The Debate on the Ba‘Alawi Lineage in Indonesia: Highlighting Weaknesses in the Genealogical Records by Ahmad Muhajir and Afra Alatas
Managing China-Singapore Relations Amid US-China Rivalry by Ma Bo
2023/101 “Reviewing China’s Elite-Centric Approach in its Relations with Cambodia” by Chhay Lim
EXECUTIVE SUMMARY
- In engaging Cambodia, China puts a strong emphasis on fostering ties with the ruling elites of the Cambodian People’s Party (CPP) and backs their regime legitimacy while having limited interactions with grassroots communities or the local population.
- This elite-centric approach is manifested in Beijing’s efforts to forge political trust and to support the CPP’s political and economic development goals. Its financing focus is on hard infrastructure instead of basic social needs and human development, and its diplomacy targets government institutions and CPP youth leagues.
- This elite-centric approach has incentivised the Cambodian government to support China’s foreign policy agendas, promote China’s discourse power and embrace China’s new concepts/initiatives on global governance.
- However, this approach has yet to generate the same level of favourability and trust towards China among the general population in Cambodia. Establishing credibility and trust among local communities is crucial for China to project its soft power and foster a more meaningful and enduring relationship with Cambodia.
* Chhay Lim is currently a Japanese Government-MEXT’s Master Scholar at Graduate School of International Relations at Ritsumeikan University in Japan.
ISEAS Perspective 2023/101, 22 December 2023
INTRODUCTION
This year, China and Cambodia celebrate the 65th anniversary of their bilateral diplomatic relations, something acclaimed by both sides as an “ironclad friendship”. China-Cambodia ties are built upon deep political trust between their leadership and a strong convergence of geopolitical and economic interests. China exerts predominant influence in the Cambodian economy via trade, foreign direct investment (FDI), official development aid (ODA) and infrastructure financing. Apart from inter-governmental coordination, the Cambodia-China relationship is undergirded by the close ties that exist between the Chinese Communist Party (CCP) and the ruling Cambodian People’s Party (CPP).[1]
China has adopted an elite-centric approach that invests heavily in abetting the regime security and bolstering the legitimacy of the CPP-led government through aid, investment and finance, and rendering political support to the CPP in the face of Western criticisms. In return, the Cambodian government has supported China’s key foreign policy agendas and embraced China’s concepts and initiatives on global governance. This Perspective examines how China’s elite-centric approach in its relations with Cambodia is prominent in three aspects: (i) forging political trust and bolstering the CPP’s legitimacy; (ii) prioritising hard infrastructure over soft infrastructure; and (iii) elite-focused youth engagement. The article argues that the elite-centric approach has helped Beijing advance its strategic interests with Phnom Penh, but its neglect of meaningful engagement at the grassroots level has dented its credibility among ordinary Cambodians.
STRONG TIES AMONG LEADERS
Forging political trust and bolstering the CPP’s legitimacy
China’s elite-centric approach in its diplomacy is characterised by heavy investment in cultivating good ties with the ruling elites of foreign countries while having limited emphasis on engaging grassroots stakeholders. Arguably embedded in China’s statist political system and political economy, the elite-centric focus is a longstanding tradition in China’s foreign relations, not least with Cambodia. The Chinese side often recalls the deep friendship between China’s elder-generation leaders, i.e., Mao Zedong and Zhou Enlai, with Cambodia’s King Father Norodom Sihanouk, who called China his “second home”.[2]
Today, cementing political trust with the CCP-led government is the top priority in China’s engagement with Cambodia. Of note, since Xi Jinping became President, the party has been at the frontline of China’s foreign policy apparatus, and CCP bodies which are in charge of external affairs have been empowered. These include the International Liaison Department (ILD), the Propaganda Department and the United Front Work Department (UFWD).[3] Party-to-party diplomacy has accordingly assumed greater prominence in China’s foreign policy, with the ILD actively fostering ties with politically like-minded nations such as Cambodia, Vietnam, and Laos.[4] Party-to-party channels have been instrumental in facilitating China’s engagement with the political elites of these countries and nurturing personal rapport and mutual trust.[5]
Cambodia-China ties feature a high level of reciprocated political support. By cultivating ties with the Cambodian ruling elites, lending support to their regime legitimacy and emphasising the principle of non-interference, China has tapped on their shared grudges against the West’s liberal democracy agenda. The US and Western countries have often expressed their concerns over Cambodia’s democratic backsliding in the past decade. Washington described the 2023 elections in Cambodia with the CPP’s landslide victory as “neither free nor fair” and even imposed visa restrictions on some individuals and suspended certain foreign assistance programmes.[6] In contrast, China promptly conveyed its congratulatory message in which Xi praised “the correct leadership of the royal government of the country headed by CPP President Hun Sen”, and pledged China’s continued support for Cambodia “in pursuing a development path suited to its national conditions.”[7] In return, Hun Sen conveyed that the incoming government would maintain its existing foreign policy stance towards China.[8]
Cambodia and China have the most frequent high-level visit exchanges, compared to other Southeast Asian states. Between 2014 and 2019, there were 24 high-level visits of the CCP’s leaders and the Chinese cabinet members to Cambodia. During the same period, there were 26 visits to China by Cambodian government leaders and royal family members.[9] Notably, Hun Sen made a surprise visit to Beijing in March 2020 to show support for China amid the Wuhan Covid-19 outbreak. During this visit, he introduced his son, Hun Manet, the current Cambodian prime minister, to Xi Jinping, paving the way for the next generation of the CPP leadership to continue close cooperation with China.[10] According to the Lowy Institute Asia Power Index 2023, China is also the foreign country that has the most diplomatic dialogues with Cambodia.[11]
China plays a crucial role in bolstering the legitimacy of the Cambodian regime. China’s economic success and poverty reduction have especially inspired the CPP leadership and incentivised them to support the China Model.[12] The Hun Sen government has been seeking Beijing’s guidance not only on economic development but also on matters of political legitimacy and control.[13] In 2017, Hun Sen expressed admiration for Xi Jinping’s leadership during the launch of the book Xi Jinping: The Governance of China, stating that it offered valuable lessons on good governance for Cambodia.[14]
Most importantly, strong ties with China have contributed to Cambodia’s sustained economic growth, which has in turn enabled the CPP to boost its legitimacy and consolidate power. The imperative for performance-based legitimacy has led Cambodian elites to welcome Chinese influence, viewing China as a vital source of economic resources and support.[15] Since 2007, China has surpassed Japan as the largest source of ODA and FDI to Cambodia. 24.8% of Cambodia’s foreign trade is with China and 24.4% of foreign investment stock in Cambodia comes from China.[16] Construction of major China-funded infrastructure projects under the ambit of the Belt and Road Initiative (BRI) was in progress despite the Covid-19 pandemic in 2020 and 2021, including the New Phnom Penh International Airport (US$1.1 billion), New Siem Reap International Airport (US$880 million), Phnom Penh-Sihanoukville expressway (US$2 billion)[17] and Phnom Penh-Bavet expressway under the Build-Operate-Transfer-BOT-framework (US$1.3 billion).[18]
Notably, China played a crucial role in enabling Cambodia’s successful containment of the Covid-19 pandemic between 2020 and 2022, by providing vaccines, essential medical equipment and financial aid in a timely manner.[19] As a result, 2022 was the prime year of China’s popularity in Cambodia. In the 2022 elite-opinion State of Southeast Asia (SSEA) survey, 84% of Cambodian respondents saw China as the most economically influential, with 70.6% welcoming this influence. Additionally, 75.3% perceived China as the most politically and strategically influential, with 54.1% expressing approval.[20]
Another important aspect to note is that the Cambodian government appreciates Chinese financing for meeting Cambodia’s developmental needs without conditionalities on political and economic reforms, unlike Western development partners.[21] Furthermore, the lack of transparency and accountability surrounding China-funded infrastructure projects and investment deals provides avenues for Cambodian leaders and CPP’s well-connected individuals to engage in lucrative business.[22] This has in turn allowed the Cambodian ruling elites to bolster their political and economic power base.[23] Numerous reports suggest that those who support Hun Sen’s leadership have been rewarded with access to the country’s resources such as land, forests, fisheries, mining concessions, air routes, and public construction.[24] This distribution of benefits primarily favours a selected group of Cambodian and Sino-Khmer tycoons, whose fortunes have grown in parallel with Hun Sen’s political tenure.[25] For example, state-land privatisation orders in 2022 revealed that Canadia Bank (sister company of Overseas Chinese Investment Corporation-OCIC) was granted 10 hectares of land in Preah Sihanouk province’s Prey Nob district, while Premier Land, a company owned by the daughter and son-in-law of the ruling-party Senator Oknha Ly Yong Phat obtained 130 hectares of land from the Sihanoukville Autonomous Port at an unrevealed price.[26]
Prioritising hard over soft infrastructure
China’s elite-centric approach is also expressed in its development financing’s primary focus on hard infrastructure, with comparatively less emphasis on soft infrastructure that involves grassroots community, local governance, human resources development and basic social services such as healthcare, education, water and sanitation. According to the Lowy Institute, traditional development partners for Southeast Asia – namely the multilateral development banks, Japan, Europe, South Korea, the US and Australia – assigned 24% of their total funding in 2015-2021 for governance and civil society and 30% for infrastructure whereas non-traditional partners (led by China) spent only 3% on governance and over 70% for infrastructure. In Cambodia, China funded only 7 projects in the governance and civil society sector in 2015-2021, compared to Japan’s 420 projects and the US’ 432 projects (Table 1).[27]
Table 1. Hard and Soft Infrastructure Projects in Cambodia (2015-2021), Funded by China, United States and Japan
Source: Lowy Institute Southeast Asia Aid Map database, complied by the author.[28]
China’s Elite-focused Youth and Educational Exchanges
In this author’s own experience, China’s youth engagement in Cambodia tends to prioritise the elite over the general public; nominations of Cambodian participants are limited to certain targeted institutions, which raises concerns regarding transparency and fairness in the selection process.[29] This approach may hinder meaningful youth dialogues between the two countries. Ensuring transparency and extending opportunities to Cambodian non-elite youths in youth exchanges with China is advisable for enabling mutual understanding and improving perceptions of China among young Cambodians.[30]
China-supported youth groups in Cambodia also tend to be elite-centric. One example is the Youth House for Cambodia-China Friendship launched in January 2023, with the attendance of Minister Liu Jianchao, head of the CCP’s International Department, and Hun Manet, then head of the CPP’s Central Youth Wing. The Youth House aims to foster youth dialogue between the CCP and CPP. Hun Manet expressed at the inauguration event that “Cambodian youth, particularly CPP youth, is ready to work with their Chinese counterparts to foster and further promote ties between the two countries to a new high.”[31]
On educational exchanges, according to the Cambodian Students Association in China, there are more than 2,000 Cambodian students currently studying in China, and at least 300 of them graduate every year.[32] Chinese scholarship opportunities have been expanded to include Cambodian government officials, including “online PhD programs” for officials in the Ministry of Foreign Affairs.[33] In terms of Chinese language training, with the re-establishment of Chinese schools operated by the Chinese-Cambodian Federation, the Teochew Association, and other Chinese clan associations since 1992, a renewed interest in learning the Chinese language has emerged in Cambodia. Chinese language training has a strong focus on Chinese-speaking community and government officials.[34] There are two Confucius Institutes in Cambodia situated at the Royal Academy of Cambodia (CIRAC) and the University of Battambang, as well as 23 Confucius Classrooms across the country.[35] Of note, the website of CIRAC only features the Chinese version.[36] These Confucius Institutes have worked with Cambodian government agencies to provide Chinese language training programmes to Ministry of Interior, Ministry of National Defence, Ministry of Foreign Affairs, Ministry of Justice, Ministry of Culture and Fine Arts, Ministry of Tourism, and the Ministry of National Assembly-Senate Relations and Inspections.[37] The Cambodian Ministry of Education recently signed a memorandum of understanding with its Chinese counterpart to establish a coordinating committee for Chinese language education and include Mandarin in the pilot curriculum in 20 public schools in Cambodia.[38]
REWARDS AND SETBACKS OF CHINA’S approach
China-Cambodia Community of Shared Future
Years of cultivating a mutually beneficial relationship with the CPP-led government have brought significant strategic rewards for Beijing. Both countries closely coordinate with each other in developing common narratives on international issues and aligning their foreign policy objectives.[39] The annual SSEA survey carried out since 2019 consistently indicates that Cambodian elites – together with Laos – are the most cognisant and supportive of Chinese influence in the region. China uses the term “ironclad friendship” to refer to its very close partners such as Pakistan and Cambodia. Phnom Penh has earned that distinction by its strategic choice to be a solid friend to China on key issues of strategic significance for Beijing.[40] For example, all Southeast Asian countries adopt the “One-China policy” and recognise the People’s Republic of China (PRC) as the sole representative of China, but many are ambivalent on the question of China taking back Taiwan by force. Cambodia’s position on this matter is by far the most unequivocally pro-PRC with Hun Sen’s declaration that Phnom Penh “resolutely supports China’s every effort to achieve national re-unification”, which implicitly does not rule out the option of using force.[41] Another stark example is Cambodia’s consistent support for China on the South China Sea disputes, so much so that Phnom Penh has been labelled as Beijing’s client-state within ASEAN, even at the expense of ASEAN credibility.[42]
Amidst intensifying US-China strategic rivalry, China has increasingly leveraged its economic statecraft and discourse power in its relations with other countries – especially in the Global South–by offering alternative concepts and paradigms of international relations.[43] Cambodia has provided unwavering support for all Chinese initiatives which are intended to enhance its normative and discourse power abroad. During his visit to Beijing in February 2023, Hun Sen said that Cambodia will “actively support and participate” in China’s Global Development Initiative (GDI) and Global Security Initiative (GSI), which he considers to be “of great significance to maintain world peace and promote common development”.[44] The joint statement of the visit says that “Cambodia supports China’s proposal of GSI and stands ready to work with China on global security governance towards common, comprehensive, cooperative and sustainable security.” This makes Cambodia the first Southeast Asian country to officially endorse the GSI, while neighbouring Vietnam and other maritime Southeast Asian states remain ambivalent.[45]
China’s discourse power projection also promotes terms such as “ironclad friendship” and “community of shared destiny/future”, among others. It is China’s common practice to insert these terms in joint documents with other countries to serve its propaganda and strategic communications. Beijing has found Phnom Penh a very receptive partner in endorsing Chinese ‘slogan politics’[46] with little hesitation. Cambodia is among the first foreign countries embracing the Chinese concept of “community of shared destiny/future’ with the signing of the Action Plan on Building China-Cambodia Community of Shared Future (2019-2023).[47] The new action plan for the 2023-2028 period will be signed by this year-end. In the latest 2023 Joint Statement on Building a China-Cambodia Community with a Shared Future in the New Era, the term “community with a shared future” was mentioned eight times and Chinese slogans such as “the Chinese path to modernization”, “the second centenary goal” and “the great national rejuvenation” are also peppered across the document.[48]
The China-Cambodia Community of Shared Future has now rhetorically evolved into a “diamond hexagon cooperation” (钻石六边合作), a new concept coined during Hun Sen’s visit to Beijing in February 2023. It represents six priority areas of political cooperation, production capacity and quality, agriculture, energy, security, and people-to-people exchanges.[49] In Chinese literary tradition, it connotes prestige, value, and durability. In 2023, Japan and Cambodia also celebrate the 70th anniversary of bilateral ties with the decision to upgrade the relationship to a Comprehensive Strategic Partnership. Against this backdrop, one may conclude that China wishes to project its ties with Cambodia as being more “prestigious and unbreakable” than Cambodia-Japan relations.
