. For me, he is the prime minister and he is ultimately responsible.

MV: Fundamentally, he is weak. For whatever reason. He is never going to stand up either to his wife or to anything that is the least bit of trouble and so therefore everything had to change. The direction has to change. The thing that I least understand, and this gets back to what we said earlier, is why there has not been any real opposition to him. Najib is not a particularly strong person. I know that a lot of people have talked about the use of the money and the payments that have been made to keep people in line. This is the idea that people are selfishly essentially going along with it because why bother to resist, why make trouble for yourself when you could essentially make money out of this situation? In that sense, I shift the blame a little bit away from Najib onto a generation of politicians, many of whom I knew when they were quite young, who essentially don’t appear to have any moral principles either.

BW: Well, I think there is something more fundamental going on. There is no question that there is a serious moral vacuum in terms of the incumbent Malaysian leadership. I would extend this to the Islamist party as well—which has turned away from decent political principles and in effect endorsed corruption. I would say, however, that this is not just about the politicians. It is about the whole state-business nexus, the way the economies in the region work. They are driven by those who control political power, and businesses have very strong crony relationships that feed corruption and buttress incumbent elite rule. Look at the Economist’s list of the top countries in the world for crony-capitalism. The proportion of Southeast Asian countries in top is striking: Malaysia is No. 2; Philippines is No. 3; Singapore is No. 4; Indonesia is No. 7; and Thailand is No. 12.

MV: This is the second factor that I was going to bring up after institutionalization: the utter selfishness of elites. They really do not care. If you take the corruption issue, why would you address corruption when in a case of the Thai, Cambodian, Malaysian or Indonesian elite, it means you would have to queue up, it means you would have actually dismantle this system that essentially enhances your status and gives you a privileged position? Why would you dismantle a system where you benefit from it so directly? You just perpetuate it. It keeps your family and your relatives basically in a much better position than everyone else. This has been going on for decades, and this has meant that whatever happens to the

economy, there is a consistent and very discernible increase in inequality. Even with the middle class now, the middle class now is so far remote in terms of income from members of elites in many of these countries. The elites’ share of the amount of money accumulated perpetuates their position. They can buy whatever political process, whether is semi-democracy or even a more democratic context. They can simple buy their way into power.

BW: I think you place too much emphasis on individual politicians in the system. The political-economic relationship has evolved for years, shaped by decades of business-political ties. The structure is as important as the agents.

MV: We have variation. In Indonesia, you have a much more horizontal society because of the geography. You have more cities of more than a million than in other parts of the region, and that actually breaks things out a little bit.

BW: Agreed, but Indonesia is still very hierarchical. At a fundamental level, there are few incentives to engage in fundamental economic and political reforms. The role that elites, especially business elites, play should not be underestimated. When we look at a place like Malaysia and its trajectory, the business elites have been Najib’s enablers, his bankers and business partners. This extends across borders. Businessmen prefer to work with someone who they can pay off and make a deal with. Najib as minister of finance was the par excellence dealmaker. Sadly, most Malaysians have been on the losing end of the deals.

MV: I think this brings us to the third reason for the region’s democratic deficit: a complete lack of sufficient counterbalance by the rule of law to political or corporate power. I have seen this situation fairly close up in Malaysia, in Thailand, less so in Indonesia. There are huge problems with a functioning judiciary. You see this in Thailand in particular, where there has been aggressive politicization of the judiciary. There is a misplaced sense that the judiciary should be politically controlled rather than apply moral pressure to the corrupt politicians. In a case of Malaysia, the judiciary was one of the strongest institutions bequeathed by the British at the end of colonial period. It is striking to go back and look at some of the High Court decisions that were made in the early years of independence, cases that were referred to the High Court of the United Kingdom before Mahathir

stopped this practice. Kelantan actually tried to bring a case to a High Court to succeed before the Federation was fully formed. That case was allowed. None of that would not happen today.

BW: Never say “never.” Pressures in East Malaysia are growing.

MV: Indeed, never say “never.” Nevertheless, the insufficiency of the law to provide a check and balance on what we talked about earlier in terms of weak institutions and elite power is a major factor in the deficit of democracy.

BW: I’m not sure whether or not this is also a reflection of public opinion. We find in multiple surveys that many Southeast Asians do not support checks and balances such as an independent judiciary in any meaningful sense. I am drawing from the Asian Barometer Survey. Southeast Asians do not conceptualize horizontal accountability with checks and balances, in part because of the legacy of strongman rule and the personalized and hierarchical nature of politics that we spoke about earlier. The problem goes beyond the judiciary. It is the lack of other effective, accountable institutions such as independent election commissions and anti-corruption bodies. These institutions do not have any real power in most of the countries of the region. Southeast Asians have few meaningful checks within the system. Laws surrounding these bodies are often manipulated in a very fundamental way to suit those in office. It is a vicious cycle, the lack of operating

checks contributes to a lack of support for these institutions and further political manipulation of these institutions for political ends.

MV: We have to consider the other side of situation, which are the responses by ordinary people. This is much less clear. For example, impunity is another major problem in Southeast Asia. The lack of resolution of issues does not mean people do not suffer and do not want redress. Throughout this period, there have been successful ways in which civil society has brought pressure and staved off, in some cases, some of the worst excesses or abuses of power. It is not completely a black-and-white picture. I would say that civil society has in some cases made considerable progress. But, maybe not enough, as they, too, have been hampered because by the strong or selfish grip of elites in the system. They are often just scratching at the surface of some of the problems. Nonetheless, it is important to acknowledge the aspirations of people and those who have been on the frontline in the struggle for democratic change. In the thirty-plus years I have been in the region, I have met some of the most inspiring people who work in small NGOs, small law offices or in opposition political parties. They really struggle. It is not always a violent struggle, although at times it is. We see Southeast Asia punctuated time and again by needless violence, more often than not violence for political reasons. It is very often a mundane, sometimes lonely, fight for change.

BW: I think you quite rightly point to the bravery of ordinary people. Here too, however, when we look at society, we see two very worrying trends. The first of which has been the deepening of political polarization across the region, the red and yellow shirts. You talked about the yellow shirts of the Philippines in the 1980s. Now, we have open clashes in Thailand and Malaysia, large splits in Cambodia and Singapore with very different perspectives shown in survey research, and divides in Indonesia, Myanmar and the Philippines as evident in recent elections. Even in Myanmar where everybody talks about the Aung San Suu Kyi’s “landslide,” she only won 57 percent of the popular vote. Prabowo almost won in Indonesia in 2014. Duterte only won with 38 percent of the vote. Across the board in Southeast Asia, we have very deeply politically polarized societies. Governments often use this polarization to their advantage, either to as an excuse for intervention, in the case of Thailand, or they perpetuate this polarization in a place like Malaysia. Divisions are used as a way to justify authoritarian rule and perpetuate their power in the name of stability. Sadly, large shares of the political aspirations of Southeast Asian societies have been dismissed politically, as they are being so economically as well.

MV: Yes, I think the polarization has always been there. Now, certainly there is greater ability to mobilize and simultaneously to exploit the polarization, as you pointed out. I think one of the things that interests me about the polarization is the limited

4Issue 18/ December 2016

channels for addressing differences and grievances. I am struck by the steady narrowing of opportunities for different ideologies, for the ideology of sort of the socialist nature that would revive channels for people to actually ask for more in a political context. The collapse of communism and the end of the Cold War is still to a large extent being felt across Southeast Asia. This great fear of the left wing persists. What is happening is that people channel a lot of the polarization into sort of racial or religion sentiments. The reality is that people do suffer and despair under the weight of equality. They yearn for some kind of inspiration, a motivational ideology that gives them an avenue for protest. If it is in fact cut off because communism is still banned in places such as Indonesia, or frowned upon in the Philippines and Thailand. In Thailand, the leader of the red shirts is in fact a former communist. She has tried to establish a party that aspires to represent the mass of people. It is very difficult then to actually channel that polarization into something less violent, more constructive.

BW: We know that in terms of research, most Southeast Asians conceptualize democracy in terms of equality disproportionately compared to other parts of the world. We also know that there are no real substantive open policy debates taking place in most of the region’s political environment. Admittedly, there are some areas and some pockets that we do not want to dismiss those, but at the sense of meaningful discussion of the directions of development policy

or allocations of funding, there are real discussion vacuums. In the last five years especially, a lot of government policies had been low-hanging fruit, basically throwing money to stave off problems. If there is one area that has been focused, it has been infrastructure, hard development, an area that has created few jobs for the region’s youth and reinforced corruption. Regional governments are not meaningfully dealing with underlying challenges that these countries are facing in terms of moving their economies forward and transforming their societies towards the future, especially for the younger generations. The promise of greater social mobility is not being realized.

