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Economy

ASEAN 'crisis like no other' shifts focus from COVID to economy

Q2 contractions and rising fiscal pressure spur reopenings and trade initiatives

A clerk tends to a customer in Manila: The Philippines is among the Southeast Asian countries pushing to revive economic activity despite a persistent virus threat.   © Reuters

SINGAPORE -- Southeast Asian countries are rushing to pick up the pieces after recording their worst economic performances in decades in the second quarter of 2020. While some continue to log alarming numbers of COVID-19 infections, they are now looking to balance virus containment with economic revivals and trade initiatives, as massive stimulus measures stretch government finances.

Southeast Asia was one of the world's fastest-growing regions before the pandemic, with the economy expanding about 5% every year. But strict lockdowns and border closures quickly choked private consumption, public investment and tourism receipts, resulting in deep contractions.

Malaysia's gross domestic product shrank 17.1% on the year in the April-June quarter, while the Philippines declined 16.5%, Singapore fell 13.2% and Thailand dropped 12.2% -- the worst results in more than 20 years. Indonesia also recorded its worst figure since 1999, with a 5.3% contraction, while Vietnam managed a marginal 0.4% increase, far below the 7% growth clip seen before the crisis.

These numbers put Southeast Asian countries in between other major economies. They fared worse than China, which grew 3.2%. They came in behind the 9.5% contraction for the U.S. and 9.9% decline for Japan as well. But they performed better than France's 19% fall and the U.K.'s 21.7% plunge.

Yet, the Southeast Asian bloc's sense of crisis may be greater. For years, these countries had counted on the fruits of globalization -- investment inflows and inbound tourists. And in many cases, their governments' financial health is relatively weak.

"ASEAN is indeed in a crisis like no other," Lim Jock Hoi, secretary-general of the Association of Southeast Asian Nations, said on Thursday during an online event arranged by the ASEAN-Japan Center, a Tokyo-based organization.

The immediate virus threat differs from country to country. Indonesia and the Philippines continue to report thousands of cases a day. Vietnam was one of the pandemic's success stories but has been grappling with a sudden wave since last month. Malaysia, which was once logging well over 100 cases per day, has been holding its daily count to single or low-double digits.

"The worst is behind us," Malaysia's central bank governor, Nor Shamsiah Yunus, said on Aug. 14.

But no matter what stage they are at pandemic-wise, ASEAN countries are pushing to restart at least some economic activity. Most have eased their lockdowns, including the Philippines, which relaxed measures in Manila and nearby provinces on Wednesday. Thailand, which appears to have almost contained the virus, is promoting domestic tourism.

Borders are gradually reopening, too. Singapore and Malaysia on Monday launched a pair of reciprocal border-crossing programs for workers and essential business, aiming to boost their interdependent economies. A handful of other "green lanes" have been set up between key partners -- such as Singapore and China, or Indonesia and South Korea -- allowing business travel with restrictions.

The feeling in the region is that something has to give. ASEAN states have tried to sustain their economies with stimulus packages worth up to 20% of GDP, while prioritizing lockdowns and other efforts to stop COVID-19. But these huge public expenditures cannot go on for long. Major rating agencies have already downgraded the outlooks for some Southeast Asian nations since the pandemic began.

ASEAN countries "were having a really strong macro stimulus, a strong macro expenditure. So I think macro fundamentals could become unstable anytime," warned Fukunari Kimura, a professor at Japan's Keio University and chief economist at the Jakarta-based Economic Research Institute for ASEAN and East Asia.

"We really have to be careful."

Experts say that forging economic partnerships will be vital for the region's regrowth over the long term. One focus is the Regional Comprehensive Economic Partnership, or RCEP -- a proposed free trade pact that would encompass the 10 ASEAN countries, China, Japan, South Korea, India, Australia and New Zealand.

Cranes at a port in Jakarta: Hopes are rising for ambitious free trade frameworks that could help resuscitate economies.   © Reuters

Ministers from the RCEP participants will be meeting next week to advance the talks, after a series of ASEAN economic ministers and related meetings scheduled for Saturday to Wednesday. "We expect the RCEP will be signed by the end of this year [and] hope for its early entry into force, which will be a boon to business and investors' confidence in the much-needed time for recovering," said ASEAN Secretary-General Lim. However, the involvement of a major player -- India -- is in doubt as New Delhi is reluctant to open up to foreign agricultural products that would compete with its own farm sector.

Meanwhile, Thailand had been keen to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership -- the revamped 11-member TPP, sans the U.S. Brunei, Malaysia, Singapore and Vietnam are already on board. But after pro-TPP ministers left the Thai cabinet in a July reshuffle, and as farmers continue to voice their opposition, the prospects for Bangkok joining are hazy.

On the other hand, Singapore earlier this month signed a digital economy pact with Australia, agreeing to work together on developing artificial intelligence as well as promoting online consumer protection. The idea is to help businesses better capture growth opportunities in the promising digital space in the post-pandemic era.

Exactly what that era will bring is still far from clear. Looming over ASEAN are the escalating tensions between two of the bloc's biggest economic partners, the U.S. and China. The friction could influence how, and how quickly, Southeast Asia recovers.

China's emergence from the pandemic earlier than the rest of the world could lead to ASEAN countries becoming more reliant on exports to and investment from their large neighbor. The U.S. presidential election in November, though, could also change the geopolitical landscape.

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