Limited Chinese soft power among the Cambodian public
China plays a crucial role in Cambodia’s contemporary political and economic development; Massive Chinese investments, especially in hard infrastructure, real estate and low-end manufacturing, have transformed Cambodia’s landscape, contributed to the country’s sustained economic growth, and provided jobs for many Cambodians. However, China’s pre-eminent influence over the Cambodian economy and its leverage over the CPP government have not yet been translated into prevalent soft power in Cambodian society, especially at the grassroots level.
The rapid pace of Chinese large-scale investment projects without proper impact studies on local people and cultural understanding has undermined Chinese soft power in Cambodia. Many of these projects are undertaken by Chinese private companies but their unsustainable business activities stem in part from the lack of rigorous oversight from the Chinese government; this is compounded and abetted by Cambodia’s poor governance capacity. As a result, problems of environmental degradation, land grabbing and associated loss of livelihoods are widely reported with regard to Chinese-funded projects.[50] The most salient example is the early-phase Chinese development in Sihanoukville, which garnered widespread criticism among the local people due to the influx of gambling industries and associated crimes, disregard of local regulations and customs, and the crowding-out of local businesses.[51] Massive Chinese demand for construction also led to land conflicts, with politically well-connected and wealthy Cambodians engaging in land-grabbing. In addition, few employment and business opportunities arise for local people due to the Chinese approach of importing their own labour and inputs. The ‘Blue Bay’ Chinese-invested real estate project is an illustrative case; It acquired land from locals, subcontracted work to Chinese companies, imported construction materials and brought labour over from China, despite Cambodia possessing a substantial labour force.[52]
Of note, while a majority of Cambodian elites recognise and welcome Chinese economic and strategic-political influence, they prefer Australia, the US, Europe and, to a lesser extent, Japan for their own or their children’s tertiary education, according to the annual SSEA survey.[53] In another survey of Cambodian university students in 2017, 81.7% of the respondents recognised that China currently has closer relations with Cambodia compared to the US. However, 72.6% preferred that Cambodia developed closer ties with the US in the future.[54] In terms of online search, the countries that Cambodians are most interested in are Japan (32%), followed by Thailand (19.3%) and Vietnam (16.4%), and China (11.8%).[55]
Cambodian youth’s perception of the “New Chinese”, who arrived in Cambodia since the 1990s, also sheds light on how Chinese influence is by the Cambodian public. In a survey conducted in 2022 with 75.2% of the respondents being under 40 years of age, 64% acknowledged that Chinese economic influence in Cambodia is “high” and 17% perceived it as “very high”. On Chinese political influence, 38% considered it “high,” and 15% regarded it as “very high,” indicating their awareness of China’s influence in Cambodian economy and politics.[56] Yet, while acknowledging Chinese predominant influence, a majority rated social tensions between Cambodians and the New Chinese as “high” (45%) and “very high” (14%), which the survey author attributed to “lack of mutual understanding and respect, language barrier and miscommunication, and the bad behaviour of some New Chinese”.[57] The survey also indicates reservations concerning the integration of Chinese nationals into Cambodian society.
CONCLUSION
China-Cambodia ties have fast developed since the 2010s, coinciding with the rise of authoritarianism in China under Xi Jinping and the democratic backsliding in Cambodia that led to the monopolisation of power by the CPP under Hun Sen’s leadership. China has consistently adopted an elite-centric approach that invests heavily in abetting the regime security and bolstering the legitimacy of the CPP government; this is done through aid, investment, finance and political support in the face of Western criticism and sanctions. This elite-centric approach has brought significant strategic rewards for Beijing, including the rapid expansion of Chinese economic influence in Cambodia and Phnom Penh’s strong support for Chinese discourse power, and key foreign policy goals on issues such as Taiwan and the South China Sea disputes. However, there remain negative perceptions towards China and its expanding influence among Cambodians, especially at the grassroots level and among the young. This is partly due to China’s lack of meaningful grassroots engagement in its public diplomacy and development assistance as well as the ignoring of social, economic, and environmental impacts for local communities in the implementation of China-funded investment projects. These challenges highlight the need for China to place greater emphasis on addressing public perceptions, engaging with local communities, and fostering meaningful connections with the Cambodian people at various levels. Towards this end, China can harness its resources in supporting cultural exchange projects through existing clan associations to promote its soft power and alleviate misunderstandings among the Cambodia public.[58] In addition, China’s shift towards “small yet smart” approach in its BRI, encompassing 1,000 small-scale livelihood assistance projects and vocational training opportunities,[59] also enhance its credibility in improving the wellbeing of Cambodians.
ENDNOTES
For endnotes, please refer to the original pdf document.
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2023/100 “Managing the Debts of State-Owned Enterprises: Case Studies of Indonesia’s BUMN Karya” by Siwage Dharma Negara & Agustinus Prasetyantoko
EXECUTIVE SUMMARY
- Infrastructure development plays a pivotal role in enhancing Indonesia’s economic competitiveness and supporting the country’s ambition to become one of the biggest economies in the world by 2045.
- Over US$400 billion is needed to meet Indonesia’s infrastructure financing needs until 2024. State funds can only contribute around 30% of the total figure. To close the gap, the government has been inviting private sector investments and encouraging public-private partnerships (PPP) for a number of infrastructure projects.
- In practice, getting private sector investments into such projects can be challenging. To expedite the construction process, the government assigned some State-owned enterprises (SOEs), known as BUMN Karya, to lead the construction and operation of various infrastructure projects that are deemed ‘strategic’.
- These SOEs have seen their financial condition deteriorating since the COVID-19 pandemic, and there is an increasing likelihood that they need more state capital injections to remain viable. It is important to reduce the burden on SOEs through restructuring or asset selling and to improve their corporate governance. Allowing international investors or construction and operating companies to become shareholders may help to reduce these SOEs’ over-reliance on the government’s budget.
- Moreover, the government also needs to be mindful of the risks of SOEs’ debts to Indonesia’s economy, credit standing and investors’ confidence.
* Siwage Dharma Negara is Senior Fellow at ISEAS – Yusof Ishak Institute. Agustinus Prasetyantoko is Senior Fellow at Atma Jaya Institute of Public Policy, Jakarta. Both authors would like to thank Manggi Habir, Tham Siew Yean and Cassey Lee for their comments on an earlier draft.
ISEAS Perspective 2023/100, 20 December 2023
INTRODUCTION
Since the beginning of his presidency, President Joko “Jokowi” Widodo has been intensively building infrastructure in various parts of Indonesia. This infrastructure development aims to accelerate growth, create jobs, and promote more balanced development, especially in the outer islands.
Over Rp 3,000 trillion (approximately US$192 billion) has been spent on infrastructure projects since President Jokowi took office in 2014 (Figure 1). This state fund has been used to construct roads and toll roads, dams, airports and seaports, and power plants across the country. The Ministry of National Development Planning (Bappenas) estimates that Indonesia needs Rp 6,445 trillion to meet its infrastructure financing needs until 2024.[1] Based on the National Medium-Term Development Plan (RPJMN) 2020-2024, the government can only come up with Rp 2,385 trillion or 37% of the total needed, and the rest will need to come from private investors.[2]
The government has been encouraging public-private partnerships (PPP) and inviting domestic or foreign private investors for a number of infrastructure projects. Yet, in practice, most infrastructure projects are built and managed by State-owned enterprises (SOEs), often with government financial support. For the government, the fastest strategy to accelerate infrastructure development has been to assign it to SOEs. To invite foreign investors or to look for aid from foreign partners requires longer time and procedures, which delay government plans. Projects funded under PPP schemes are still limited, mostly in the energy sector, which is more attractive for the private sector. The biggest challenges for private participation in specific projects proposed by the government are reliability and profitability. Some projects have been making very slow progress due to specific issues, such as land acquisition or unclear regulations.
Figure 1: Infrastructure spending increased significantly during Jokowi’s era
Note: The 2023 figure is the budget allocation.
Source: Directorate General of Budget, Ministry of Finance
The state assignment for SOEs to build various infrastructure projects has some implications for SOEs’ cash flow and government fiscal space. The implications are often not well understood, and this essay seeks to shed some light on the matter by looking at three case studies of Indonesia’s major SOEs which are in charge of developing infrastructure nationwide. They are PT Hutama Karya (Persero), PT Waskita Karya (Persero) Tbk, and PT Wijaya Karya ( Persero) Tbk (the three SOE companies are often called BUMN Karya).[3] PT Hutama Karya (Persero) and PT Waskita Karya (Persero) Tbk are the main contractors for many toll road projects in Indonesia. PT Wijaya Karya ( Persero) Tbk, on the other hand, is the main contractor for dam projects. Waskita Karya and Wijaya Karya are listed on the Indonesia Stock Exchange, which means these SOEs are only partially owned by the government. Hutama Karya, however, is fully owned by the government. Finally, we want to examine their financial liabilities and the potential risks these pose to the fiscal and financial sectors.
STATE ASSIGNMENTS AND INCREASED BURDENS
To expedite infrastructure development throughout the country, President Jokowi through the Ministry of State-owned enterprises, assigned some state companies to “lead” the construction of a number of “strategic projects”.[4]
There are usually two types of infrastructure projects involving the BUMN Karya. First is that BUMN Karya is contracted to build the infrastructure and is then paid by the government once they have completed the project and met specifications. Second is what is known as Build, Operate and Transfer (BOT) after a couple of years. The first type of project (just build) is more straightforward. During the COVID-19 pandemic, many of these projects were delayed, so the companies could not receive payment from the government. Yet, even when the companies finally completed the project, government payments were often late in coming. Moreover, the pandemic has also caused cost overruns, which hurt the companies’ profitability. The BOT arrangement is more complex as it requires operating the project and getting paid from the revenue generated by the project operation. These arrangements are mostly related to toll roads. In practice, the profitable toll road projects (with significant traffic volumes) are often given to the state toll road company PT Jasa Marga, leaving the BUMN Karya with the less attractive toll projects.[5]
For instance, Waskita is assigned to build Trans-Java and Sumatra toll roads. Mostly, it takes over private toll road projects that have stalled, and that are no longer profitable as seen from the point of view of private investors. In total, Waskita acquired 12 stalled toll roads from the private sector from 2015 to 2017.
Likewise, Hutama Karya received special assignments to construct sections of the Trans-Sumatra toll road. As a result, the company’s liabilities have increased rapidly. Unlike Waskita Karya, Hutama Karya receives state capital injections, or PMN (Penyertaan Modal Negara).
Figure 2: Government assignment increased BUMN Karya’s liabilities
Source: Companies annual reports
It is important to note that not all SOEs undertaking infrastructure projects receive state equity participation (PMN). PMN is an additional capital injection given for a specific project or purpose. The allocation of PMN is proposed by the government and requires parliament’s approval. Thus, deciding which SOEs can receive PMN is the political discretion of the government and the parliament. The SOEs Minister and Finance Minister, in consultation with the parliament, reach joint agreements on which SOEs should be given PMN.
Those strategic SOEs that have too high a debt burden and whose ratings get downgraded to non-sustainable levels are the ones that get PMN, or capital injections, through the budget. The healthier ones typically do not get PMN. Those SOEs which do not receive PMN must use their own finances, often by going into debt; the latter are vulnerable to changes in interest rates. Rising interest rates increase the cost of servicing existing debt or obtaining new loans. Also, an SOE’s credit rating can influence its access to debt markets and the cost of borrowing. A lower credit rating may result in higher interest rates on debt.
Figure 2 shows the three largest infrastructure SOEs that face increasing liabilities due to the government’s assignment to construct various infrastructure projects. So what could be the financial implications of growing SOE liabilities?
FINANCIAL IMPLICATIONS
In response to the worsening financial health of BUMN Karya, the government, through the Ministry of Finance, allocated Rp 28.16 trillion in the state budget 2024 to support these SOEs with state equity participation (PMN). This policy indicates the government’s commitment to continue infrastructure development during the transition to the next leadership in October 2024.
For infrastructure projects, state equity funds will be allocated to PT Hutama Karya (Persero), amounting to Rp 18.6 trillion, and to PT Wijaya Karya Tbk, amounting to Rp 6 trillion. However, PT Waskita Karya (Persero) Tbk will not receive PMN due to internal issues related to fraud allegations and some bad management practices.[6]
Among the three BUMN Karya, i.e., PT Waskita Karya (WSKT), PT Wijaya Karya (WIKA) and PT Hutama Karya (HK), HK has the largest asset, at Rp 156 trillion, followed by Waskita, which has a total asset of Rp 98 trillion, and WIKA, with a total asset of Rp 75 trillion (Figure 3). The asset values of the BUMN karya have increased significantly alongside the country’s massive infrastructure development.