A second worrying concern in society involves the violations of others by members of society themselves. Disproportionately, governments are not intervening on the significant human right violations that are being conducted by non-state actors, whether they are in the name of religion, drugs or greed.

MV: That is true. Let me come back to that. There is something else that needs mentioning. In the early period of independence in Southeast Asia, many of these countries were conceived of as democracies, the pre-1965 period in Indonesia, pre-1962 period in Burma, even in the very first year after 1954 in Cambodia. These democracies were led by a group of people who had been imbued with the notion of democracy from the outside. They had received education outside. If you look at some of the early

leaders of Indonesia, they were essentially Fabian socialists. They brought these values to the establishment of the republic. That had all gone by the 1980s.

One of the things that I find most interesting about what is driving this democratic deficit is the emergence of a generation of leaders who actually did not share democratic values in the same way. They simply didn’t. Mahathir never went to the West for his education. Lee Kuan Yew is another example. The whole ‘Asian values’ debate in the 1990s was built around a lot of resentment and frustration by a generation that succeeded the founding fathers. In a patronizing way, the departing colonial powers left it to the founding leaders to set up democracy because they were imbued the same values. That was all gone by the 1980s. Instead, you have a generation who were imbued with traditional notions of power and politics.

BW: I think you continue to place considerable emphasis on leaders and their values. For me, this was broader; it was about the wealth they were accumulating and the synergy between economic and political power. Many of these leaders allied with business and other elites, and were willing to challenge those that challenged them. They were not really willing to share power.

MV: The successive generations emerging in power were not imbued in these democratic values. That is why it was very difficult for them to accept change or reform.

President Duterte of the Philippines delivers his first State of the Nation address in Manila, July 2016.

Source: Wikimedia Commons

Now, we come to the issue of human rights. In my view, Southeast Asians have a really good sense of survival, family and land. Security for themselves and their families was the most important. Very often, these things are prioritized against more universal things you think might be important to people. You know, if you look at the victims of 1965 in Indonesia, maybe what they want in return is not so much justice, but compensation.

BW: There should not be a tradeoff. They should get both.

MV: They should get both, but I think in the end what people often settle for is the material and not the other. That helps us understand the issue of human rights not being enshrined or carried out properly. Weak institutions and powerholders are simply not interesting. You also have a society that is unfortunately less interested than you expect them to be in pushing for these things.

BW: Advocates for human rights are clearly a minority across Southeast Asia, but this is not as simple as you suggest. A majority of Southeast Asians want better, fairer, and more moral governments. It is much more than the material you suggest. Survey research in the Asian Barometer Survey provides insights. For example, there is no majority of public opinion supporting a secular government in any single country in Southeast Asia, including Singapore.

MV: Indeed, the growth of the Christian community in Singapore is one of the most understudied phenomena in Southeast Asia.

BW: I also think of the emergence of a religious nationalism that is intolerant and undemocratic. This is not just the extremism we associate with terrorism, but an intolerance that is eating away at the fabric of society. There are clearly counterforces, but the authoritarian rhetoric and closed education systems of many governments reinforce this lack of nuance, empathy and understanding. Civic education is missing as many governments often work against creating problem-solving and critical thinking in their education systems. Many of the forces that are challenging democracy are coming from below, shaped of course by the institutional and leadership context in which they operate.

MV: Indeed, many dynamics are coming from below. In Indonesia, there is more

primordialism.

BW: Well, it is broader than primordialism in my view.

MV: We have reached a point in the second decade of the 21st century, where we have to all ask ourselves if we’re going to see incremental progress. Can we assume that these hiccups along the way for democracy that we have described will continue to be hiccups and ultimately these societies are reaching the goal of becoming more democratic countries? I am doubtful, frankly.

I see continuing cycles of upheaval. It is possible, for instance, in Indonesia that what we saw in the last couple of weeks, the ability of hardline extremist groups to put pressure on a very popular elected president could see the undermining not so much of his legitimacy, but of his power. People will exploit the weakness of the presidency. They will not think of the institution of the presidency. They will simply think of their own interests. They all are thinking of their own interests. This could spin off into a cycle of instability.

Similarly, Cambodia is facing elections in the next two years, the commune election this year and general election after that. It is clear that a younger generation of voters, increasingly a majority of voters, want change. It is also clear that the ruling party and Hun Sen is not prepared to provide them with that change. He wants his son to take over the prime minister eventually when he decides to retire. He wants to retire not according to the electoral schedule.

In Thailand, we have a military that is now entrenched in power. It is not likely that they will give up power any time soon. There might be an election in 2018. In Myanmar, as you point out, democracy is fragile.

BW: Democracy is definitely stagnating, but let me take an alternative view. You may be doubtful about the future, but I am hopeful. I think these authoritarian leaders, Najib, Hun Sen and others, are not delivering on expectations either. There are very serious governance deficits in Southeast Asian societies, especially in many of those led by autocrats. This is why we have seen the democratic recession in the region; they are fighting to hold on. Today, we have the big catch: we have a contracting economy. We have a very different global and regional economic conditions now. It is not increasing as it

was in the 1990s or even in the 1980s. The democratic pendulum can swing back. I am confident it will. There are large shares of Southeast Asians ready to accept change, with the poles on the other side ready and waiting for the tipping point to move in their direction.

MV: I am doubtful. We had exactly the same conditions in the late 1990s, and there was no hint of the time that there was a Duterte on the horizon or that the military was going to come back to power in Thailand. We cannot use that kind of analysis because economies contract and grow again; leaders do not rise and fall on that basis. We are not see the evidence of autocrats losing power. In fact, it’s quite the opposite. Look at Duterte, who only basically decided to run for election a few months before the election itself. He is widely popular. This is in spite of the death of four thousands or more people without the judicial process. We simply can’t predict that won’t happen again.

BW: Populist autocrats are a real possibility in democracies. This is happening across the world, especially in democracies. Trump’s election is case in point. Southeast Asia is different, as the dominant mode is more authoritarian governments rather than democracies. Authoritarianism, rather than democracy, will be targeted. Failures of economic reform are important, and now, more than ever, this lack of economic and political reform is affecting the system. We are not in the 1990s. There is more information and reservoirs ready to embrace change, which excludes political poles. There is unprecedented pressure on autocrats in terms of their abilities to deliver and serious shortcomings in this regard. The leaders lack the same level of legitimacy than earlier leaders, with more impatient, diverse and demanding societies. This opens up the possibility for hope.

MV: It opens up the possibility but more people like Duterte will come along.

BW: Maybe, maybe not.

6Issue 18/ December 2016

We welcome readers’ response to this conversation and will publish next month those that push the conversation forward the most.

-Managing Editor, Thinking ASEAN

Corruption Trends in 2016: Southeast Asia’s

Governance Plight

Dr. Bridget Welsh is a Senior Research Associate at the Center for East Asia Democratic Studies of the National Taiwan University; a Senior Associate Fellow of the Habibie Center in Jakarta; and a University Fellow of Charles Darwin University in Darwin, Australia. She analyzes Southeast Asian politics, especially Malaysia, Myanmar, Singapore, and Indonesia.

Popular support for Indonesia’s Corruption Eradication Agency (KPK) surfaces every time there is an attempt at eroding the agency’s authority.

Source: rappler.com

S erious corruption scandals continued to plague Southeast Asia as the monies involved reach record levels. In December 2015, Indonesians

were riveted by the US$4 billion extortion attempt of Freeport McMoRan involving Setya Novanto, the country’s Speaker of the House of Representatives. He later resigned amidst ethics concerns. Next door in Malaysia, the multibillion 1MDB scandal has made headlines since July 2015. At issue are kleptocracy allegations against Prime Minister Najib Tun Razak. The scandal involves the deposit of nearly US$700 million deposited into his personal bank account through an investment vehicle that has been tied to money-laundering and embezzlement under investigation in six international jurisdictions. The actual losses involved extend beyond US$3 billion. Najib clings to power to avoid international prosecution. In mainland Southeast Asia, an assessment this year by Global Witness alleges that Prime Minister Hun Sen of Cambodia has taken at least US$200 million for his own personal use and claims that the actual amount pilfered may extend to above US$1 billion. He, too, appears to be using his office for protection and wealth. The amounts in the abuse of office for personal gain is just one of the many worrying trends involving corruption across the region.