Figure 3: BUMN Karya’s Total Asset Values
Source: Companies annual reports
Interestingly, Waskita’s asset values have been declining since 2019. In 2019, Waskita’s assets (Rp 122 trillion) were bigger than HK’s (Rp 93 trillion). But in 2022, HK’s assets surpassed Waskita’s. Based on its financial statement, Waskita’s revenue had started to decline in 2019. In 2019, Waskita booked losses of Rp 2.8 trillion, which by 2020 had increased to Rp 9.2 trillion. The company’s equity has also decreased since 2019 (Figure 4). According to Waskita’s management, the losses were caused by decreasing revenues due to the COVID-19 pandemic and exchange rate costs on their liabilities.[7]
Figure 4: PT Waskita Karya (Persero) Tbk Financial Situation
Source: PT Waskita Karya (Persero) Tbk annual reports
More recently, Waskita faced some complicated issues ranging from high debt and increased loss to internal corruption and the cancellation of PMN. Waskita’s stock trading was suspended in May 2023 after the company failed to make timely coupon payments on its corporate bonds. The Indonesia Stock Exchange Authority is now considering delisting the companies’ stock from the market due to the subsequent lack of significant improvement.[8] Several companies have also sued Waskita over delays in debt payments.[9]
The Vice-minister of SOEs, Kartika Wirjoatmodjo, in a public statement in September 2021, stated that Waskita’s increased liabilities were due to assignments from the government to lead several infrastructure projects.[10] The high debt burden reached its peak in 2019 after Waskita acquired several toll roads from private parties from 2015 to 2017 (Figure 4). That year, Waskita’s debt reached Rp 70.9 trillion; these were comprised of bank loans and bonds, and a debt of around Rp 20 trillion to its vendors. Moreover, the COVID-19 pandemic had worsened the company’s financial condition due to a decline in revenue, many projects being delayed and cost overruns incurred.
Based on Waskita’s case, one may conclude that several internal and external factors have been affecting the financial soundness of SOEs. Waskita’s financial problems have been exacerbated by poor governance within the company. The former CEO of Waskita was named a suspect in corruption allegations regarding misappropriation in the use of a subsidiary company (PT Waskita Beton Precas) in 2016-2020.[11] This case saw the company’s share price fall drastically (Figure 4) by around 6%, forcing the market authority to suspend trading to protect its shareholders.[12]
Figure 5: PT Wijaya Karya (Persero) Tbk Financial Situation
Source: PT Wijaya Karya (Persero) Tbk annual reports
In fact, all the BUMN karya experienced decreasing revenue due to the COVID-19 pandemic. Their profits have dropped significantly due to project construction delays. WIKA, whose core business is in real estate and properties, has been suffering financial losses since the pandemic (Figure 5). It is currently applying for postponement of payment of principal and interest obligations to its creditors. This company will be receiving Rp 6 trillion of PMN to overcome its financial difficulties. This state equity injection is related to cost overrun in the Jakarta Bandung High-Speed Train project or KCJB (Kereta Cepat Jakarta Bandung), in which WIKA participated.[13] So far, this state support may suffice for WIKA to maintain its capital structure.
Together with three other BUMN Karya, WIKA has become the major player in the construction of the new capital (IKN) Nusantara in East Kalimantan province.[14] WIKA is responsible for two main constructions, namely residences for the workers and offices for the coordinating ministry for maritime and investment affairs. The total project is valued at around Rp 1.3 trillion.
The financial condition of HK has also been worsening, though not as badly as Waskita’s. Starting in 2020, HK has experienced massive losses. These continued until 2022 (Figure 6). The main cause of its losses was the low revenue from its Trans Sumatra toll road project. This project was initiated by the government as a strategic project, and therefore, revenue has not been a key consideration for its construction. The traffic volumes in Trans Sumatra are very low, drawing no private sector interest to the project. [15] Be that as it may, the government pushed for the project to promote connectivity and people mobility, and to stimulate economic activities across the island. Increased economic activities would in turn lead to higher traffic volumes which would eventually attract private investments.
Figure 6: PT Hutama Karya (Persero) Tbk Financial Situation
Source: PT Hutama Karya (Persero) Tbk annual report
The revenue from the Trans Sumatra project has been insufficient to cover HK’s operational costs. This happened alongside other unprofitable projects that the company has been involved in. As a result, HK had to raise its finances by proposing more debt. This condition is reflected in its financial performance, where HK booked a significant loss of around Rp 1.4 trillion. To save HK, the government decided to increase its state capital injection (PMN) in the company.
HK is also involved in several IKN projects valued at around Rp 4.3 trillion, covering toll roads, ministerial offices, as well as residentials for state civil servants and the presidential security forces.[16]
POTENTIAL RISKS TO THE ECONOMY
SOEs play a significant part in the Indonesian economy. So, excessive debts on their part pose risks to the overall economic health. For instance, if SOEs are unable to service their debt, the government must step in to bail them out. This can strain government finances, lead to budget deficits, and potentially result in increased public debt.
The financial difficulties of heavily indebted SOEs can also distort prices, as the government provides subsidies or state equity to keep these companies afloat. This can lead to market imbalances and resource misallocation. Moreover, during Jokowi’s administration, we have seen how SOEs absorb a large portion of available credit, stifling private investment and economic growth, and crowding out private sector borrowing.[17]
Indonesia’s sovereign credit rating can potentially be affected if SOE debt becomes a serious liability for the government. A lower credit rating can result in higher borrowing costs for the government and the private sector. Also, if a large SOE like Waskita defaults on its debt, it can spill over to other SOEs and to the country’s financial system. This can lead to systemic risks and financial instability. In turn, a large SOE default that leads to financial distress can erode investor confidence in the country and cause capital flight and reduce foreign direct investment.
Therefore, SOE debt should be carefully managed. If it becomes excessive, it may adversely affect financial stability and hamper the country’s long-term economic growth. Too many state assignments given to SOEs will certainly strain limited fiscal resources, thus reducing the government’s ability to invest in other important programmes. The government needs to be more prudent when investing in infrastructure projects.
From the government’s perspective, assigning SOEs to participate in infrastructure projects like toll roads, airports, dams, power plants, and railways has advantages in the short run. Expecting the private sector to lead infrastructure development projects is not realistic, especially if the project is meant to promote development in less populated and less lucrative areas. Therefore, for strategic development, SOEs play a leading role. However, in the long run, it is important to develop a roadmap and define which sectors should involve SOEs and which ones should include private sector, national and/or international partners. Assigning SOEs does not mean ignoring risk management and prudential governance. In fact, good governance is critical in minimising fraud and corrupt behaviour related to infrastructure projects.
CONCLUSION
Managing SOE debt can be a contentious political issue. It is alarming that SOEs mandated to focus on infrastructure projects suffer serious financing issues hindering their competitiveness and sustainability. The government needs to avoid high levels of SOE debt to fund politically motivated and non-productive projects, with unclear benefits. In fact, one of the Presidential candidates has highlighted that massive infrastructure development without careful thought under the current administration has put BUMN Karya in a critical financial condition.[18] He further said that the main factor that caused the BUMN Karya to ‘close its books’ was poor governance.[19]
The lack of independence on the part of BUMN Karya managements to accept or decline a project, and to determine what criteria need to be met before constructing the project is another reason for their current financial difficulties. The management has little say on such matters, and must follow government orders. One solution to this is to invite international investors or construction and operating companies into the projects as shareholders.[20]
We see from the three BUMN Karya cases that a lack of transparency in SOE debt can be a risk in itself. There is a need to provide clear information on the extent and terms of SOE borrowing; this is critical for assessing and managing risks effectively. To stop further deterioration of SOE debt, the government needs to establish robust oversight and governance mechanisms and adopt prudent fiscal and monetary policies.
To address growing SOE debt, there is a need for a combination of financial restructuring, operational improvements, and perhaps privatisation or asset sales (the case of INA). It is important to balance the strategic role of SOEs and their financial sustainability so as to minimise risks to the country’s overall fiscal health.
The role of the Indonesia Investment Authority (INA) can be further enhanced by its participation in strategic projects. Waskita has released two toll roads and prepared four others for INA to take over. This will make its financial condition healthier.[21] Another initiative is better use of Government Non-Budget Infrastructure Financing or PINA (Pembiayaan Infrastruktur Non-Anggaran Pemerintah). PINA was initiated by Bappenas for strategic and priority projects, especially in the infrastructure sector. PINA financing may come from capital markets, managed funds, insurance, banking and other legitimate financing. Several projects have been using the PINA scheme, such as the North Sumatra toll road and Yogyakarta International Airport in Kulan Progo.[22] Basically, PINA offers creative financing by matching the needs of specific investors with particular financing schemes, through hybrid instruments, limited participation funds and customised supply chain financing. These schemes can be developed and expanded for future infrastructure projects.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
2023/99 “Collaboration Between Pheu Thai and Move Forward Parties on Their Core Issues Will Determine Thailand’s Future” by Termsak Chalermpalanupap
EXECUTIVE SUMMARY
- Thailand’s Pheu Thai-led coalition government is struggling to amend the Constitution of 2017, or to draft a totally new replacement for it.
- Not much progress can be made on that front, however, unless and until the Move Forward Party provides support. It is capable of blocking any move to change the Constitution in any substantial manner.
- At the same time, Move Forward wishes to push a bill on general amnesty to absolve all those persons charged with or convicted for their political protests since 2006. To succeed, it needs the support of Pheu Thai to pass the ambitious bill into law, and to facilitate a process of national reconciliation.
- A quid pro quo on these two issues between Thailand’s two largest parties seated on opposite ends in the House of Representatives will determine the country’s political future.
* Termsak Chalermpalanupap is Visiting Fellow and Acting-Coordinator of the Thailand Studies Programme, ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2023/99, 19 December 2023
INTRODUCTION
Presenting the Thai people with a new and genuinely democratic Constitution seems like a “slam dunk” for the Pheu Thai (PT) party that leads the 11-party coalition government under Prime Minister Srettha Thavisin.
But increasingly, putting into place a new “Constitution of the People” appears to be a more complicated project than previously assumed. More questions have arisen to which the PT has no good quick answers.
This apparent indecisiveness has created suspicions about the PT’s ulterior motives. Is the PT playing safe to protect its fragile coalition, and does it really want a new Constitution to replace the existing one promulgated on 6 April 2017 during the authoritarian rule of coup leader General Prayut Chan-o-cha?
When it became the largest opposition party after the general election in 2019, the PT was adamant that the Constitution of 2017 was “undemocratic”, calling it a despicable “vestige of authoritarianism” that should be replaced by a new Constitution of, by, and for the people. Most other parties tended to agree with the PT. Move Forward Party (MFP), then the second largest in the opposition, went so far as to call for the formation of a wholly-elected national assembly to draft a new Constitution. But their repeated attempts proved unsuccessful.[1]
Most of the appointed 250 senators opposed any move to change the Constitution in any substantial manner. Every constitutional amendment requires the support of a majority of the parliamentarians (more than half of the 500 MPs and 250 senators combined), and the majority vote must include at least one-third of the senators (83 senators).[2]
Eventually, MPs and senators could only agree—in September 2021—to some amendments involving the electoral system and the composition of the 500 elected MPs,[3] changes which do not affect the senators.
SENATORS’ TERM DRAWING TO AN END
The five-year term of the existing 250 senators ends on 11 May 2024.[4] After that the Senate will have a new batch of 200 members chosen from various occupations.[5] But unlike the existing 250 senators, the new senators will not have the right to join MPs in voting for a new prime minister.
Lest we forget, a large majority of the 250 senators were instrumental in blocking MFP leader Pita Limjaroenrat from winning the premiership last July. On 14 July, Pita’s candidacy for the premiership failed to gain the support of a majority of parliamentarians: only 311 MPs and 13 senators voted for him; that was 52 votes short of the minimum majority of 376 votes needed. Subsequently, on 19 July, as many as 210 senators joined 185 MPs in blocking Pita’s renomination for the premiership, and therefore ended his quest for the premiership.
Assuming that the new 200 senators who will succeed the existing 250 senators are more pro-democracy, the Senate will no more be an obstacle standing in the way of any constitutional amendment. Section 256 of the Constitution can then be easily amended to open the door for the establishment of a new constitutional drafting national assembly. The drafting should not take longer than six months since it will be the 21st constitution of the country. Many good provisions in previous Constitutions can be conveniently lifted and pasted into a new draft.
NEW CONSTITUTION OF THE PEOPLE
Undoubtedly there is strong and widespread popular support for a new constitution. The victory of the MFP and the PT, coming first and second respectively in the May 2023 general election,[6] provided clear evidence that a majority of Thai voters wanted changes – including a new Constitution.
A movement organised by iLaw on 13 to 20 August 2023 to collect 50,000 signatures calling for a national referendum on a new Constitution to be drafted by the people – and not by politicians and government experts – ended up with more than 205,000 signatures.[7] On 30 August, the remarkable outcome was submitted to the Election Commission for verification. The PT has also been informed and been requested to follow up on the matter in the Cabinet.
According to the NIDA Poll held in early September, among the top 10 policy priorities of the PT, drafting a new “Constitution of the People” came fifth in popularity. About 78.70% of respondents wanted it. However, 59% of respondents doubted that the PT would be able to deliver it.[8]
The emerging doubt came from the fact that Prime Minister Srettha has hardly made any comment on this issue. On 3 October, he had simply ordered the formation of a national committee to consider ways of organising national referendums on the Constitution.[9] The new entity is headed by Deputy Prime Minister Phumtham Wechayachai, who is also the commerce minister, and a deputy leader of the PT.
Minister Phumtham, who is the PT’s chief ideologue with close ties to former prime minister Thaksin Shinawatra, has set up two subcommittees: one on soliciting public opinions, and another on ways and means of holding national referendums. The former is headed by MP Nikorn Chamnong, a veteran politician of the Chatthai Pattana Party; the latter is headed by Vudhisarn Tanchai, a former secretary-general of the King Pradhipok’s Institute.
Minister Phumtham and Nikorn, who is also spokesman for the national committee, have done most of the talking. Prime Minister Srettha, meanwhile, has concentrated on pushing the implementation of the troubled “digital wallet” programme.[10]
HOW MANY NATIONAL REFERENDUMS?
In March 2021, the Constitution Court issued a ruling that Thai voters shall be consulted twice: first, in a national referendum on whether they want a new Constitution; and second, in another national referendum on whether they accept a new draft Constitution when its drafting has been completed.[11]
Now, some constitutional law experts have pointed out that the existing Constitution has no provisions for the establishment of any group to draft a new Constitution. In order to properly empower the proposed elected drafting national assembly to do its crucial job, the Constitution must first be amended to include necessary provisions on this matter. Such a substantial amendment would require approval in yet another national referendum.
Holding up to three national referendums will cost the government nearly 10,000 million baht (US$286 million). This is bad news for the Srettha Administration, which is desperately struggling to pay for the “digital wallet” programme. As things stand now, the programme to hand out 10,000 baht worth of purchasing credit to every Thai adult 16 years and older (whose salary is below 70,000 baht a month and whose bank account contains less than 500,000 baht) will cost about 500 billion baht (US$14.28 billion).
The sub-committee headed by Vudhisarn is consulting the Election Commission on how to reduce the number of national referendums. Perhaps, the first national referendum can be postponed until after the Constitution has been amended to include provisions for the formation of a new national assembly to draft a new Constitution. Then voters can be requested in a national referendum to reaffirm the idea of having a new Constitution, and to approve the constitutional amendments on this matter.
DOUBLE MAJORITY NEEDED
One unforeseen complication in the law on national referendum, which went into effect on 12 September 2021, has been identified in Section 13 of the new law. Here, it is stated that in order to approve anything in a national referendum, more than half of all the eligible voters must participate, and the approval receives the endorsement of more than half of the eligible voters who participate.
Nikorn, head of the sub-committee to solicit public opinions, has sounded the alarm, and voiced his “serious concern” about what he called “double deadlocks”.[12] He believes the national referendum law must be revised to remove the first majority of voter turnout, and to let only the majority of voters who participate decide, regardless of their number. This can pre-empt a boycott of the MFP, whose supporters number more than 14 million.
In the May 2023 general election, Thailand had about 52.19 million voters. Only about 39.51 million showed up to vote, a turnout of about 75.71%. Assuming that the population of Thai voters increases by 2% a year, by next May, there will be about 53.23 million voters. In order to approve anything, at least 26.62 million of them must show up to vote in a national referendum, and the approval must be backed by at least 13.31 million votes.
The first requisite majority of voter turnout will be difficult to achieve because there may not be enough incentives to attract nearly 27 million voters to participate. On 7 August 2016, when General Prayut’s regime held the referendum to endorse its draft constitution, only about 59.40% of 50.07 million voters participated. The draft was endorsed with only about 16.82 million votes, and became the Constitution of 2017.[13]
Moreover, the voter turnout could be too low to pass anything should the MFP mobilise its 14 million supporters to boycott all national referendums. The MFP strongly disagrees with the PT in the latter’s stated preconditions on not “touching” or “revising” Chapter I: General Provisions,[14] and Chapter II: The King.
Because of the above disagreement, the MFP has opted out of sending anyone to join the Phumtham-led national committee. As far as the MFP is concerned, the drafting of a new Constitution should start without any preconditions. MFP leader Chaithawat Tulathon has reiterated that the MFP would not support any partial and conditional amendments to the Constitution.[15]
Nevertheless, the MFP is open to consultation with the Phumtham committee. The reformist party is keen to press for the direct election of independent representatives to form a new Constitution-drafting national assembly. The MFP dislikes the PT’s idea of including unelected “experts” on such an assembly. The MFP says “experts” may join technical sub-committees to advise the elected drafters – but they need not be drafters themselves.
MOVE FORWARD HAS A TRUMP CARD
The MFP won the May general election, winning in 112 of 350 constituencies, and getting 39 of 100 party-list House seats with 14.438 million votes, compared with the PT’s winning in 112 constituencies, getting 29 party-list House seats with 10.962 million votes. Obviously, by virtue of such a clear popular mandate, the MFP – not the PT – should be leading a new government.[16]
Many MFP supporters are upset with what they perceive as a betrayal by the PT for its own political gain. Their grievances are real and plain to see.[17]
Now as the core opposition party, the MFP holds a trump card to frustrate the PT by blocking constitutional amendments.
Under Section 256 of the Constitution, a constitutional amendment needs the support of not only a majority of parliamentarians, and at least one-third of senators in the majority vote; but the majority vote must also include 20% of MPs of parties that do not have ministerial posts, or parliamentary posts (House Speaker, and Deputy House Speakers). Parties in this category are mostly in the opposition, notably the MFP with 148 MPs,[18] Democrat Party with 25 MPs, and Thai Sang Thai with 6 MPs.
Without the cooperation of the MFP, there will be no 20% of the opposition MPs (at least 37 MPs) to endorse any constitutional amendment, as required in Paragraph 6 of the Section 256.
The big hot question now is what will the MFP do with its trump card.
First and foremost, the MFP would want to continue to press for a nation-wide election of independent representatives to form a national assembly and to work on a completely new draft Constitution. It opposes the PT’s idea of trying to amend the existing Constitution without touching the hyper-sensitive Chapters I and II. Provisions in the second chapter concern the revered position and prerogatives of the King, which are also protected under the controversial Section 112 of the Criminal Code, the so-called “lese-majeste law”.
One of the MFP’s election issues concerned amending the Section 112 to reduce its penalties, and to limit to only the Royal Household Bureau the right to file a police report accusing anyone of violating the law. At present, anyone encountering an alleged violation can notify the police. And if convicted, a violator faces a jail term of 3 to 15 years.[19]
Unfortunately, the MFP’s use of the law as an election issue has landed it in hot water. The Constitutional Court has been deliberating on a complaint from one critic who accused the party of undermining the monarchy and attempting to abolish the constitutional monarchy. If found guilty, the MFP will be dissolved and its executive committee members banned from politics for up to 10 years. A ruling on this case is expected by next January.
In the meantime, the MFP is trying to score more political points and turn undecided voters into its supporters. One hot issue in this regard is a general amnesty bill submitted by the MFP to the House of Representatives. The MFP wants a law to absolve all protestors arrested and/or convicted in political gatherings and demonstrations since 2006. The House Speaker has promised to bring up the MFP’s bill for consideration within the next parliamentary session (lasting 120 days), which started on 12 December.
Under its proposed bill, the MFP leaves open the possibility of including for amnesty those who have been charged or jailed under Section 112.[20] They include at least three MPs of the MFP, who were pro-democracy activists before they joined the MFP.[21] But the PT as well as Bhumjaithai, the second largest government party, is still reluctant to let those who have violated the lese-majeste law to go scot-free.
Obviously, there are emerging opportunities for the MFP to negotiate with the PT on a quid pro quo basis. The MFP needs the support of the PT to pass the amnesty bill into law as soon as possible. At the same time, the PT needs support from the MFP in amending the Constitution instead of drafting a new one.
If the two largest parties can work together, then anything can happen once the existing 250 senators leave the Senate on 11 May 2024. After they leave, the selection of a new prime minister will be done entirely by MPs. With reconciliation, and a reunion of the MFP and the PT in a new “pro-democracy” alliance, the formation of a new governing coalition cannot be completely ruled out.
As stated by Thanathorn Juangroongruengkit, founder and leader of the dissolved Future Forward Party, the political future of Thailand depends on the MFP and the PT. He recently admitted that he went to meet Thaksin in Hong Kong in early July while the MFP and the PT were trying to win the premiership for Pita. Thanathorn believes an alliance between these two parties will be best for Thailand’s development and for its return to democracy.[22]
The MFP is a successor party of the Future Forward Party; the latter was dissolved in February 2020. Thanathorn has turned to lead the Progressive Movement, a civil society organisation to promote democracy and the development of local government. Although he has been barred from politics for 10 years, Thanathorn has significant influence over the MFP – very much like Thaksin’s clout over the PT, where his youngest daughter, Paetongtarn, is now party leader.
CONCLUSION
Indeed, Thailand’s political future depends on how far and how much the MFP and the PT can work together on the Constitution issue as well as on the general amnesty bill.
A constructive approach by the MFP can win the party political points, and turn undecided voters into supporters of the reformist party. This will help ensure victory for the MFP in the next general election, which can be held soon after a new Constitution, or an amended Constitution of 2017, enters into force.
A positive breakthrough, even if done through secret wheeling and dealing between the MFP and the PT, will put Thailand back of track towards national reconciliation and democratisation.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
“Chinese Investments in Malaysia: Synthesizing the Evidence Ten Years into the BRI” by Tham Siew Yean
2023/98 “Insufficient States: Revisiting the Roles and Resources of Malaysia’s Subnational Governments” by Lee Hwok Aun
EXECUTIVE SUMMARY
- Malaysia’s state governments may appear to be more autonomous and empowered with their elections taking place outside of the general election cycle. Only three states held elections concurrently with the November 2022 general election; six Peninsular states went to the polls in August 2023.
- However, the sentimental resonance and political consequence of these elections outweigh the designated roles and material resources of state governments. In 2022, state governments received revenue of RM926 per capita, one-tenth of the federal government’s RM8,969.
- The constitution vests important roles in land management, social welfare and local government supervision to state governments, but heavily circumscribes them nevertheless. In practice, the states are restricted — notably in the overwhelming role the federal government plays in social welfare and public health, despite these being under joint federal-state jurisdiction.
- All state governments rely heavily on land-based revenue which arguably induces over-exploitation and commercial ventures that lack transparency. Only Sabah and Sarawak are mandated to collect sales tax. Local governments collect property-based revenue to deliver local services, in a logical structure of functions and circulation of funds.
- More federal functions should be devolved to the states, particularly in social welfare and public health, and state capacities should be bolstered by statutory expansion of revenue collection, especially through consumption taxes. Reforms are required to empower state governments to be responsive and for subnational governance to be effective.
* Lee Hwok Aun is Senior Fellow and Co-coordinator of the Malaysia Studies Programme at ISEAS – Yusof Ishak Institute. The author thanks Francis Hutchinson, Tricia Yeoh and Kai Ostwald for their incisive comments on an earlier version of this paper. The usual disclaimer applies.
ISEAS Perspective 2023/98, 14 December 2023
INTRODUCTION
The 13 state governments in the federation of Malaysia inhabit a paradox. While the office of the Chief Minister carries prestige and state assembly persons are generally well regarded for supervising public services and solving local problems, they operate within a narrow scope of responsibility and with steep financial constraints due to exceeding reliance on land-based revenue — i.e. taxes, premiums and fees collected from residential and commercial land, forestry, and mining.
The standing of state governments has recently been bolstered by chief ministers, especially Kedah’s popular and provocative Muhammad Sanusi Md Nor, as well as the conduct of state government elections independently of the general election, which encourage efforts to showcase government performance in the country’s increasingly competitive political landscape. However, these developments do not alter the reality that Malaysia’s federal structure is among the most centralised in the world (Ostwald 2017). For decades, state governments have also negotiated the dilemma of conserving forests and sustainably managing land while heavily relying on land-based revenue. Potentially overzealous expansion into prospective finite resources, such as rare earth mining, is induced by state governments’ lack of funds.
It is timely and vital for Malaysia to revisit its federal-state balance and to expand the functions of subnational governments and their revenue bases, for three key reasons. First, state governments are well-poised to effectively provide a wider range of services that should be more systematically executed and adequately funded. Second, the over-reliance of state governments on nonrenewable land-based revenue and federal grants grossly limiting their capacity, militate against conservation and sustainable land management, including food production. Furthermore, these have induced entry into commerce in ways that are less than transparent and accountable. Third, the federal centralisation of power is intertwined with the legacy of the dominant Barisan Nasional coalition that Malaysians definitively jettisoned at the 2022 general election.
This Perspective proceeds with a brief overview of the constitutional framing of federal and state jurisdictions, and a discussion of the subject in practice and the theoretical arguments for expanding the roles and resources of state governments. This is followed by an assessment of state government budgets and land-based revenue dependency, and plausible scenarios of consumption tax collection. The closing portions offer some policy reforms for consideration.
STATE GOVERNMENT ROLES AND RESOURCES BY CONSTITUTION AND IN PRACTICE
Malaysia’s constitution, through its demarcation of the functions and resources of federal and state government, lays the foundations for a highly centralised system. The Ninth Schedule’s Federal, State and Concurrent Lists of jurisdictions designate the vast proportion to the federal government, including education, health, defence, utilities, transport, justice system, national currency and public finance, and external relations and international diplomacy (Appendix Table 1). State governments are confined to cultural and religious affairs, land matters and oversight of local government. On the Concurrent List granting authority to both federal and state governments are matters such as social welfare, public health, wildlife protection, and town and country planning.
The formation of a highly centralised bureaucracy traces back to the colonial era, particularly the post-War and pre-Independence period (Hutchinson 2014a). The capacity of governments to collect revenue aligns with federal-dominant authorisations. As outlined in the Tenth Schedule of revenue sources, the federal government alone collects all forms of tax — whether direct taxes on income, profit, etc., or indirectly on trade, sales, services, etc. — and has access to a host of non-tax revenue sources. State governments are funded by revenue from forest, land and mines, and various licenses and fees (Appendix Table 2). The embeddedness of these terms in the constitution has direct and permanent consequences on the power balance, albeit that these are also subject to precedent and convention.
In practice, the federal government has been exceeding the constitutional mandate it has over the states. The items on the Concurrent List have been preponderantly delivered by federal authorities rather than being meaningfully shared. Undoubtedly, the ambiguity of various Concurrent List matters, in contrast to specificity on the Federal List, creates a pro-federal bias where overlaps occur. For instance, “social welfare” and “public health and sanitation”1 stand in marked contrast to the clear and specific stipulations for federal authority with regard to hospitals, clinics, and social insurance. However, the lopsided pro-federal application of the Concurrent List led it to acquire an inertia over many decades.
Political interest also motivated federal government dominance. The process has been characterised in scholarly work as “UMNO’s power consolidation” to maintain hegemony nationally — by bypassing opposition-held states and offering patronage to government-held states — and to secure popularity within the party through dispensing largesse. This has been achieved through various mechanisms, notably the exceeding concentration of powers and resources in the Prime Minister’s Department, which in addition to the amassing of power in general, also serve to keep state governments on a tight leash (Hutchinson 2014b). Another manifestation of the utilisation of federal resources to supersede the state is the establishment or expansion of agencies that duplicate state operations, and which through their superior access to resources, consequently supersede the state-level counterparts.
State governments have made some forays beyond the constitutional confines, for example, Selangor’s establishment of private higher education institution, Universiti Selangor, despite universities being exclusively in the federal list. State governments have also established commercial entities that engage in land development and various commercial ventures, to generate revenues. Notably, subsidiaries of Selangor’s Menteri Besar Inc. administer the state’s social assistance programmes. Such provisions are arguably approved, as “social welfare” is in the Concurrent List, but the constitutionally mandated revenue sources evidently generate insufficient funds to meet the government’s commitments. In some ways, state governments are distinctly poised to deliver services, due their proximity to local constituents and responsiveness to demands on the ground. Covid-19 measures by state governments alongside the federal machinery, in providing aid and administering vaccines, demonstrated their ability, and in some ways their advantage, in effectively addressing public health needs (Yeoh forthcoming). The expansion of social protection over the past decade and a half, and the pandemic experience have shown that the scope for state governments in public health and social welfare can assuredly be expanded.