This year, the International Monetary Fund estimated that US$1.5 to 2 trillion is being lost to corruption globally, equivalent to 2 percent of the world’s GDP. In Southeast Asia, the costs of corruption are debilitating to economic growth. An estimated 1 percent of economic growth annually is lost to corruption in ASEAN, as most Southeast Asian countries rank high for corruption practices. Billions of funds that would have fueled the region’s prosperity have gone into the hands of greedy politicians and bureaucrats, facilitated by unscrupulous businessmen. The 2015 Transparency International assessments that measure bribery perceptions of businessmen puts four Southeast Asian countries in the lowest tier worldwide: Cambodia, Myanmar, Laos, and Vietnam. The others largely fall in the shameful middle with only Singapore ranking near the top in performance. Singapore’s supposed non-corruption is challenged in other assessments, however. The Economist’s 2016 Crony Index, which measures the level of political embeddedness in business ranks Singapore third in the world. They join other top contenders for cronyism in

the region, including Indonesia, Malaysia, Thailand, and the Philippines.

The close nexus between political elites and business is exacerbated by large roles of the public sector in Southeast Asian economies. Politicians play decisive roles in the allocation of funds/contracts and granting of permissions to engage in business. This is especially the case in leading sectors of the economy, namely infrastructure, natural resources, land administration and defense—all areas were corruption practices are rife. According to Transparency International in 2015, East Asia’s US$8 trillion spending for infrastructure, a sector without strict anti-corruption standards, will provide greater opportunities for further turpitude. China’s deepening role in Southeast Asian economies is also seen to enhance corruption, as they are perceived to be less demanding of good governance. China is even seen to endorse corruption, as exemplified in their bailout of Najib in the 1MDB debacle.

It is not a coincidence that Southeast Asian countries featured prominently in the April 2016 release of the Panama Papers, leaked documents that show efforts to hide funds in tax havens. Indonesia led the count with 6500 citizens, followed by Malaysia at 1784, but no Southeast Asian country was spared. Prominent among the list were Najib’s own son Mohd Nazifuddin Najib, Cambodia’s Justice Minister Ang Vomg Vathana and Thailand’s Chirathivats, the family that operates the powerful

Central Group of Companies worth an estimated $11.7 billion. Singapore was showcased as the region’s epicenter of cloaked investments with 5,869 offshore entities linked to the island nation, and listed by the International Consortium of Investigative Journalism (ICIJ) that leaked the documents as one of 21 global tax havens.

Varied Public Perceptions: Acceptance and Acquiescence

The use of public office for personal wealth—the standard definition of corruption—has been a longstanding serious problem in Southeast Asia. In surveys year after year, corruption is the most important governance issue identified by the public. It has served as rallying call for protests and voters. Historically, corruption contributed to the fall of Suharto in 1998-1999. This year, anti-corruption promises helped put ‘punisher’ Rodrigo Duterte into office in the Philippines’ May election. Ironically, this November, six months after assuming office, Duterte gave a hero’s burial to the country’s most corrupt politician, former president and strongman Fernando Marcos. In the same month, anger with corruption also brought people out to the streets in the thousands in Malaysia, as part of the repeated calls for clean government in the Bersih movement. While the levels involved have reached record heights and the scandals exposed broadening, broad public concern with corruption remains consistent.

TI Corruption Perception

Ranking 2015

Economist Crony Index 2016

Cambodia 150

Indonesia 88 7

Laos 139

Malaysia 54 2

Philippines 95 3

Myanmar 147

Singapore 8 4

Timor Leste 123

Thailand 76 12

Vietnam 112

Southeast Asia Global Corruption Leader

8Issue 18/ December 2016

What is not appreciated, however, is the variation in the region in public perceptions of corruption. Drawing from the fourth wave of the Asian Barometer Survey (ABS) conducted in eight Southeast Asian countries in 2013-16, there is considerable variation in how corruption is seen. Significant majorities perceive “most” or “all” officials as corrupt in Cambodia and the Philippines, with only a slim majority holding this view in Indonesia. In the rest of the region’s countries surveyed, significant pluralities believe their officials are corrupt, except in Singapore and Vietnam. Corruption perceptions are higher at local levels than in the national center, with specific institutions, such as the police and judiciary, seen to be particularly affected by corruption. The figures hide something that is not often acknowledged: a share of Southeast Asians support corruption and in some cases do not see bribery and use of public office as immoral, inappropriate or even as corruption at all. For example, 29 percent of Malaysians surveyed believed that it is okay to use public office for personal wealth. These norms and practices counter anti-corruption efforts. Not only do they undercut moral pressure, they point to accomplices in the system of elite abuse of power and their selective patronage allocations.

Elite Erosion of Anti-Corruption Efforts

It is thus no wonder that the region has seen an undermining of anti-corruption efforts. Much of the undermining is

coming from the top, the political elites. These privileged attacks on Indonesia’s Corruption Eradication Commission (Komisi Pemberantasan Korupsi, or KPK) have been ongoing for the past two years. In 2016, however, they have extended to weak appointments to the commission and perceived weakening of the commission’s authority. Charges of favoritism in prosecutions abound. Similar trends were seen in Malaysia and Thailand, where anti-corruption bodies have been seen to be politically manipulated. Officials who supported a more robust prosecution of 1MDB in the Malaysian Anti-Corruption Commission (MACC) were summarily transferred. The Anti-Dynasty Bill in the Philippines, which would have limited the office terms of powerful families that have controlled power, was not surprisingly defeated in the Congress in February this year. This defeat allows political dynasties comprising 200 elite families to continue to dominate power—including the Duterte family. In Myanmar, where the new leadership of Aung San Suu Kyi and her party, the National League of Democracy, assumed office in April, one of the biggest challenges has been to clean up the military’s control of the economy and the entrenched practices of corruption that have evolved in its business dealings.

Where the undercutting of anti-corruption is being most eroded is in the courts. Getting cases prosecuted is hard enough, especially given the limited enforcement power of anti-corruption bodies across the region. There are examples of tough

enforcement. For example, this July in Vietnam, thirty-six officials in the Viet Nam Construction Bank (VCB) were put on trial for a case involving the loss of US$405 million and convicted in September with sentences ranging from 22 to 30 years. This has been followed by indictments in six high-profile corruption cases, involving government-linked companies and millions of misappropriated funds. Vietnam has the death penalty for corruption, but it has not been enforced in the high profile cases involving party-linked officials. The government’s tough anti-corruption effort is seen to be selectively enforced and done so out of political necessity rather than a meaningful drive to end corruption practices.

Elsewhere in the region, corrupt offenders are getting off lightly. Consider Singapore’s actions in the 1MDB scandal. One banker has been jailed, Yak Yew Chee, receiving a paltry sentence of 18 weeks and fine of S$24,000. Four banks involved have been fined—Standard Chartered Bank (S$3.7 million), Coutts (S$1.7 million), UBS (S$1.3 million) and Singapore’s DBS (S$1 million)—in amounts that pale in comparison to the flows involved. Singapore has also imposed an entry ban for ten years on former Goldman Sachs director Tim Leissner who fixed up the dodgy 1MDB bond deals involving US$6.5 billion. While these measures contrast sharply with the denials of wrongdoing across the Causeway, they are mere slaps on the wrists for serious ethical breeches. They also do not go after the main players or those who bought bonds, as the focus is on the facilitators rather than the beneficiaries. Implementation of anti-corruption laws has long been a problem. As significant is the lack of judicial and political will to punish corrupt offenders.

Growing Political Risks for Exposure

At the same time, the risks of exposing corruption remain higher. Cambodia’s political commentator and anti-corruption activist Kem Lay was assassinated in broad daylight in Cambodia in July. He was a leading critic of the Hun Sen government’s corruption. In March, Vietnam convicted seven activists, including the 73-year-old anti-corruption blogger Dinh Tat Thang. In November, Malaysia did a double whammy against anti-corruption advocates. It convicted parliamentarian and whistle blower Rafizi Ramli for leaking documents associated with the 1MDB scandal under the Official Secrets Act and imprisoned activist Bersih chairwoman Maria Chin Abdullah in solitary confinement for

Elite Erosion of Anti-Corruption Efforts

eleven days under an anti-terrorism law. Within the region, the risks for exposing corruption remain higher than ever. This should not be a surprise given the amounts and scope of graft involved.