The states have complained. Heavy reliance on land-based revenue directly constrains their capacity, while providing windfalls to those with oil reserves, as starkly shown in the next section. Capitation grants, which are scaled to population with some in-built progressive distribution, technically transfer funds from federal to state, but have tended to operate in an opaque manner, with grouses volubly raised from time to time.2 In June 2022, members of parliament critiqued the lack of benefits to the most populous and advanced state of Selangor despite its large contributions to the national economy and its high administrative and infrastructure expenses.3 In March 2023, Kedah’s former Chief Minister Mukhriz Mahathir bemoaned the lack of federal support, both in capitation grants and development investment, for less advanced states.4 Amid the recurring queries, Deputy Finance Minister Steven Sim explained in parliament that federal-to-state transfers are not driven by political affiliation, and that development projects for less advanced states, along with ecological fiscal transfers, have continually been rolled out.5
However, the implementation of capitation grants — a basic question of whether the Finance Ministry abides by the clear and simple, if outdated, calculation formula — has not been publicly accounted. State government debt to the federal government, which hovered at a hefty RM17 billion throughout 2015-18, underscores the inadequacy of their internal funding and compounds the federal-state hierarchy (Yeoh 2021). Selangor’s declaration, as part of the state’s 2024 budget, that the state would fully settle its debt to the federal government resonates with a salutary notion that state governments should be freed from such financial yokes.6
The consequences of state government’s land use decisions, including issuance of logging and mining concessions or conversion of farmed or agriculturally designated land to industrial status, are immense. Malaysia’s state governments have overseen extensive logging and deforestation, largely for oil palm plantations.7 The option to convert land use to more financially profitable purposes, which entails land premium collection by the state government, sometimes works to the detriment of existing or potential food agriculture.8 The underlying causes are not reducible to a single factor; award of logging concessions or land conversions are vulnerable to rent-seeking activity and it is unclear if the ensuing deals contribute substantially to state coffers. Measures to enhance the efficacy and integrity of logging licenses, such as through open tenders, have been proposed, for example in Kedah (2014) and Sarawak (2017).9 The availability of more non-land-based sources of revenue will not eliminate rent-seeking proclivities, but would arguably reduce pressure on extracting revenue and also confound the lack of state revenue being used as a pretext for land conversion. It would also enhance state governments’ ability to stake performance legitimacy by delivering more social welfare and public services.
Other sources that state governments generate or receive have emerged in recent decades. State economic development corporations (SEDCs), in operation since the 1960s, have continually been involved in commercial or residential land development and promotion of Bumiputera enterprise. From the 1990s, Chief Minister offices established commercial entities venturing into broader fields, including higher education and technological sectors. New federal grants have also emerged, notably the ecological fiscal transfers (EFTs) introduced in 2019, emulating the practice in other countries of national governments financially supporting subnational governments in conservation matters. In principle, EFTs compensate state governments for foregoing proceeds that converting forests to commercial uses could bring them.
Beyond the quantity of government revenue, a further issue in the federal, state and local government structure concerns the coherence of their respective sources of income with governmental functions and the returns to taxpayers. Federal collection of the vast bulk of direct and indirect taxation and numerous fees and charges concurs with the breadth of functions that in turn enable economic and social life. Importantly, tax on income and profit justifiably flows to federal coffers, in light of the central government’s provision of law and public administration, infrastructure, external relations, basic education and a public health system, which all undergird the generation of income and profit in society as a whole. Likewise, assessment rates that finance local governments allow the latter to render to constituents essential local services such as waste disposal and public amenity maintenance.
This circular flow, however, has become disjointed for Malaysia’s state governments, particularly since their expansion into areas that are on the Concurrent List, such as social welfare. But while broadening their range of services – which state governments are eminently poised to deliver – they remain incapacitated by dependency on the finite resource of land.
Taxation on consumption stands out as a revenue source that can fill the gap, and also help state finances ride out business cycles and maintain stability through economic crises.
STATE GOVERNMENT FINANCES: SMALL BUDGETS AND PERSISTING CONSTRAINTS
The fiscal balance of Malaysia’s state governments emphatically shows their meagre collections. State governments’ revenue in 2023 averaged RM926 per capita, just 10.3 per cent of per capita federal government revenue of RM28,153 (Table 1). There are wide disparities across states, with Sarawak generating RM4,414 for each resident, and Terengganu and Sabah also enjoying sizable revenue in excess of RM1,500. Oil royalties account for these three states’ stark advantage over the rest, with Sarawak and Sabah also reaping petrol sales tax. Relatively land- and forest-abundant Kelantan, Perlis and Pahang evidently can tap into resources to register among the higher per capita state government revenue on the Peninsula, after Terengganu. At the lower end, the more industrialised and urbanised Selangor and Penang earn the lowest revenue per capita. State versus federal government annual expenditures display a similar pattern, except that the disparity is higher due to the greater capacity of the federal government to borrow and run deficits; hence, federal expenditures exceed state expenditures by a wider margin (Appendix Table 3).
Table 1. Revenue of state governments* (highest to lowest GDP per capita)
Source: Author’s compilations from DOSM (2023) and news reports.
Notes: * 13 states exclude the Federal Territories (Kuala Lumpur, Labuan, Putrajaya). ** Projected revenue.
The dependency on land-based revenue manifests all around, including in the more advanced states which enjoy wider options for generating revenue. Selangor’s signature Inisiatif Peduli Rakyat (caring for the people) family of social assistance programmes are parked under the Menteri Besar Incorporated holding company that manages the state government’s assets. However, Selangor’s 2022 revenue still comprises mainly land premiums (RM849 million, or 46 per cent of the total revenue), followed by land tax amounting to RM562 million (30 per cent), while major land, forest, or mining taxes, fees, or other payments amounted to RM112 (6 per cent). In total, these land-based sources contributed up to 82 percent of total revenue; receipts from the federal government amounted to RM215 million (11 per cent). Perak’s revenue for 2021, the most recent reported year, consisted of 70 per cent from land-based sources, and 15 per cent from federal government transfers.10
The contribution of forest-based revenue warrants specific attention, as both an economic and ecological concern. The Forestry Department of Peninsular Malaysia’s annual reports tabulate data on forest-based revenue and forested area, which enable us to juxtapose some snapshots across time, at least until the most recent disclosure in 2019. Pahang and Kelantan, abundantly endowed with forest and with relatively higher forest area, also extract the most from forests — with 18-20 per cent of annual revenue derived from these (Table 2). Simultaneously, Kelantan has registered the highest loss of forest, and a steady increase in forest-based revenue in the decade prior to 2018 (Figure 1). These numbers must be handled with care in general; the relatively lesser loss of Pahang’s official forest cover, for example, warrants further investigation.11
Notwithstanding the data gaps, Malaysia must break a vicious cycle of over-reliance on land-based revenue and over-exploitation of natural resources. We should also note that Johor’s high forest loss has transpired despite the state’s low dependency on forest-based revenue. Sustainable forest management entails addressing a complex of factors, one of which is decidedly state government reliance on forest-based revenues. On this note, the brewing zeal to tap into potential rare earth mining bonanzas could also be tempered by the availability of non-land-based revenue sources.
Ecological Fiscal Transfers have swung into motion as a conservation instrument, with the federal government continually raising this budget line item from RM70 million in 2022 to RM150 million in 2023 and RM200 million for budget 2024. The mechanism and outcome of distribution – regarding which states would receive EFTs and how much – remain unclear. However, this is a development that deserves to proceed and be evaluated. At the same time, the allocations are in the grand scheme of state finances, and may struggle to be robustly increased within the federal budget bargaining process. EFTs should be viewed as a reinforcement, not a replacement, for increasing state revenue and enhancing state governments’ role and accountability as custodians of the land.
Table 2. Peninsular Malaysia States: Forest-based revenue and forest area (2009-2019)
Sources: Author’s calculations from Forestry Department Peninsular Malaysia(2010, 2020) and news reports.
Notes: * Forest-based revenues are derived from royalties, premiums, cess, forest offence fines, compensations and other charges or fees; ** “Forest area” includes permanent reserved forest (which may be approved for logging and forest plantations), wildlife forest parks, state parks, and state land forest.
Figure 1. Peninsular Malaysia states: Annual forest-based revenue (RM million), 2008-2018 (three-year moving average)
Source: Official data compiled by Macaranga Media.
The constitution gives prominence to capitation grants, and specifies a simple population-based formula for calculating the quantum. However, lawmakers and state government leaders have questioned the supply of these grants, suggesting incomplete adherence to the rule, or opacity in general even if the grant is being administered. Full compliance, which translates into the payment schedule in Table 3, can go some ways toward addressing the critiques of the economically-leading states that contribute extensively to federal government revenue — and are also relatively less land-endowed — but receive disproportionately less from Putrajaya. Selangor and Perak budget documents disclose that the state received capitation grant of RM77.2 million and RM36.0 million, respectively, in 2022 (differences in population data might account for the discrepancy between this amount and the figure in Table 3).12 Complaints that the federal government ignores states may be induced by the derisory amount of these mandated transfers. Even if the constitutional terms are fully honoured, the quantity — mostly in the range of RM12-16 per capita — is ultimately far less consequential than that which broader reforms can deliver.
Table 3. Estimated capitation grants from federal to state governments
Source: Author’s calculations based on the Federal Constitution13
Federal development grants flow more voluminously to states. The amounts can be sizable, but are also ad hoc and contingent on projects. Costly and cross-border projects unquestionably require pooling of funds and coordination, which are the province of the federal authorities. Nonetheless, more state government revenue will empower them to undertake development, possibly in more responsive and nimble ways than the complex federal bureaucracy do.
EXPANDING ROLES AND RESOURCES
The preceding discussion has elucidated Malaysia’s sub-optimal federal system, in terms of both design and practice. What alternatives can the country consider? Where and how might Malaysia probe room for expansion?
This weighty subject entails a broader discussion, and possibly some proposition of constitutional amendment, but two starting points stand out. Considering the advantages of the state-level of government in proximity and responsiveness to the people, and the foreseeable political intractability of constitutional amendments to the Ninth Schedule of federal and state responsibilities, items on the Concurrent List present a more feasible path forward for states to play a larger role — specifically in social welfare and public health.
On the revenue side, a bold and constructive debate must be opened on elements of the tax regime currently monopolised by the federal government. Aside from Sarawak and Sabah’s petrol sales tax, the federal government collects all consumption tax, encompassing sales, services, and excise. For reference, Malaysia’s last goods and services tax (GST) collection of 2018 amassed RM41 billion, or 2.8 per cent of nominal GDP (RM1,447 billion). State governments could be the recipients, either through a constitutional reform that allows for sales tax collection, akin to the provision for Sabah and Sarawak, or a statutory requirement for consumption tax to be apportioned between the federal and state governments. The rate of taxation or breakdown between federal and state shares must be debated critically and transparently, but can refer to prospective returns to the state.14 Various federal-structured countries’ collection of national and subnational consumption taxes — notably Australia, Brazil, Canada, and India — are worth considering (Appendix Table 4).
Table 4 presents hypothetical consumption tax revenue, based on share of GDP, and the resulting boost to state government capacity. Consumption tax amounting to 1% of GDP would generate for the 13 states a total of RM14.3 billion in 2022, with RM4.2 billion to Selangor, RM2.0 billion to Sarawak, RM1.2 billion to Sabah, and substantial amounts to all others. Such financial gains, accompanied by an express mandate for states to expand social welfare and public health programmes, could help make the reform more electorally palatable. For instance, a national consensus could task state governments with providing universal pension for senior residents. A constitutional amendment to permit Peninsular Malaysia states to collect sales tax would require a momentous mustering of political will, but considering the economic, social and sustainability benefits involved, the endeavour would be a meaningful and productive channelling of national energy.
Table 4. Consumption tax revenue to state governments: hypothetical scenarios
Source: DOSM (2023); author’s compilations from news reports; author’s computations.
CONCLUDING NOTE
Malaysia’s state governments have been gaining political prominence but remain functionally constrained. Their dependency on land-based revenue militates against sustainable development. Expanding both the roles and resources of state governments makes eminent sense logically and practically. However, this may involve considerable, but not insurmountable, constitutional navigation.
Delegating more roles and resources to the subnational levels would also resonate with sound democratic ideals and the principle that self-sufficient state governments can provide more for their constituents and are less beholden to federal masters. Progress, of course, must surmount political barriers, and tendencies within the central government to keep the states beholden, to dispense patronage, and thus to maintain power. Such structures look increasingly like relics of Barisan Nasional’s “stable” rule. With coalitions now loosely formed and with power dispersed, and with East Malaysia continually asserting autonomy, resolving the insufficient state of Malaysia’s subnational governments may well enhance political stability.
REFERENCES
DOSM. 2023. Gross Domestic Product (GDP) by State, 2022. Putrajaya: Department of Statistics Malaysia.
Forestry Department Peninsular Malaysia. 2010. Annual Report. Kuala Lumpur: Forestry Department Peninsular Malaysia.
Forestry Department Peninsular Malaysia. 2020. Annual Report. Kuala Lumpur: Forestry Department Peninsular Malaysia.
Hutchinson, Francis E. 2014a. “Malaysia’s Independence Leaders and the Legacies of State Formation under British Rule”. Journal of the Royal Asiatic Society 25: 123-151
Hutchinson, Francis E. 2014b. “Malaysia’s Federal System: Overt and Covert Centralisation”. Journal of Contemporary Asia 44, no. 3: 422-442.
Ostwald, Kai. 2017. “Federalism without Decentralization Power Consolidation in Malaysia”. Journal of Southeast Asian Economies 34, no. 3: 488–506.
Yeoh, Tricia. 2020. “Federal-State Relations Under the Pakatan Harapan Government”. Trends in Southeast Asia 2020 No. 12. Singapore: ISEAS.
Yeoh, Tricia. 2021. “Will Pakatan Harapan’s Hold on Selangor Continue?” Trends in Southeast Asia 2021 No. 3. Singapore: ISEAS.
Yeoh, Tricia. forthcoming. “Conflict and Cooperation: COVID-19 Policy Coordination in Malaysia”. In Covid-19 in Southeast Asia, 2020-2022: Restriction, Relief, Recovery, edited by Lee Hwok Aun, Siwage Dharma Negara and Jayant Menon. Singapore: ISEAS.
APPENDICES
Appendix Table 1. Division of Responsibilities between the Federal and State Governments
Source: Federal Constitution, Ninth Schedule (compiled and tabulated in Yeoh 2020).
Appendix Table 2: Revenue Sources to Federal and State Governments
Source: Federal Constitution, Tenth Schedule (compiled and tabulated in Yeoh 2020).
Appendix Table 3. Expenditure of state governments (highest to lowest GDP per capita)
Source: Author’s compilations from DOSM (2023) and news reports.
Note: 13 states exclude the Federal Territories (Kuala Lumpur, Labuan, Putrajaya).
Appendix Table 4. Notable countries with subnational-national consumption tax structure
Source: Author’s compilations from https://taxsummaries.pwc.com/.
ENDNOTES
For endnotes, please refer to the original pdf document.
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2023/97 “Malaysia’s Return to Mining: Redeveloping Rare Earth Elements (REE)” by Tham Siew Yean and Neo Hui Yun Rebecca
EXECUTIVE SUMMARY
- Increasing scrutiny of mineral resources at the global level has led to greater domestic interest in Malaysia’s mineral resources. The Malaysian government has called for a return to mining, focussing especially on the development of a sustainable non-radioactive rare earth element (NR-REE) industry that aims to shift from upstream to downstream activities.
- The history of REE development in Malaysia has been dogged with environmental, health and safety concerns, as exemplified by public concerns over the disposal of radioactive waste generated by Lynas’s operations in the country since 2012.
- Concerns over deforestation have also emerged; REE appear to be located at or are close to high-carbon stock areas. The government is suggesting an alternative method for extracting NR-REE, i.e. through in-situ leaching which reduces land clearing and tree felling, but this risks polluting surface water in mining areas.
- The conversion of radioactive waste to non-radioactive waste has been experimented at the laboratory level, with the aim of creating a sustainable solution for the disposal of radio-active waste materials.
- While the government is considering an export ban on NR-REE to attract foreign direct investment for the development of downstream activities, there is as yet no discussion over the use of mineral rents, be it at the state and federal level.
- Countries and companies cannot be expected to abandon the exploitation of mineral resources as a viable economic activity, however, and a more balanced approach is to subject the exploitation of these resources to stronger governance, greater transparency, and better accountability.
* Tham Siew Yean is Visiting Senior Fellow at ISEAS – Yusof Ishak Institute and Emeritus Professor at Universiti Kebangsaan Malaysia. Neo Hui Yun Rebecca is Research Officer at ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2023/97, 13 December 2023
INTRODUCTION
Mining—especially of tin—was historically an important activity on the Malay Peninsula, from the time the mineral was first discovered in the late 19th century till industrial development took off in Malaysia in the late 1960s.[1] As manufacturing expanded, mining became less important.
Global developments since then have changed the world demand and supply of critical minerals in the world. Critical minerals, defined by the Energy Act of 2020, are mainly non-fuel minerals or elements identified to have a high risk of supply chain disruption but which have an essential function in one or more energy technologies.[2] Projections from the International Energy Agency (IEA),[3] indicate that the rush for clean energy and the attendant demand for electric vehicles (EVs) and batteries needed to power the EVs have driven up the demand for critical minerals such as aluminium, nickel, tin, rare earth elements (REE) etc. Geopolitical tensions have also spurred a proliferation of new industrial policies seeking to reduce overdependence on limited sources of supply. Supply is however concentrated to a few economies, with the share of the supply in the top three economies in 2022 remaining the same or even larger, seen over the last three years (Figure 1).
Figure 1: Share of top three producing countries in processing of selected minerals, 2022[4] (Last updated 11 Jul 2023)
Sources: See endnotes
Developing countries that are resource-rich in critical minerals are therefore keen to seize this high-demand opportunity to join the emerging new supply chain and to use these resources as a new source of growth. Likewise in Malaysia, interest in mining activities has revived in line with the rise in global interest. This article traces new interest in the development of mining activities, the types of minerals available, and their location in Malaysia. Current policies and challenges to develop the rare earth industry is used as a case study.
A RELOOK AT MINERAL RESOURCES IN MALAYSIA
Malaysia’s National Mineral Industry Transformation Plan 2021-2030 (NMITP), launched in 2021, aims to develop the mineral industry sustainably, and along the entire value chain, as a new source of growth for Malaysia. It maps the mineral resources in the country, which include metallic and non-metallic minerals. Figures 2 and 3 show their extensive presence in every state of Malaysia.
The plan reveals that Malaysia possesses mineral resources potentially worth RM 4.11 trillion (approximately US$982 billion); these include both metallic and non-metallic minerals. The estimated value of metallic minerals alone is RM1.03 trillion, with critical minerals possessing a potential estimate value of up to US$182 billion.[5] Metallic minerals such as nickel, manganese, copper, and aluminum are used in EV battery production. While Rare Earth Elements (REE) are also used for the development of electric vehicles (EVs), they are not used in lithium-ion batteries. Instead, they are necessary for the magnets that form the main propulsion motors.
The plan considers five minerals (with estimated value of deposits) to be strategic: non-radioactive rare earth elements (NR-REE) such as lanthanide elements[6] (RM747.42 billion); bauxite (RM20.3 billion); tin ore (RM140.4 billion); silica sand (RM27.9 billion); and kaolin (RM25.5 billion).
Figure 2. Mineral Resources in Peninsular Malaysia, 2023
Source: Authors
Figure 3. Mineral Resources, East Malaysia, 2023
Source: Authors
Of the five strategic minerals identified, NR-REE[7] has the highest estimated value and hence is the focus for the current administration’s strategic interest. The following section explores the exploitation of NR-REE and the outstanding challenges involved.
Case Study: Redeveloping the Rare Earth Element (REE) industry
There were two companies producing REE in the 1970s, namely, Malaysian Rare Earth Corporation (MAREC) and Asian Rare Earth (ARE) in Perak. These were sister companies with Japanese equity partners.[8] ARE mainly produced intermediate mixed RE products which were exported to RE purification plants in Japan and Europe to produce high-purity individual REEs for use in high-tech applications. MAREC, on the other hand, mainly focused on the export of yttrium oxide concentrate to countries like Japan, USA, United Kingdom and Norway, where the mineral was further purified to produce valuable Heavy Rare Earth Elements (HREE) commonly used in clean energy technology.[9] Both companies were closed down in 1992 due to public protests and conflicts over the dangers associated with the disposal of radioactive waste materials.[10] Apart from that, the high maintenance cost of the plants, worsened by the 14-month suspension issued by the High Court to curb environmental dangers, was another factor that attributed to the plants’ eventual closure.[11]
In 2008, Lynas Malaysia Sdn Bhd (Lynas), a wholly-owned subsidiary of Lynas Corporation Ltd of Australia, was given a manufacturing license to produce rare earth oxides and carbonates at Gebeng Industrial Estate in Kuantan, Pahang. Setting up the Lynas Advanced Material plant (LAMP) in Malaysia was an expansion by the company to strengthen its rare-earth’s supply chain, following a significant investment of $304 million (AU$450 million) pledged through an equity-raising initiative.[12] Lynas used this location in Malaysia to develop a facility to process mineral concentrates imported from its mine in Australia. In 2011, in response to public concerns over health and safety issues over the radioactive waste associated with the processing of REE, the government called for a third-party assessment by a team of experts from the International Atomic Energy Agency (IAEA), on Lynas’ compliance with international safety standards and good practices and radiation safety.[13] The team found that Lynas complied with the radiation safety standards imposed by the regulatory authorities, and their findings were made public. The plant then restarted operations in 2012 by refining and processing rare earth oxides mined from Mount Weld into high-quality separated rare earth materials for export to manufacturing markets in Asia, Europe and United States.[14] The plant has since boasted an annual production capacity of 22,000 tones, helping the company to double its total production. It also provided 450 jobs for locals, making the east coast of Malaysia an attractive place for other investors interested in the rare-earth supply chain.[15] Despite this, each renewal of the operating license of Lynas remains contentious amid public protests over radioactive waste materials from the plant.[16] The tussle over the extension of its operating license and the disposal of radioactive waste materials continued until the latest episode when it was up for renewal again in 2023. The license was subsequently extended till March 2026.[17]
REE development continues to be championed by certain segments of Malaysian society. In 2014, Akademi Sains Malaysia (ASM), together with the Ministry of Science, Technology, and Innovation (MOSTI), produced a Blueprint for the establishment of REE industries in the country as a new source of growth. A critical component of this plan was the call for development of midstream and downstream activities, rather than a mere focus on upstream extraction alone; this was to increase value-added activities in the country (Figure 4). Midstream refers to the transformation of minerals into refined products through separation and purification while downstream activities input these refined products into manufacturing.
Figure 4. Value Chain Activities for Developing NR-REE
Source: Tham 2023[18]
Although the suggested blueprint was not adopted, the government came up with the NMITP in 2021. Like the blueprint, this latter plan also emphasized downstream development as the way forward for mineral resource development. The New Industrial Master Plan 2030 (NIMP 2030), launched in September 2023, also calls for downstream development by using mineral resources to manufacture advanced materials, with the types of advanced materials being left to be determined by the market players.
The government subsequently announced a plan to prohibit the export of raw NR-REE,[19] a move reminiscent of Indonesia’s shift towards resource nationalism in its ban of nickel exports for furthering downstream activities. The reason behind both bans is to encourage the establishment of production plants within the country; this would hopefully create jobs for locals and raise national incomes through higher-value processed materials being exported instead of raw metals. Malaysian Investment Development Authority (MIDA) also provided incentives to attract investments for the development of downstream activities such as Pioneer Status (which includes five-year partial income tax exemption) and Investment Tax allowance.
KEY CHALLENGES IN THE REDEVELOPMENT OF REE
Environmental Concerns
As noted by IEA,[20] local and regional development are affected by mineral exploitation in three significant ways. The first is the use of the land where the unmined minerals are found. Deforestation is a key concern. For example, the spurt in nickel mining in Indonesia since 2019 has led to a loss of 76,301 hectares in the country,[21] escalating the loss in biodiversity and the habitats of some endangered species.
Likewise, NR-REE in Malaysia appear to be located near or at high-carbon stock areas (see Figures 5 and 6 below). A deeper investigation of these locations also revealed the great extent to which surrounding areas have been deforested over the last 10 years (2012 to 2022). Although the causes of the deforestation are not known, this connection highlights forested areas can be encroached upon once a certain area is identified for future NR-REE mining.
Figure 5. Deforestation around NR-REE locations and High Carbon Stock Areas in Peninsular Malaysia, 2012-2022[22]
Source: Authors
Figure 6. Deforestation around NR-REE locations and High Carbon Stock Areas in East Malaysia, 2012-2022
Source: Authors
A difference in attitude toward sustainability is also evident between federal and state governments, where state governments are keen to pursue economic interests for REE mining over federal attempts to preserve national carbon stock. Beginning with the 2019 Budget, the federal government has used Ecological Fiscal Transfer (EFTs) to facilitate state government efforts to protect rainforests. However, since land use is controlled by state governments, there have been instances of individual states diverging from the original sustainability goals set by the federal government. The Kelantan state reportedly revealed plans in October 2023, to remove the status of “environmentally sensitive area” (ESA) for up to 88% of its total protected area; this is to free up land for development, albeit the types of development involved are not specified.[23] Similarly, Kelantan had in 2022 estimated that NR-REE mining can boost the state’s economy by RM125 billion, thereby indicating that this is possibly part of the state’s development plan.[24]
To mitigate deforestation due to mining, in-situ leaching has been proposed as an alternative to open cast mining. This method mainly entails the extraction of REE via the injection of chemicals such as ammonium sulfate into hills containing REE deposits. The minerals are then dissolved into a liquid form before being extracted at the surface. This method is known to avoid destruction of vegetation and removal of topsoil, essentially resolving the risk of deforestation. There are other potential pitfalls, however, even if less land clearing and tree felling problems are encountered with in-situ leaching as compared to open cast mining. There is, for example, a possibility of leakage from the leaching ponds which contain pollutants, to underground water or other waterways.[25]
The possibility of contamination remains a contested issue currently. Studies on the impact of in-situ leaching practices in China, which has used this technology since the late 1960s,[26] have shown that there is REE pollution of surface water in mining areas.[27] The Department of Minerals and Geoscience, Malaysia, countered this claim in October 2023, based on findings at an in-situ leaching pilot project for mining non-radioactive rare earth elements (NR-REE) in Mukim Kenering, Hulu Perak, Perak.[28] It remains to be seen if the public is convinced by the findings of one pilot project, as opposed to the evidence available on China’s experience in using this method.
Waste generation from mineral development and processing is another concern. The Lynas tussle over radioactive toxic waste has been momentarily resolved by a proposal to convert radioactive waste to non-radioactive waste. Although the technology is available in Malaysia, it is still at the laboratory level, and is not yet ready for commercial application.[29]
Use of Mineral Rents for Development
Mineral rents can be a good source of income for fostering development. Perak, for example, was reported to have received RM1.66 million in royalty payment for the production of Rare Earth Carbonate (REC) from its rare earth pilot project; the product was then exported to China. The prospects of making a quick buck from selling REE has led to reports of illegal REE mining in Negeri Sembilan and Malacca.[30]
Unfortunately, there has been no disclosure on royalty payments, except when queried in parliament. Neither is there any disclosure on the division of mineral royalty payments between the federal and state governments. More importantly, how the mineral rents are used, be it at the federal or state level remains unknown. The debate as well as the suggested plans and the government’s response through the media have taken a firefighting approach; it has focused mainly on public environmental concerns and safety issues, while the use of mineral rents has not been discussed. For natural resources, which are limited in supply, the conversion of this type of natural capital into physical capital that can drive development is critical, but the road towards capturing mineral rent for this use is paved with governance issues and the political economy of a country.
Although the NIMTP has included governance as one of the important pillars for the development of the mineral industry, there is no discussion on accountability for the revenue received and for these revenues being invested to benefit public welfare for the immediate and the distant future. Accountability requires proper disclosure of revenues paid by the companies involved in mineral development, and much greater transparency in communications with the public.
The government is currently developing a NR-REE business model in conjunction with ASM and Sunway University.[31] It remains to be seen if the use of mineral rents is included in the business model or if the business model merely includes a computation of the rate of return to investment for the investors, without any further discussion on the cost and benefit of mining incorporating the social costs involved.
CONCLUSION
The renewed interest in mining in Malaysia coincides with the rising global interest for greater use and diversification of sources of critical minerals. Yet mining activities face considerable environmental challenges. Mining companies applying for mining rights need to comply with the environmental laws of the country, which includes robust and comprehensive environmental and social impact assessments. More importantly, environmental challenges require that there be strong enforcement as well as monitoring mechanisms for compliance.