Yet, ironically, anti-corruption efforts are being boosted by global developments. First of these has been the rise of hacking and leaks, often tied to intensive in-depth investigative reporting. The Panama Papers is a sign of future trends, as politicians and businessmen cannot assume that they are not going to be exposed. The second development has been a toughening of anti-money laundering enforcement coupled with stronger international corporate integrity agreements (CIA’s) that report bank accounts to tax revenue authorities and tighter counter-terrorist financing measures. These have led to an increase in cross-border investigations and prosecutions as well as fostered greater financial transparency at large. Corrupt leaders and businessmen can no longer rely on their control of domestic levers of power to protect themselves. Increasingly, they can no longer run or hide.

This is perhaps the irony of anti-corruption developments in 2016. Within the region, anti-corruption efforts are being undermined, but internationally they are being exposed. This is in spite of China’s corrosive regional influence on corruption. Southeast Asia’s corrupt leaders now face greater risk and in the competitive environment for investment more potential losses in sources of income. At the same time, domestic challenges to anti-corruption remain serious and worrying, from the elite attacks on anti-corruption bodies to those on activists. Gaining meaningful traction in anti-corruption in Southeast Asia remains largely elusive as the problem continued to be the region’s plight.

10Issue 18/ December 2016

ASEAN Economic Outlook 2017: Amidst the Global

Economic Turbulence, It Is Time to Take The Lead

Bangkok Skytrain during sunset.Source: Wikimedia Commons

Shirin Zahro is an Analyst at the CReco Research Institute, Jakarta, Indonesia.

I t has been six years since the Global Financial Crisis (GFC), but the global economy has not yet fully recovered. The world is under a period of stagnation.

With slow recovery affecting advanced economies after the GFC, emerging market and developing economies play a more important role in driving global growth. Data on the distribution of the world’s GDP show that advanced markets actually have been losing their share since 1980.

However, while stagnation takes place in advanced markets, emerging markets may have a different outlook. Emerging markets and developing economies now account for 58 percent of the world’s GDP, compared to only 36 percent in 1980. Among the emerging market economies, it is the emerging and developing markets in Asia that have been acting as the big players. They stand for 58 percent of all emerging and developing economies’ GDP, compared to only 25 percent in 1980. If we look further inside the emerging and developing Asia countries, it is the shares of China, India, and Indonesia that have dominated the expansion (Figure 1).

Indeed, it is currently the emerging economies that drive the world growth. The increasing trend in the world’s economic growth is driven by persistently high growth of emerging Asia countries. The trend line of advanced economies between 1980 and 2016 is downtrending. Meanwhile, the trend of emerging and developing economies is increasing, with emerging and developing Asia averaging well above all the emerging market. Again, this is mainly driven by China in the last three decades, followed by the emergence of Malaysia, Vietnam, and Thailand in the 1990s, as well as India and Indonesia in the 2000s (Figure 2).

International Monetary Fund (IMF) projection for global GDP growth in 2017 shows continuation of the slow-growth trend.1 Advanced economies are expected to have 3.4-percent growth, slightly higher than the 2016 projection of 3.1 percent. This recovery is expected to come from the United States, while other advanced economies such as Germany, Japan, and the United Kingdom are projected to have lower growth than 2016 due to high uncertainty in the European Union following Brexit and the persistently weak demand in Japan. The IMF also predicts that Asia will remain the most dynamic part of the global economy despite a weak global recovery, slowing global

trade, and the impact of China’s growth transition. Emerging and developing Asia is expected to grow more slowly at 6.3 percent in 2017, compared to 6.5% in 2016, mainly due to China’s lower growth. However, optimism emerges from the ASEAN-52 countries—Indonesia, Malaysia, the Philippines, Singapore, and Thailand—which are projected to grow at 5.1 percent in 2017, higher than 4.8 percent in 2016.

The Main Driver of Growth in ASEAN-5: Consumption and Trade

The economic growth of ASEAN-5 countries are particularly driven by consumption and trade. In all ASEAN-5 countries in 2016, more than 50 percent of the GDP came from private consumption. Studies reveal that the economic growth of ASEAN-5 countries is driven by consumption, rather than investment. A quantitative study analyzing the determinants of Indonesian credit growth reveals that compared to investment, consumption growth gives significant positive effect to economic activity, proxied by credit growth, while investment growth does not show any significant correlation.3 Chatib Basri, a former finance minister of Indonesia, also finds that in Indonesia, the causality between consumption and investment occurs where consumption affects investment, but not the other way around.4

Similar cases appear in other emerging Asia countries. A report by the Asian Development Bank (ADB)5 shows that when external demand drags down economic growth, it is the domestic demand, particularly from private consumption, that becomes the dominant source of growth (Figure 3). The research found that Malaysia’s private consumption’s contribution to GDP is 4.6 percent, while the country’s annual average GDP growth is 5.1 percent. On the other hand, the Philippines and Thailand’s private consumption contribution to growth is 4.3 percent to 5.8 percent of GDP and 1.1 percent to 2.8 percent of GDP, respectively. In ASEAN-5 countries, others studies argue that the strong base of domestic demand, especially private consumption, has been the cushion of economic growth, especially during periods of economic crisis.

On the other hand, ASEAN-5 countries are also export-driven. Although the sector is not as robust as consumption, exports have been the source of growth in ASEAN-5 countries, especially during commodity booms. In 2015, 71 percent,

69 percent, and 90 percent of real GDP in Malaysia, Thailand, and Vietnam are come from exports (Figure 4). However, the exports growth actually has been declining since 2010, following the fall of commodity prices and the global slowdown (Figure 5).

Future of Trade and the Role of ASEAN Countries

The answer to whether exports—and trade in general—could become the engine of growth for the future of ASEAN countries lies on the future of global trade. Borrowing a statement by economists Homi Kharas and John McArthur,

“globalization—the integration among national economies of markets for goods, services, technology, capital flows, and, to some degree, labor—has played an enormous role in advancing global prosperity. Yet a backlash has emerged, manifested in the recent U.K. Brexit vote, strident “local first” demands, and calls to block trade agreements.” 6

Meanwhile, the recent victory of Donald Trump in the US election is likely to bring the country into a more domestically focused and protectionist policy approach. Trump has proposed to turn away from a greater trade integration by imposing tariffs on imports, particularly from China, and withdrawing from the Trans-Pacific Partnership (TPP), a trade agreement that should have been Obama’s foreign policy legacy. Therefore, the TPP is likely to falter without the United States while Trump’s protectionist approach would limit US economy’s share in the world’s trade.

The uncertain future of the TPP and slow recovery of the European Union give a gloomy outlook for global trade. However, these could be an opportunity for Asian countries to step up and play a more important role in global trade. The predicted lower share of the United States and Europe in global trade gives a larger room for Asian countries to expand the market. Currently, ASEAN countries together with China, Japan, India, South Korea, Australia, and New Zealand already have a trade cooperation under the Regional Comprehensive Economic Partnership (RCEP). The RCEP could be the best alternative for ASEAN and the six key partners to boost trade.

The RCEP itself already has several advantages for ASEAN countries. First, the combined population of RCEP members is 3.4 billion and the trade volume is estimated at US$10.6 trillion, almost 30 percent of total world trade. Furthermore,

12Issue 18/ December 2016

more than half of the population are in their productive age, especially the population of ASEAN countries. These makes RCEP countries a large market for trade.

Second, the abundance of labor and low labor costs make some RCEP countries attractive to do business and investment in, especially in the ASEAN-5 countries. The large size of demography combined with low labor costs is the advantages that Indonesia, Philippines, and Vietnam can exploit. The ease of investment encouraged by RCEP agreement should open the competition between these countries in capturing foreign investment. Thus, these countries should promote policy to improve the quality of labor, ease of investment, and political stability.

Third, ASEAN’s political neutrality is another asset. Jin (2013)7 argues that ASEAN secured its middle-of-the-road position between China’s proposed ASEAN+3 (East Asia FTA, or EAFTA) and Japan’s proposed ASEAN+6 (Comprehensive Economic Partnership in East Asia, or CEPEA). Japan had previously proposed the idea of economically integrating ASEAN+6 covered in the RCEP. CEPEA was said to oppose the EAFTA and to “maintain and strengthen Japan’s economic and political influence

in the region.” However, RCEP promotes the integration between EAFTA and CEPEA, with ASEAN walking in the middle between the two giants. ASEAN must be able to bring the RCEP negotiations without having to enter into conflict with either China and Japan.

Overall, the emergence of the RCEP and the collapse of the TPP could be an opportunity for Asian countries to fill in the decreasing share of the United States in global trade and take a lead in global trade initiatives. However, leadership inside the RCEP is essential to ensure the agreement go forward and give the expected benefits to each country.