Exploiting mineral resources also requires effective cost-benefit analysis of the extraction and use of mineral resources throughout the production and supply chain. This includes careful computation of the social costs of mining and not just the economic returns from down-streaming mining activities within Malaysia.
Since mineral resources are finite in supply, it is equally important that the mining rents collected, be it at the federal or state level, are channelled for development purposes such as investments in tangible public goods such as education and health, or in infrastructure needed by the respective states. Greater transparency and accountability are clearly needed to guarantee that the mineral resources of the country are not exploited for the gains of a few, but for the greater good of the country.
Hence, the government, be it at the state or federal level, must ensure that mining projects are executed with stronger governance, clear transparency, and better accountability so that the mistakes of the past or in other countries that have traversed the same route, will not be repeated.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
2023/96 “Vietnam’s Quest for Enhanced Maritime Domain Awareness” by Bich Tran
EXECUTIVE SUMMARY
- Maritime domain awareness (MDA) is crucial to Vietnam’s defence of its territorial integrity and safety of navigation as well as its economic interests and marine environment.
- Vietnam has been enhancing its underwater, surface, and coastal domain awareness by modernising its sea, air, and space assets through both self-help efforts and external assistance.
- Vietnam also partakes of international cooperation and information sharing to improve collective MDA capabilities.
- To have adequate MDA to monitor its long coastline and vast maritime area, however, Vietnam needs to accelerate its adoption of advanced space technologies, further embrace multilateral maritime security cooperation, and invest in grassroots solutions.
*Bich Tran is Postdoctoral Fellow at the Lee Kuan Yew School of Public Policy in Singapore and Adjunct Fellow at the Center for Strategic and International Studies (CSIS) in Washington DC.
ISEAS Perspective 2023/96, 8 December 2023
INTRODUCTION
Vietnam is a maritime nation with a long coastline and a vast Exclusive Economic Zone (EEZ).[1] As such, maritime domain awareness (MDA) is essential for the country to protect its maritime security. Since setting the goal in 2006 of turning itself into a strong regional marine economy,[2] the country has improved its MDA through both self-help efforts and external assistance. This article discusses Vietnam’s perspective on maritime security and MDA; its modernisation of sea, air and space assets to enhance MDA; and the additional steps the country can take to boost its MDA.
MARITIME SECURITY AND MARITIME DOMAIN AWARENESS
Vietnamese authorities have yet to provide an official definition of “maritime security”.[3] However, an article on the Vietnam Border Guard’s website defines the concept as “a state of stability, safety, and freedom from sea-based or land-based threats that may impede the normal activities of countries, organisations, and individuals at sea, or sea-based threats to the normal activities of countries, organisations, and individuals on land.” [4] This definition implies that Vietnam’s notion of maritime security is comprehensive in nature, taking into account both traditional and non-traditional aspects.
Vietnam places tremendous importance on maritime security for several reasons. First, the country is involved in territorial disputes over the Paracel and Spratly Islands in the South China Sea. Protecting its sovereignty and asserting its sovereign rights over these contested areas are the top priorities in Vietnam’s maritime strategy. Second, Vietnam’s export-oriented economy relies on the safety and freedom of navigation in its waters and the wider maritime region. Third, Vietnam depends on maritime resources for many economic activities, such as fishing, aquaculture, and offshore oil and gas exploration. Safeguarding these interests is therefore essential to Vietnam’s economic wellbeing. Lastly, protecting marine biodiversity and coastal habitats is crucial for Vietnam’s sustainable development.
As with the concept of “maritime security”, the concept of MDA has not been officially defined by Vietnamese authorities either. However, existing definitions are applicable. According to the International Maritime Organization, MDA is “the effective understanding of anything associated with the maritime domain that could impact security, safety, the economy or the marine environment.”[5] Meanwhile, Transport Canada offers an expansive definition of MDA, which encompasses accurate and up-to-date information about “everything on, under, related to, adjacent to, or bordering a sea, ocean or other navigable waterway,” including any and all activities, structures, individuals, goods, vessels, and transportation methods.[6] It means MDA entails underwater, surface, and coastal domain awareness.
Thus, MDA serves as the “engine room” for maritime security governance at both national and international levels.[7] With a comprehensive awareness of the maritime domain, coastal states like Vietnam can better detect, deter, and respond to maritime security threats. Furthermore, with robust MDA, coastal states can understand maritime patterns, anticipate maritime security threats, and deal with them in an effective manner before they escalate. For example, knowing where threats are most likely to occur or where illegal activities often take place allows for more efficient deployment of patrol vessels, aircraft, and personnel.
At the national level, the main actors in Vietnam’s MDA are the Vietnam People’s Navy (VPN), the Vietnam Coast Guard (VCG), and the Vietnam Fisheries Resource Surveillance (VFRS).
The VPN is the core force in defending Vietnam’s sovereignty, sovereign rights, and territorial integrity in its seas and islands. It also participates in natural disaster prevention and control, search and rescue, and protects marine economic activities in accordance with Vietnamese and international laws.[8] The VPN contributes to Vietnam’s MDA by deploying its naval assets, including ships, submarines and aircraft, for surveillance and reconnaissance missions over vast and critical maritime areas.
The VCG is a part of the People’s Armed Forces and serves as the state’s maritime law enforcement agency. It is responsible for protecting Vietnam’s sovereignty, sovereign rights, and national jurisdiction in its maritime regions; ensuring maritime security and order; and upholding both Vietnamese laws and international treaties to which Vietnam is a party. The VCG is equipped with ships, aircraft, weapons, explosives, support tools, and technical equipment to perform its functions, tasks, and powers.[9] By maintaining a consistent presence at sea, the VCG can detect, monitor, and address activities that may threaten Vietnam’s maritime interests.
The VFRS is a state agency that enforces Vietnam’s laws and international treaties related to aquatic resources. Its responsibilities include patrolling, inspecting and acting against violations; educating about fishing laws; protecting Vietnamese maritime sovereignty; and promoting international cooperation in fisheries surveillance. The VFRS has the authority to request relevant information, manage weapons and equipment for surveillance purposes, and chase or arrest non-compliant individuals or vessels.[10] An important aspect of the VFRS relates to its ensuring the legal implementation of aquatic exploitation and protection, including preventing illegal, unreported, and unregulated (IUU) fishing.
Depending on specific issues, collaboration and coordination among VPN, VCG and VFRS might be handled through inter-agency mechanisms. For instance, the VFRS has closely coordinated with the VPN, the VCG, and other authorities to combat IUU fishing, aiming at lifting the European Commission’s “yellow card”—an official warning issued by the European Union to Vietnam for falling short in tackling IUU fishing.[11] However, there is no singular central agency solely dedicated to the coordination of all maritime activities.
VIETNAM’S EFFORTS TO IMPROVE ITS MDA
Vietnam’s need to bolster its MDA stems from an array of evolving traditional and non-traditional security challenges affecting its national security and economic vitality. Chief among these is China’s increasing assertiveness in the South China Sea, including the construction and militarisation of artificial islands, and frequent naval patrols, all of which reinforce China’s expansive territorial and maritime claims. Vietnam also faces the persistent issue of IUU fishing, which not only threatens the economic wellbeing of local communities but also the country’s international reputation. Moreover, Vietnam grapples with the complex issue of smuggling, including drug trafficking, human trafficking, and the transportation of contraband. This further complicates its security environment. In response, Vietnam has been making an effort to enhance its underwater, surface, and coastal domain awareness, by modernising its sea, air, and space assets.
Underwater Domain Awareness
Vietnam has significantly enhanced its underwater domain awareness through the deployment of submarines. In 2009, the country placed an order for six Project 636 Kilo-class submarines from Russia, which were delivered between 2013 and 2017. These Kilo-class submarines are specifically designed for anti-submarine warfare and anti-surface-ship warfare, but are also capable of general reconnaissance and patrol missions. Regarded as one of the world’s most silent diesel submarines, they possess remarkable stealth capabilities. Equipped with advanced MGK-400EM digital sonars, their capacity to detect enemy submarines exceeds their own detectability range by three to four times. They can detect targets in sonar listening mode and engage in telephone and telegraph communication in both long-range and short-range modes. Moreover, they are equipped with radar that operates in periscope and surface modes, providing valuable information on underwater and air situations, radar identification, and navigational safety.[12]
Before acquiring the Kilo-class submarines, Vietnam had been operating two Yugo-class midget submarines obtained from North Korea.[13] The Yugo-class submarines, with their compact size, serve as cost-effective options for coastal operations and limited missions.[14] However, the Kilo-class submarines offer superior range, endurance, and versatility. Their larger size, advanced propulsion systems, and greater crew capacity enable them to undertake a wider array of missions and establish a more formidable maritime presence. This allows Vietnam to patrol its territorial waters and EEZ more effectively.
Surface Domain Awareness
Between 2011 and 2018, Vietnam made significant progress in enhancing its surface domain awareness by expanding its fleet of vessels, predominantly sourced from Russia. The VPN acquired four Project 10412 Svetlyak patrol crafts,[15] which can be deployed to various missions, including safeguarding coastal lines of communications. During this period, Vietnam also purchased four Gepard-3 frigates from Russia as part of its naval expansion. The first two frigates were ordered in 2006 and were successfully delivered in 2011, followed by two Gepard-3.9 versions which were delivered between 2017 and 2018. The Gepard 3.9 class frigates are well-equipped for convoy operations and patrols, and for safeguarding the maritime border and EEZ.[16] In addition, Vietnam constructed four FC-54 patrol crafts, known as TT400TP in Vietnamese, between 2012 and 2014 based on a design purchased from Russia. These ships were constructed at the Hong Ha Shipbuilding Plant under the supervision of the Defence Industry General Department.[17]
Vietnam has also increased the number of its vessels with the help of its foreign partners. In 2022, India handed over the 12 high-speed patrol boats built under the US$100-million line of credit extended to Vietnam in 2014.[18] In June 2023, India further announced it would provide Vietnam with an active-duty missile corvette–the first time India has ever granted a warship to another country.[19] Japan provided the VCG and VFSR with seven second-hand marine vessels (along with maritime safety equipment) in 2015, and six new patrol boats in 2017.[20] In 2020, Tokyo loaned Hanoi US$348.2 million to build six more patrol vessels, which are expected to be delivered to the VCG by 2025.[21] The VPN received two Pohang-class corvettes from South Korea in 2017 and 2018.[22] Meanwhile, the United States delivered 24 new Metal Shark patrol boats and two used Hamilton-class cutters to the VCG between 2017 and 2020.[23] In 2022, Washington promised to transfer another cutter to Hanoi.[24]
In addition, Vietnam has utilised airborne resources to enhance its surface domain awareness. In 2010, the VPN ordered three DHC-6 (Guardian-400 version) maritime patrol aircraft from Canada, which were delivered in 2014. These are used for surveillance as well as search and rescue missions across Vietnam’s coastal areas.[25] Additionally, in 2018, the VPN procured from Israel three Heron unmanned aerial vehicles (UAVs) with medium-altitude long-endurance capabilities, which were delivered in 2021. The Heron system is equipped to handle up to six diverse mission payloads simultaneously. This allows for complex intelligence, surveillance, target acquisition, and reconnaissance operations across various terrains, including at sea.[26]
Vietnam further augments its surface domain awareness using space-borne resources. In 2013, Vietnam achieved a significant milestone in its space programme with the launch of its first Earth observation satellite, VNREDSat-1, constructed by Airbus. The satellite has remained operational in orbit for ten years, double its anticipated lifespan. Throughout this extended period, VNREDSat-1 has played a vital role in tackling various challenges, including water resources management and coastal management.[27] Currently, Vietnam is exploring the development of the successor programme, VNREDSat-2; however, progress has stalled due to the pending finalisation of the procurement process, and the selection of the launching agency.[28]
In 2020, Vietnam commissioned the LOTUSat-1, a Japanese-built Earth observation satellite system funded by Official Development Assistance, from the Japan International Cooperation Agency. The system includes a satellite, a ground system, and training programmes. The satellite, equipped with Synthetic Aperture Radar, was initially slated for a 2023 launch, but the target has been shifted to 2024. The ground-based infrastructure comprises a parabolic antenna, a control hub for satellite operations, a centre for utilising mission data, and an interface for users. The LOTUSat-1 will be key in Vietnam’s efforts to combat natural disasters and address climate change issues.[29]
Vietnam has made use of its partners’ space assets to enhance its surface domain awareness. In 2018, Hanoi reached an agreement with New Delhi to set up the Data Reception and Tracking and Telemetry Station (DRTTS) in Ho Chi Minh City. The DRTTS allows India to track and receive data from its Earth observation satellites as they pass over Southeast Asia. In return, India provides Vietnam and its regional partners with satellite imagery, which is instrumental in monitoring China’s activities in the South China Sea.[30]
Vietnam’s surface domain awareness is also enhanced with SeaVision,[31] an advanced web-based maritime situational awareness tool promoted by the U.S. Navy and managed by the U.S. Department of Transportation. With its user-friendly interface, SeaVision allows users to view and analyse maritime data based on user-defined rules, facilitating better decision-making and response coordination. In November 2019, instructors of the U.S. Naval Information Warfare Center Pacific offered a training course in Hanoi for 16 members from different maritime authorities of Vietnam on how to use SeaVision to identify different situations at sea and to protect national sovereignty. In April 2021, the U.S. Office of Defence Cooperation and the Bureau of Drug Prevention and International Law Enforcement provided a similar online training course for various Vietnamese maritime agencies including the Vietnam Maritime Administration, provincial and municipal port authorities, the Maritime Search and Rescue Coordination Center, and the Directorate of Fisheries.[32]
Coastal Domain Awareness
To enhance its coastal domain awareness, Vietnam has strategically installed radar stations along its extensive coastline, from Quang Ninh Province and Hai Phong in the North to Phu Quoc Island in Kien Giang Province in the South. One example is the domestically produced VRS-CSX medium-range maritime radar built by Viettel High Technology Corporation.[33]
Another pillar of Vietnam’s coastal domain awareness is the vigilant monitoring of ports and other coastal facilities. In 2013, the Vietnamese General Department of Customs issued Regulations on Customs Supervision by Camera System, which mandated the installation of identification cameras, and CCTV operating 24/7 to monitor ports.[34] Since then, local authorities have instructed relevant agencies to install these surveillance cameras to look out for suspicious cargo and illicit activities.[35]
Additionally, Vietnam keeps a close watch on its coastal ecosystems with support from the Australian government. Notably, under Australia’s Marine Resources Initiative (MRI), which was launched in 2020, the Department of Foreign Affairs and Trade, Geoscience Australia, and the Australian Institute of Marine Science (AIMS) have utilised leading-edge satellite imaging and modelling technology to assist marine spatial mapping and coral reef monitoring in Vietnam and other Southeast Asian countries.[36] Geoscience Australia has arranged two educational trips to Australia for Vietnamese officials and scientists to improve their understanding of seabed morphology, as well as data collection and processing techniques. Moreover, AIMS signed a Memorandum of Understanding with the Institute of Oceanography in Vietnam to collaborate on coral reef monitoring.[37]
ROOM FOR IMPROVEMENT
While the modernisation of sea, air, and space assets has significantly bolstered Vietnam’s MDA, there is still much room for improvement.