In conclusion, amid the global uncertainty, it is important to focus on domestic demand while at the same time, ASEAN countries should tap the opportunity to boost trade to make the exports growth back in track.

First, to ensure robust domestic demand, ASEAN countries should manage inflation, controlling the volatility of domestic prices and fixing inefficient logistic particularly in emerging ASEAN countries such as Indonesia, Philippines, and Vietnam. Demography is also an essential part in driving domestic demand. Economies with a particularly negative demographic

outlook such as Thailand should aim to enlarge their labor force and working-age population by adopting more flexible immigration policies or incentives to increase the fertility rate.

Second, ASEAN as a region should take the lead in ensuring the success of the RCEP trade agreement. The fuzzy future of the TPP might reduce the potential trade between ASEAN countries and advanced markets, but it also means that ASEAN should play a more active role in pushing the RCEP into an effective trade agreement which could lead to a revival of global trade, with ASEAN as the leader.

Endnotes

1. World Economic Outlook by IMF, October 2016

2. Indonesia, Malaysia, Philippines, Thailand, and Vietnam

3. Shirin Zahro, Jakarta Post 29 July 2016 edition, “BI rate cut has little impact on economic growth”

4. Chatib Basri, KOMPAS 16 June 2016 edition, “Memacu Pertumbuhan Ekonomi”

5. Asian Development Outlook 20166. Homi Kharas and John McArthur,

Brookings Institute Report Oct 2016, “Can Globalization Be Rescued from Itself? The Global Goals as A Path to Sustainability”

7. Jianmin Jin, Fujitsu Research Institute 2013, “RCEP vs TPP”

Figure 1. Share of World GDP and Share of Emerging Market GDP in PPP (Source: WEO 2016)

Figure 2. Real GDP Growth Trendline (Source: WEO 2016)

Figure 3. Contribution to GDP Growth in 2015

Figure 4. Share to Real GDP of ASEAN-5 in 2015 (Source: CEIC Data)

Figure 5. Real Exports Growth in ASEAN-5 (Source: CEIC Data)

14Issue 18/ December 2016

Every December, the Thinking ASEAN team presents a special round-up section where we report on developments happening in countries across Southeast Asia. This year, we look back at events in Indonesia, Myanmar, the Philippines, Thailand, and Vietnam. We will also try to—gasp—predict what might happen in those countries next year. However, dear readers, we believe it important to highlight one lesson from 2016: The

future is ever elusive!

14Issue 18/ December 2016

A Myanmar ManSource: theculturemap.com

T here are many notable events happening in Indonesia in the past year. Indeed, these events might be the signal that finally show the direction that the

current Jokowi administration and perhaps the nation in general take. Nevertheless in most parts they still leave more questions than answers. It is still too early to tell whether the current administration will prove to be a positive milestone/timestamp for the consolidation of Indonesia’s democracy and the prosperity of its people.

Economically Indonesia still need to sail a turbulent sea. Indonesia, as the biggest economy in Southeast Asia, is not immune to global economic problems such as severe lack of demand, low oil price, weak commodity price, as well as economic uncertainty due to Brexit and the result of the U.S. election.

Moreover, the government also recorded an economic growth of 5.02% in the third quarter of 2016, slightly lower than 5.19% in the previous quarter. This is due to government budget cut, minimum role of private sector’s investment and low performance of exports. Lower commodity price have hit government revenues quite hard since Indonesia’s main export is commodity. Additionally, China as the biggest consumer for Indonesia’s commodity has been decreasing its demand due to the economic slowdown. This, in turn, has disrupted Indonesia’s export performance.

In response to the uncertainty in the

global economy as well as domestic economic challenges, the Government of Indonesia has been implementing two major economic policies throughout the year: the economic stimulus package and the tax amnesty program.

Since September 2015, the government has launched 14 economic packages to boost Indonesia’s economic growth. Each economic package has specific goals which aim to increase Indonesia’s competitiveness and to reduce red tape for investors and businessman.

The launch of the packages has indeed boosted confidence in Indonesia. However, this needs to be followed through with effective implementation, without which economic players will question government’s seriousness with these packages in the near future.

Furthermore, the government also decided to launch the tax amnesty program to collect more tax revenue from Indonesian citizens who have deposited their money abroad in order to help cover the county’s fiscal deficit. Despite the pessimism in the beginning of the implementation, the Indonesian government managed to collect an additional income of Rp 97.7 trillion from the tax amnesty program. Indeed, national media considers the program to be one the most successful tax amnesty in the world today.

However, after the program ends in March 2017, the government still has a lot of homework to encourage people to pay tax and to keep their money in Indonesia. It is

therefore important to retain taxpayers’ confidence by pushing forward the current tax reform program.

Whilst a lot of economic policies have been implemented to sustain economic growth in 2016, the government should give more efforts to further strengthen Indonesia’s economic resilience next year. Particularly to meet the targeted GDP growth at 5.1 percent in a potentially sluggish 2017.

There are a number of things to be considered to meet this target. From the internal factor, the government will still face limited fiscal stimulus. While externally Indonesia will still face several risks such as the aforementioned low commodity prices, the economic slowdown in China, and the economic uncertainty in most of developed countries.

Therefore, it is important for the government to improve the quality of fiscal management and to further implement the economic stimulus packages in facing the economic uncertainty in 2017. While the Indonesia government should continue to maintain positive economic growth and build infrastructures across the archipelago, it is also important for them to prioritize poverty reduction rate and to narrow the income inequality gap. Indeed, economic development should walk in hand with social and economic justice.

Politically, the situation is just as challenging. One important development is that Jokowi has been able to further consolidate his power in 2016. In his first year as a president, Jokowi’s rule is constrained by the power play between political elites that surrounded him. This includes his political backers such as Megawati Soekarnoputri from his own Indonesia Democratic Party of Struggle (PDI-P), Surya Paloh from the National Democratic Party (Nasdem), as well as people in his own cabinet such as Vice President Jusuf Kalla. At the same time, he also had to face opposition in the parliament from major political parties such as Golkar, Gerindra, and PKS.

This power play has made his first year a difficult one. However, as he became more familiar with his role and authority as a president, Jokowi also became more confident in exerting his authority. One of the signs of this development is his recent appointment of Tito Karnavian as the new Police Chief. Tito, a rising star in the police corps and a PhD holder, was not initially considered as a major contender. After all there were other candidates who are

IndonesiaRoundup

Fina Astriana is a Researcher at The Habibie Center’s ASEAN Studies Program

Wirya Adiwena is the Head of International Relations and a Researcher at the ASEAN Studies Progam

16Issue 18/ December 2016

more senior and with closer ties in political parties—the usual suspects for Police Chief. Jokowi’s trust in Tito is therefore a sign of not only his rising confidence but also his ability to maneuver the power play to appoint someone whom he considers capable in a very important position. This can mean that Jokowi will be more confident and effective in implementing his visions.

This does not come without a price. In order to consolidate his power, Jokowi has to walk back from his presidential campaign promise of a slim coalition. The latest reshuffle—second one in two years—made the coalition more bloated by inviting Golkar into the fray, the latest addition after PPP and PAN joined the coalition last year. The former opposition party received the cushy position of Minister of Industry on the new cabinet setup.

It also does not help that he appointed Wiranto, a prominent general during New Order turned into Hanura party chief, as Coordinating Minister of Politics, Law and Human Rights. This puts into question his seriousness in implementing another campaign promise: to address past violations of human rights, including those orchestrated by the New Order.

This move mirrors the way the previous SBY administration governed: by consolidating power through large coalition building. It should be noted that SBY was often criticized for this political choice as it constrained his ability to make and implement policy effectively. The high

number of political parties inside the administration proved to be a challenge since not all of the parties were disciplined in following government’s policy line. While the same might not happen to Jokowi as it is also relative to other factors such as personal leadership style, this still sends a troubling signal for Indonesia’s democracy. Such political play, it would seem, is the rule of the game in Indonesia.

Finally, the year 2017 will see the next step of democratic consolidation in Indonesia. Simultaneous local elections will be held in 101 provinces and districts including in Jakarta. Local elections are gradually becoming a platform for new leaders to emerge from across the country. However, while previous elections have been largely succesful, not all have been truly peaceful.

The 2014 general election is an important case study as according to The Habibie Center National Violence Monitoring System’s data there are 162 incidents of violence that occured during the legislative election around the country. Additionaly, it is important to highlight that Aceh—which will hold its local elections at provincial and district level in 2017—holds the highest number of cases: 87 incidents resulted in 5 deaths, 31 injured, and 31 loss of infrastructures.

Furthermore, the run-up to the Jakarta gubernatorial election has also showcased that some regions are more equal than others when it comes to election. The governor seat in Jakarta has attracted the attention of former Minister of Education and 2014 presidential hopeful Anies

Baswedan, and the son of President SBY, Agus Yudhoyono. In addition to the popular incumbent Basuki Tjahja Purnama, the star-studded race to become Governor of Jakarta has been dubbed as a mock-up of the next presidential election, further highlighting the importance of the capital city to national politics.

This setting has attracted widespread attention, not only from the political elites but also from among the grassroots. Two major protests have erupted in the capital city in the span of a month—November 4 and December 2—both comprising of grassroot conservative Muslim organizations and communities. The protests were both set against the incumbent governor over an alleged blasphemy toward Islam. While the incumbent continues to run for candidacy, he is now also a suspect in a blasphemy case.

In short, a lot has happened over the course of 2016: economic development is moving forward domestically amidst unfriendly global environment, while politics still runs like business as usual. At the same time it should be noted that there are a number of wild cards that merit further consideration, such as the increasingly more prominent religious conservatism. However, ceteris paribus, 2017 will not be too different than the current year. This might not necessarily be a good thing for the ongoing project of democratization in Indonesia. After all, stability can stand too close to stagnation.

F or the first time since 1962, Myanmar is finally led by an elected civilian government when the National League for Democracy (NLD)

officially took over the administration on 30 March 2016. The NLD, led by Aung San Suu Kyi, won the national election in November 2015, acquiring 80 percent of contested seats. The party promised to bring prosperity and transform the politics and economy of Myanmar after decades of control by the army.

Up until now, the constitution no longer blocks democratization process and the consolidation of power between the NLD and the army went rather smoothly. The NLD has gained the majority seats in Myanmar’s bicameral parliamentary system and formally secured de facto control over the government. The party has chosen Htin Kyaw, a politician and scholar who is also Suu Kyi’s loyal aide, as the new president. Prohibited by the constitution to become president, Suu Kyi made a statement that she would control the president as the state counselor and make all the decisions as the leader of the winning party. At the same time, she also serves as the foreign minister of the country. While the arrangement is quite unique, Suu Kyi’s new position is not exactly a violation to the constitution as there is no regulation that prohibits her from assuming an unknown position.

The army, on the other hand, still has considerable political power protected by the constitution. It still controls three key national security posts, namely the

ministries of defense, home affairs and border affairs. The army also has the privilege to choose unelected legislators to fill in 25 percent of parliamentary seats, thus securing a veto over constitutional changes. Although this is not exactly a perfect coalition, politically, this is a good settlement to maintain the stability of Myanmar’s democratization process. If Suu Kyi continues to push her way to become the president and amend the constitution to get rid of the army control, she will risk another political turmoil and blocked the transition of power because the army will oppose any change to the constitution. Going forward, it is important for the country to maintain the stable consolidation between the civilian government and the army.

Economically, the country has renewed its commitment to liberalize its trade and investment regimes. Although the transition process has impacted negatively general economic growth in 2016, there has been a positive outlook for Myanmar’s economic potential. The World Bank projected that Myanmar will have an average of 8 percent economic growth per year when liberalization programs are effectively implemented.

Furthermore, in October 2016 Suu Kyi announced a detailed economic plan that covers 12 key points, which include supporting private sectors involvement, strengthening the public financial management, promoting infrastructure development, welcoming foreign direct investment, developing skilled workforce, and restructuring state-owned enterprises

by privatization. For investment, the government has planned to prioritize the development of technology in the agricultural sector. Other than that, they are also committed to modernize the financial market and invite more investment in health care and new infrastructure projects. There will also be built-in incentives for businesses, such as tax havens and tax reductions, in some key sectors under the new investment law. The exact rules and regulations for Myanmar’s new investment law will be released by March 2017.

Myanmar’s positive economic outlook is also indicated by its re-engagement with international economic institutions, as economic sanctions from the United States (US) and other international actors are gradually lifted from the country. On October 2016, the Obama administration signed an executive order that effectively revokes all of its economic and financial sanctions for Myanmar. President Obama has intended that the US will support the new Myanmar government in their process of democratization and economic liberalization. Unfortunately, it is currently unclear whether the President-elect Donald Trump will follow this intention through, or seek another course of foreign policy in regard to Myanmar.

Nevertheless, Myanmar can still expect a positive support from international community. Until 2016 Myanmar is the largest official development assistance (ODA) recipient among ASEAN countries. There is also significant increase in foreign exchange earnings from tourism and foreign direct investment flow into the country. At the same time, Myanmar is expanding its export of manufactured goods by further integrating itself into the global value chain, mainly in clothing or apparel industry. Challenges remain for the new government to improve infrastructure, increase the quality of labor’s skill and productivity, as well as create a more favorable business environment.

Despite the overall optimism on political and economic progress, Myanmar’s commitment to solve the problem of domestic ethnic conflicts and Rohingya crisis is still questionable. Suu Kyi has urged the ethnic groups to sign the Nationwide Ceasefire Agreement (NCA) and initiated the 21st Century Panglong Conference, which will be held again in February 2017. However, the initiative lacks the ethnic armed groups’ representation and there has been a growing concern from the ethnic minorities whether the substance

MyanmarRoundup

Hana Hanifah is a Researcher at The Habibie Center’s ASEAN Studies Program

18Issue 18/ December 2016

of the new proposal will accommodate their interests. The ongoing ethnic conflicts in the country, such as the conflicts in Shan State and Kachin State involving the Kachin Independence Army (KIA), Ta’ang National Liberation Army (TNLA), and the Myanmar National Democratic Alliance Army (MNDAA), further complicates the national reconciliation efforts.

Moreover, the volatile condition in Rakhine state posses another threat to political and social stability. There was tension between the national government and the regional Rakhine state government over the status of the Rohingya Muslim minority. On one side, Suu Kyi has made a statement to avoid the term “Bengali” and “Rohingya,” which she described as emotive terms. On the other side, the Rakhine state government was against the national government decision to describe the Rohingya as the “Muslim community in Rakhine State.” This opposition was supported by the Buddhist nationalist group who prefers to use the term “Bengali” because they believe that the Rohingyas are intruders from Bangladesh.

The controversy and the growing anti-Muslim sentiment triggered protest

and violent reaction from the Buddhist nationalists, including the monks. On the other hand, the Rohingya minority group was reported to commit a series of violent attacks on the police posts near Maungdaw on October 9, 2016. Nine police officers were dead because of the attacks. According to police report, the attackers shouted that they were Rohingyas, and the Rakhine state government official has blamed The Rohingya Solidary Organisation (RSO), a small militant group that was active in the 1980s and 1990s. The attack was followed by the Rakhine village burning incident in November 2016. A United Nations (UN) official made a statement after the Rakhine village burning incident that Myanmar has committed ethnic cleansing of Rohingya Muslims as confessions of torture, murder and rape emerged from the displaced minority. The escalating violence between October and November has caused more than 100 deaths and displaced about 30,000 Rohingya Muslims, who have been migrating to Bangladesh.

Although the Nobel Peace Prize Winner Aung San Suu Kyi has formed the Rakhine State Advisory Commission to advance the peace process in Rakhine state, and

even appointed the former UN chief Kofi Annan to head the Commission, the compromise between the Muslim community and the Buddhist community to solve the conflict is nowhere to be found. The main controversy is the issue of citizenship status and the treatment of the Muslim community in Rakhine. Meanwhile it is hard for Suu Kyi to advance the peace process in Rakhine state because she is not in the position to control the security of the country as it is still under the army command.

Going forward, Myanmar’s positive economic potential will depend on the political and social stability in the country. The new administration will be tested to find a right balance between maintaining order and advancing modernization as well as democratization. With the new civilian-led administration in control, generally the global community has remained cautiously optimistic towards Myanmar’s ongoing transformation.

The new administration will be tested to find a right balance between maintaining order and advancing modernization as well as democratization. With the new

civilian-led administration in control, generally the global community has

remained cautiously optimistic towards Myanmar’s ongoing transformation.

PhilippinesRoundup

T he election of the Philippines’ new president, Rodrigo “Digong” Duterte has brought the country to the world’s scrutiny in 2016.

Dubbed by his rivals as an executioner who would bring terror to the Philippines, Duterte managed to win the heart of the Filipinos through his tough stance on eradicating criminals and corrupt officials. As a mayor for two decades in the southern city of Davao, he is known as being tough on criminials, approving the murder of hundreds of alleged criminals by the so-called Davao Death Squad.

Duterte was sworn in as a president late June under the platform of endorsing the anti-drug campaign as his major policy. Under this policy he gave approval to citizens to execute the drug dealers themselves and supports the police to do so as well. Within the past six months of his administration, Duterte’s war on drugs policy has left more than 3,600 alleged drug criminals shot dead on the streets, two-thirds of which murdered by unknown assailants. He justified this act by affirming that this harsh and punitive approach to drug use will bring a deterrent effect and reduce the crime rate. However, there are no conclusive evidence that this initiative has succeeded. Meanwhile the intensification of this extra-judicial killing of alleged drug criminals by Duterte’s administration has brought severe consequences to the safeguarding and promotion of human rights.

Local and international human rights activists have been alarmed with Duterte’s

policy, calling his action as a disregard to human rights, as the death roll continues to increase. There were also protesting voices coming from The United Nations, United States, and European Union, but Duterte remains unshaken. In a very controversial statement, he stated that he does not care about human rights because he believes that the ‘enemies’ are out there to destroy the next generation of the Philippines.

Despite his controversial approach to dealing with criminals and the issue of human rights, experts saw Duterte’s election as an uprising towards the Philippine’s current political dynasty which represents a handful of group controlling the majority of the country’s wealth. With 25 percent of the population lives under the poverty line, it comes to no surprise that Duterte’s promise to fight crime, militancy and corruption has appealed to the Filipinos.

The rise of Duterte has also led to a seemingly drastic change in the Philippines’ foreign policy direction. In a series of diplomatic maneuver, Duterte shifts his country’s long-time alliance with the U.S. by cultivating closer relations with the two major contending great powers in the region, Russia and China, leaving the region with even more uncertainty about the prospect of regional stability.

In September, answering to a media reporter’s question on how he would respond should Obama ask him about the harsh anti-drugs efforts, Duterte called the U.S. president “a son of a whore.” Obama

responded by canceling the scheduled meeting between the two on the sideline of ASEAN Summit in Laos, calling that the situation was no longer conducive for constructive and productive conversations. When he visited Beijing the next month, Duterte announced his “separation” with the U.S., although the statement was later softened down by Duterte himself and his aides. Furthermore, Duterte had also spoken with US President-elect Donald Trump, who according to Duterte invited him to the White House and praised his war on drugs program.

Duterte’s flip-flopping relations with the U.S. is welcomed by China and Russia. President Xi Jinping called his meeting with Duterte on October as a “milestone” in the two countries’ relation. The two leaders signed some 13 bilateral deals including on trade, investment, tourism, crime and drug prohibition. In addition to China, Duterte also seeks to foster closer relations with Russia, a move that would benefit Moscow a lot as it is trying to expand its footprints in the region most probably at the expense of the U.S.. Duterte once expressed his desire to see the two countries to be “best of friends” and suggested that he would turn to Moscow for much-needed weapons deal amidst the possibility of arms blockade by the U.S.

Duterte’s realignment with Beijing has also added up more complexity to the issue of South China Sea. On July, international tribunal proceedings that started by Duterte’s predecessor issued its verdict that ruled China’s claims in the disputed waters illegal in what was initially seen as a total diplomatic defeat of China. Progress notwithstanding, particularly with regard to the negotiation on the important Code of Conduct document, many see that Duterte has failed to take up the momentum to reach some favorable settlement in the South China Sea, irritating some of his fellow ASEAN leaders. Duterte, after all, seems to have reached a consensus with Beijing that the issue of South China Sea would “take the back seat” while the two countries are cooperating in the broader strategic and economic realms.

Many are still uncertain and need to be anticipated with regard to Duterte’s foreign policy and its impact on the region particularly as the Philippines will take up the chairmanship of ASEAN in 2017 and hence will very much guide the agenda of the association for next year.

Askabea Fadhilla is a Researcher at The Habibie Center’s ASEAN Studies Program.

Muhamad Arif is a Researcher at The Habibie Center’s ASEAN Studies Program.

20Issue 18/ December 2016

ThailandRoundup

T he passing of Thailand’s revered monarch, King Bhumibol Adulyadej on October 13, 2016 marks the end of a historic chapter for

the kingdom and threatens to plunge the second largest economy in Southeast Asia into a period of uncertainty. During his 70-year rule – in which 30 different prime ministers served under him – the late King was regarded as a stabilizing figure whose occasional political interventions helped unite polarizing groups torn apart by military coups and popular protests. While the power and role of the Thai monarch is largely ceremonial, the late King had earned an almost semi-divine status among Thais and his death has seen thousands of black-clad mourners visit the Grand Palace in the capital Bangkok to pay their respects on a daily basis. Indeed a one-year period of mourning has been declared by the Government with even Bangkok’s infamous nightlife ‘toning down’ their activities out of respect.

Attention has now turned to the late King’s only male heir, who on December 1, 2016 was proclaimed His Majesty King Maha Vajiralongkorn Bodindradebayavarangkun. While the official coronation for the new King Rama X of the Chakri dynasty will not take place until after the royal cremation – scheduled to take place some time in 2017 – the Government has already announced that the process laid out in the Palace Rule on Royal Succession 1924 has been completed. This includes the convening of a special session of the National Legislative Assembly to formally invite the then-Crown Prince to ascend

the throne, which he has since accepted.

It should be noted however that there remain serious misgivings about whether the new King can command the same level of respect and authority. Strict lese majeste laws – designed to protect the monarch, the queen, and the heir apparent from defamation, insults and threats – severely restrict any discussion on issues pertaining to the Royal Family.

Indeed the past year has seen a huge spike in lese majeste prosecutions. Amnesty International’s 2015/2016 Report stated that, “The judicial process for such offences was marked by secrecy, closed trials and denial of the right to bail. Military courts handed down more and longer sentences than in previous years, including up to 60 years’ imprisonment.’ Since the death of the late King, the police have stepped up their campaign against lese majeste offenders with approximately 300 social media pages and 700 posts under investigation for containing ‘sensitive content.”

Nevertheless, it is openly known that the new King leads an eccentric, erratic, if not controversial life. Thrice-divorced, Vajiralongkorn has disowned his children from his first two marriages, and has denied his third wife from access to their son, the current next in line to the throne. Recent photographs released earlier this year by a German newspaper of Vajiralongkorn wearing a female tank top that revealed his upper body covered in temporary tattoos have only raised further question marks about his suitability to the throne. Indeed

in 2010, Wikileaks disclosed classified US diplomatic cables in which Thai officials expressed their preference for the then-Crown Prince’s sister, Princess Maha Chakri Sirindhorn as successor.

Vajiralongkorn had surprised many by not immediately succeeding the late King, instead requesting for time to mourn his father’s passing. As such, an earlier special session of the National Legislative Assembly that was held soon after the late King’s passing and aimed at formally inviting Vajiralongkorn to ascend the throne, instead observed nine minutes of silence. During the vacuum, the president of the Privy Council, General Prem Tinsulanonda had been appointed as Regent.

One consequence of this delay in the royal succession was the question marks it had raised on the impact on Thailand’s new constitution which, following its approval by the public via a national referendum, now requires a royal signature to be promulgated. While the signature of the Regent would have been sufficient to continue Thailand’s return to democracy and hold general elections in 2017, the Government had indicated its preference for Vajiralongkorn’s signature in order to enhance the constitution’s legitimacy. It remains to be seen how soon the new King will attach his signature to the aforementioned constitution.

Regarding the referendum itself, on August 7, 61 percent of those who voted in Thailand’s referendum approved a new constitution — the kingdom’s 20th version — which critics argue strengthens the military’s grip on power at the expense of Thailand’s parliamentary democratic system. While the referendum passed off peacefully, with major political leaders accepting the public’s verdict, it should be noted that voter turnout was low at only 59 percent. Given that the military-dominated Government had targeted an 80 percent turnout, the numbers suggest that the majority of Thailand’s 50 million registered voters were against the new constitution and either actively expressed their opposition by voting “no” at the ballot box or indirectly by shunning the referendum. Certainly opportunities to express opposition to the draft constitution had been severely restricted in the run up to the referendum. Activists openly campaigning for a “no” vote had been detained by the authorities for violating the Referendum Act and face punishments of up to 10 years in prison.

In terms of the economy, even prior to

A. Ibrahim Almuttaqi is the Head of the ASEAN Studies Program at The Habibie Center

the late King’s passing the country has been struggling. Economic growth has stagnated since the military took over power in 2014 and in the days before the late King’s death, the Thai baht and stock market plunged in value. While these have since recovered, there are concerns that the mourning period will affect consumer spending and tourist arrivals in a country where the tourism industry contributes 10 percent of Thailand’s GDP. In order to stimulate the weak economy, the Government has announce a one-off cash handout to low-income people. Some 5.8 million people are expected to receive THB1,500 – 3,000 in handouts, while rice farmers are expected to benefit from a US$1.5 billion government subsidy scheme that critics accuse is no different to a scheme introduced by the ousted Yingluck Shinawatra government. Ironically, former Prime Minister Yingluck is facing corruption charges for her rice subsidy scheme which the Government alleges incurred state losses of US$18 billion. If found guilty, Yingluck faces up to a decade in jail.

Even so, Shinawatra’s remain hugely popular especially among the poor rural communities outside of Bangkok, to the north and northeast of the country. Political parties linked to the Shinawatra’s have won every general elections since 2001 and there is little to suggest that it would not win the next one if and when it is held in 2017.

If there is any certainty about Thailand in 2017, it is that the country faces an uncertain period. Uncertain because of question marks surrounding Vajiralongkorn’s first year as King Rama X. Uncertain because of the questions marks surrounding the general elections; if it will be held, when will it be held, and will a victory for a Shinawatra-linked party be accepted by the military. Uncertain because of the outcome of the corruption charges against Yingluck; will it help reconciliation between the Red Shirts and Yellow Shirts of the country or open new wounds?

Buddha Watching Over The City SunsetSource: goodfreephotos.com

22Issue 18/ December 2016

VietnamRoundup

I n April this year, the 12th Party Congress of the Socialist Republic of Vietnam elected its new Politburo of the Communist Party with what counts as high drama in

the usually drama-free Vietnamese political life. The main characters of the political battle were the conservative General Secretary Nguyen Phu Trong and the reform-minded Prime Minister Nguyen Than Dung. In the end, Mr. Trong won the battle and kept his seat as the most powerful man in Vietnam while Mr. Dung retired from his position. Yet, unlike what many were expecting, the new politburo has many fresh faces and does not seem to be bent on conservative dogma; if anything, the new politburo has shown pragmatism and an openness to trying new tactics, especially regarding economic policy, administrative reform, and fighting corruption.

Concerning economic growth, Vietnam has been an outperformer in the region, with GDP growth on track to meet the official target of 6.7 percent. This year’s performance is lower than the recent peak of 7 percent growth in 2015, but was caused by droughts that affected agricultural production in the early part of the year and a sluggish mining sector, due to the fall of commodity prices worldwide. Although those two sectors have somewhat dampened GDP growth, the momentum of economic development has been sustained by the steady growth of Foreign Direct Investment (FDI), manufacturing (the exports of which has only recently been opened), and a high demand for credit.

Since the doi moi reformation policies were enacted in the mid-1980s and their inclusion into the World Trade Organization (WTO), Vietnam has consistently clocked in enviable levels of growth, beaten only by their giant neighbor to the north: China. Yet, even though China’s own economic performance has slowed down after the Global Financial Crisis of 2008, Vietnam’s own performance has been quite stable. In fact, as China economy continues to develop and see their wages increase, investors are now considering Vietnam as the latest darling of relatively productive but still cheap laborers in which to invest. As a result, the growth of the middle class in Vietnam during the past sixteen years has been the quickest in the post-crisis world.

Yet, although it is true that Vietnam’s income per capita has exploded twenty-fold since the early 1980’s and in doing so cut their official poverty rates from half the population to a respectable 13 percent, there are still many problems facing the Vietnamese economy. Of the 87 percent of the population not categorized as ‘poor’, around half of them are ‘near poor’, and are thus particularly vulnerable if any adverse shocks were to hit them. The IMF has already warned that the drop of commodity prices and the risk of even slower growth in China can prove to be more dangerous than it may seem, as Vietnam is heavily dependent on trade (especially knowing that China is their largest trading partner). Moreover, as the US President-elect Donald Trump has vowed to drop the Trans-Pacific Partnership (TPP) agreement when he is inaugurated in early 2017, Vietnam -which

was poised to receive a large benefit from the TPP- must now accept that they will not be able to add an additional 11 percent to their GDP in the next ten years. Although some economists do not think that the all but certain death of TPP will affect Vietnam’s growth prospect by very much (they still have a Vietnam-EU trade agreement and another one with the ASEAN+6 to look forward to), for those who also care for things other than GDP, this is still disheartening. The carrot that was unfettered access to the world’s largest economy is gone, and thus the incentive to strengthen labor and environmental regulations that would have to have been enforced with the TPP is lost as well. On a side note, this does not mean that Vietnam’s relationship with the US has worsened (the demise of TPP will very much be a unilateral decision by the President-elect Trump for reasons as yet unfathomable); if anything, President Obama’s recent trip to Vietnam marked a turning point in the US-Vietnam relationship, accentuated by the US’s recent lifting of the trade of arms with Vietnam.

In addition, as there are increasingly stronger signals that America will further tighten their monetary policy in the near future, the risk of capital flight adds to the already sizeable uncertainty facing the economy. This is why the IMF has urged Vietnam to start reforming their banking sector into a better capitalized one with healthier assets so as to be able to fuel the economy if and when FDI and exports could not be relied upon to do so. If that weren’t enough, Vietnam’s level of public debt is around 62.5 percent of GDP even though they have set a legal limit of 65 percent. Although there is little economic sense in imposing such a limit, the government seems to agree with the IMF’s recommendation that fiscal consolidation must be done in order to put public debt on a downward path (That being said, this is the IMF’s recommendation to the malaise, real or imagined, of any country to which it gives advice, solicited or otherwise).

If that was still insufficient, the demography of Vietnam adds even more worry to the country’s development prospects. Although Vietnam currently has only around 6.5 million people above the age of 65, that group is expected to triple in number before 2040. Vietnam’s somewhat lopsided demographic structure means that it will have to deal with the later stages of a demographic transition that many other countries usually have to

Agustha Lumban Tobing is a researcher at The Habibie Center’s ASEAN Studies Program

face during the later stages of economic development. The rapidly aging society of Vietnam means that they will have to deal with even more pressure on their fiscal position as there will be proportionally more elderly people which the working age population will have to sustain.

The problems described above are difficult, but not insurmountable. But it does mean that the Communist Party and the new government must -at the same time- take great care to acknowledge all the intricately interconnected issues but also be brave in creating and implementing the policies to tackle it.

Ha Long Bay, VietnamSource: Wikimedia Commons

24Issue 18/ December 2016

AEC,The Story So Far...

I t has been a year since the ASEAN Economic Community (AEC) started. Talks of ASEAN’s economic potential continue to go abuzz not only in ASEAN member states but also in their dialogue

partners and other stakeholders. However, the question is whether progress has been made since the AEC came into force, or whether the AEC still faces the same problems, particularly bureaucratic bottlenecks and stuttering progress. Source: ASEAN Economy Chartbook 2016, ASEAN Secretariat

The still simmering effects of the Lesser Depression on the developed world and China are partly the reason why ASEAN GDP growth rates have generally fallen since the 2007 peak. A 7% level of growth means income doubles in ten years, a 5% level of growth means income doubles in fourteen years.

INFOGRAPHIC

ASEAN Economy: Annual GDP Growth

Southeast Asia Global Corruption LeaderNote: ASEAN-6 = Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, Thailand; CLMV = Cambodia, Lao PDR, Myanmar, Viet Nam.

WANT TO KNOW MORE ABOUT ASEAN?VISIT THCASEAN.ORG

ASEAN trade figures do not look encouraging. Trade in Europe did not increase much when the European Economic Community (EEC) was put in place; it does not seem likely that the AEC’s mercurial implementation will result in an upwards kink of the graphs above.

The figure suggests that investors from the developed world have been fickle about their feelings toward ASEAN. Note the sudden drops during the QE taper tantrum, the Greek Bailout Tragedy, and the fits and starts of Abenomics.

On a more exciting note, internet subscribers have leapt. Curiously, Indonesia netizens still account for less than 25% of the population, way behind Vietnam’s 52.7%, possibly because of a lack of internet infrastructure and penetration. Perhaps it’s time for ASEAN citizens to fight for their basic and unalienable rights for free Wi-Fi.

ASEAN Trade in Goods

Net Inflows of FDI in ASEAN

Internet Subscribers in ASEAN

Note: For 2012-2013, Lao PDR’s data on ‘by source country’ are not yet available; intra-/extra-ASEAN breakdowns for 2012-2013 were estimated by the ASEAN Secretariat

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