First, there is an urgent need for the country to accelerate its space programme. Even with an increased number of vessels, Vietnam struggles to adequately cover its extensive waters, making reliance on satellites and emerging technologies inevitable. The technology of Vietnam’s first earth observation satellite, VNREDSat-1, has become outdated due to technological advancements in the past decade. Moreover, with the rapid surge in data volume, there is a pressing need for artificial intelligence integration to detect anomalies and facilitate advanced data analysis.
Second, Vietnam needs to further embrace multilateral maritime security cooperation. Vietnam has actively participated in some regional multilateral capacity-building programmes, such as the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP),[38] Australia’s Maritime Consultancy 1.0 and 2.0 programs,[39] and the Southeast Asia Cooperation and Training exercise.[40] However, Vietnam has been reluctant to join the Critical Maritime Routes Indo-Pacific (CRIMARIO),[41] a maritime capacity-building initiative by the European Union. Officials from CRIMARIO have invited Vietnam to join the Indo-Pacific Regional Information Sharing (IORIS) platform, a secure web-based maritime coordination and information-sharing tool that can complement SeaVision to enhance Vietnam’s MDA capabilities. CRIMARIO has also offered a series of virtual training courses to Vietnamese officials. However, Vietnam has neither joined IORIS nor clearly communicated its intentions, leaving potential collaborators uncertain about its stance.[42]
Vietnam should also consider joining the Indo-Pacific Partnership for Maritime Domain Awareness (IPMDA), a technology and training initiative announced by the Quadrilateral Security Dialogue member states (Australia, India, Japan and the United States) in 2022. IPMDA employs cutting-edge technology, including commercial satellite radio frequency, to provide regional partners with almost real-time information on activities taking place within their respective maritime zones.[43]
Finally, while Vietnam has predominantly adopted a top-down approach in bolstering its MDA, there is untapped potential in harnessing bottom-up initiatives. A viable strategy could involve equipping mariners from coastal communities with internet-connected smartphones, which allows the utilisation of free crowdsourced mobile applications like SeaWatch to combat IUU fishing. By actively documenting illicit activities they encounter at sea, these mariners would be able to provide valuable assistance to maritime authorities.[44] Such grassroots solutions are cost-effective ways to enhance the reach and efficiency of Vietnam’s maritime law enforcement.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
2023/95 “The Prabowo-Gibran Pairing: Wise or Foolish?” by Burhanuddin Muhtadi and Kennedy Muslim
EXECUTIVE SUMMARY
- Prabowo Subianto has officially picked Gibran Rakabuming Raka, President Jokowi’s son, as his running mate for the 2024 Presidential Election. While this has generated controversies regarding a Constitutional Court (MK) ruling to facilitate this initiative and the issue of dynastic politics, the electoral benefits for the Prabowo-Gibran team appear substantive.
- President Jokowi’s endorsement of the move seems to have already severely harmed the prospects for Ganjar Pranowo, PDIP’s candidate. The growing rift between Jokowi and PDIP/Megawati has become more evident, and some of Jokowi’s non-PDIP supporters are switching over to the Prabowo-Gibran camp. Prabowo’s electability should rise substantially once Gibran is officially confirmed as his running mate.
- The latest Indikator poll shows a significant increase in support for Prabowo among youth voters (Gen-Z and millennials), after the announcement and registration of the Prabowo-Gibran presidential ticket at the General Elections Commission (KPU).
- Anies Baswedan was initially trailing last, but is now emerging as Prabowo’s main rival. Anies seems to have benefited from Prabowo’s selection of Gibran as his running mate, because some of Prabowo’s traditional supporters in the previous two elections are unhappy with Prabowo’s teaming up with Jokowi’s son.
* Burhanuddin Muhtadi is Visiting Fellow of ISEAS – Yusof Ishak Institute and Associate Professor at State Islamic University, Jakarta; and Kennedy Muslim is Senior Researcher at Indikator Politik Indonesia.
ISEAS Perspective 2023/95, 6 December 2023
INTRODUCTION
The decision of the coalition of parties supporting Prabowo Subianto (Gerindra, Golkar, Demokrat, PAN and others) made on October 22 to advance Gibran Rakabuming Raka, the son of President Jokowi, as Prabowo’s running mate is an electoral gamble that has captured much media attention. The dramatic process at the Constitutional Court (Mahkamah Konstitusi or MK), which issued its ruling to pave the way for Gibran to run as a vice-presidential candidate has created controversy. The MK ruling triggered nationwide criticism on TV and social media, and the Indonesian Democratic Party of Struggle (PDIP) alleged that there was intervention by powerful actors to influence MK’s decision. This storm of criticisms led the Constitutional Court Honorary Assembly (MKMK) to dismiss Anwar Usman, President Jokowi’s brother-in-law, from his position as the Chief Justice of MK.
But from the point of view of Prabowo’s coalition, Gibran is an asset in the upcoming 2024 presidential election. This essay shows the competitive electoral landscape among the three presidential contenders, based on the most recent poll after the MK ruling and the official registration of the Prabowo-Gibran pair at the General Elections Commission (KPU).
Gibran is like a double-edged sword for Prabowo’s coalition. On the one hand, many parties believe that Gibran will boost support for Prabowo in Central Java and East Java. Prabowo lost badly in 2014 and 2019 in these two big provinces, which are Jokowi’s stronghold electoral bases. Prabowo has calculated that by running with Gibran, Jokowi’s support base would shift to his camp in the 2024 elections. Moreover, Prabowo’s coalition of parties assumes that Gibran represents the young generation, thus having the potential to attract the support of voters aged under 40 years old. According to the 2020 BPS census, Generation Z, born in the 1997-2012 period, reached 75.49 million people, equivalent to 27.94% of the total population. The millennial generation born in the 1981-1996 period reached 69.90 million people or 25.87% of the general population.[1] Taken together, young voters (Gen-Z and millennials) will make up around 52% of the whole electorate in the 2024 elections.[2]
Another driving factor is the fact that the Indonesian public still shows a high level of support for Jokowi’s government. At the elite level, there are expectations that Gibran’s appointment as Prabowo’s running mate will secure President Jokowi’s full support and lead to the mobilization of the state apparatus under the President’s control in support of Prabowo. Some prominent civil society activists have already sounded the alarm on the lack of neutrality in the national army and police (TNI-Polri)[3] apparatus and among over 271 acting regional heads (at the level of district head, mayor, and governor) directly appointed by the Ministry of Interior.
There is a further counter argument that instead of being an asset, Gibran could actually become a liability for Prabowo’s coalition. The issue of political dynasty and nepotism emanating from the MK’s ruling to allow Gibran to run has been widely echoed by civil society coalitions both in mainstream mass media and on social media. However, past surveys show that presidential votes are driven mainly by presidential candidate figures, not their vice-presidential candidate. Moreover, Gibran is not Jokowi. Jokowi rose to the apex of power from the bottom. Meanwhile, Gibran has only been mayor of Solo for two years. His father served two terms as mayor in the same city. Before entering the presidential election arena, Jokowi had also served as Governor of DKI Jakarta.
The public also believes in the argument that Gibran is not experienced enough for the position, and is too young. This was confirmed in the Indikator’s survey in early October (47% agreed with this statement vs 29% who disagreed. The rest did not answer). The controversial MK ruling, along with the political dynasty issue, were seen by many observers to have the potential to be an election matter for the anti-establishment movement. The net effect on Prabowo-Gibran electability will depend on future turns of events.
THE POLLING SIMULATION DATA SO FAR
Below are details from the latest electability poll done by Indikator after the MK’s controversial ruling and after the registration of the Prabowo-Gibran pair at the General Election Commission (KPU). The data presented are consistent with many other credible pollsters’ findings conducted during similar survey periods, such as Poltracking[4] and Populi Center.[5]
Figure 1: Three Presidential Contenders Simulation
Source: Indikator Survey October 2023
A nationally representative survey conducted from October 27 till November 1, 2023,[6] covering 1,220 respondents, found that support for Prabowo Subianto was at 40.6% while that for Ganjar Pranowo was at 27.8%, showing a difference of 12.2%. Anies Baswedan came last with 23.7%, 4.1% after Ganjar Pranowo.[7] Prabowo’s electability slipped somewhat, although not significantly, after his pairing with Gibran. Conversely, the electability of Ganjar-Mahfud pair had increased after Mahfud MD was chosen.
Figure 2: Electability Trends of the Three Presidential Candidates
Source: Indikator Survey October 2023
Interestingly, after the registration of the Prabowo-Gibran as Presidential-Vice Presidential candidates, the poll shows a sharp drop in support for Ganjar by around 7%, from 34.8% to 27.8%. Some voters switched to Prabowo, while some remained indecisive. Meanwhile, some of Prabowo’s supporters shifted to Anies when they learned that Gibran would be Prabowo’s running mate.
Figure 3: Three-way Presidential Pair Electability Trends among 2019 Presidential Election Self-identified Voter Base
Source: Indikator Survey October 2023
Previously, surveys had shown that the majority of Prabowo’s voters had lower approval for Jokowi’s performance. This was because Prabowo was Jokowi’s main rival in the last two presidential elections.[8] When Gibran became Prabowo’s running mate, some of them decided to switch their votes to Anies, who is ideologically closer to them. Prabowo’s supporters from 2019 shifted away after the Prabowo-Gibran official registration. Meanwhile, the support for Anies increased significantly among Prabowo’s traditional voter base. The potential additional votes for Anies can be greater if Prabowo cannot exploit Gibran to solidify support in Jokowi’s stronghold voter bases.
Be that as it may, Prabowo’s declining support among his traditional voter base is more than compensated for by the significant increase in support from among Jokowi-Maruf Amin’s 2019 supporters. The number increased from 29.6% to 34.9%. In contrast, Ganjar’s support from the same set of voter groups declined from 51.1% to 44.4% compared to the previous poll. An initial assumption had been that Gibran would not instantly become an electoral asset because of the issue of political dynasty, but the latest poll seems to contradict this. Interestingly, Gibran has instead accelerated the shift of Jokowi’s 2019 supporter base to Prabowo’s camp.
GIBRAN EFFECT ON YOUNG VOTERS
In various media publications and appearances, Prabowo’s coalition campaigners have been drumming up the potential of winning the majority of young voters (Gen-Z and millennials) given their decision to pick Gibran as his running mate. But what do the latest poll data tell us about this assumption?
Figure 4: Presidential Poll Trend among Gen-Z and Millenials
Source: Indikator Survey October 2023
A few days after Prabowo-Gibran registered at KPU, Indikator’s late October poll found a significant boost in support for them, especially among Gen-Z (under 26 years old). Interestingly, Prabowo already has a solid support base among young voters, especially Gen-Z and millennials. The negative campaign in the media and social media portraying Gibran as an inexperienced and privileged son of President Jokowi seems not to bother young voters.
Prabowo-Gibran’s support jumped from 38.1% to 52.4% (see Figure 4) among Gen-Z voters within a week after officially registering at KPU.
Figure 5: How Potent is the Issue of Political Dynasty?
Source: Indikator Survey October 2023
Table 1: Three-Candidate Vote Choices Based on Perception of Political Dynasty
Source: Indikator Survey October 2023
The Indikator poll in October found that around 39.2% of respondents worried about political dynasties. This number dropped from 47.6% in the previous poll. At the same time, 42.9% of respondents perceived political dynasties as normal, and 9.6% were not worried. Concerns about political dynasties seemed to have waned within a few weeks. Ganjar and Prabowo’s supporter bases dominate among respondents who perceive political dynasties as normal or not worried about it. This is especially true for Prabowo-Gibran’s supporters. In contrast, Anies’ supporter base is dominated by respondents concerned about political dynasties.
CONCLUSION
Prabowo’s electoral strategy from the beginning has mainly rested on getting Jokowi’s full endorsement. This climaxed in his decision to choose Gibran as running mate. This strategy has lots of upside from an electoral standpoint as Jokowi’s approval is still very high, hovering around 75% in various polls and at one point even reaching 82%.[9] But this strategy also has its downside since Prabowo’s 2019 voter base is prone to switch to Anies’ camp over his decision to choose Gibran. This is important to note because the increase in Gerindra and Prabowo’s votes in the early October survey correlates with decreased votes for PDIP, Ganjar, and President Jokowi’s approval rating.[10] This may indicate that Prabowo inadvertently maintained his old electoral posture as a vessel for some anti-Jokowi votes. The latest Indikator poll has clearly shown the tendency in Prabowo’s traditional support base to shift towards Anies’ camp. At the same time, Gibran holds positive potential since non-PDI-P Jokowi supporters are likely to switch their votes to Prabowo-Gibran pair due to the growing rift between Jokowi and PDIP.
Based on our latest poll, Gibran has been an electoral asset for Prabowo. Gibran’s decision to run with Prabowo has weakened Ganjar’s support base across different segments of voters, especially among young voters and Jokowi’s non-PDIP 2019 voters. The benefits for Prabowo in picking Gibran to attract Jokowi’s supporters has been substantive so far. This presents a challenge for Ganjar to reverse the decline in support that he enjoys, and made evident in the latest poll; this drop was due to the exodus of Jokowi’s non-PDIP supporters. Ganjar, along with PDIP and its political patron Megawati, have triggered a democratic movement similar to the Reformasi movement of 1998 to challenge the MK’s decision. The goal is to question Gibran’s nomination process as well as the lack of neutrality among state actors, including President Jokowi, in the next election.
Perhaps it is too early to conclude that Gibran is an electoral asset. Central Java and East Java will be the testing ground. So far, according to the latest poll, Prabowo is still trailing far behind Ganjar in Central Java; he has however overtaken Ganjar in East Java. In Central Java, the PDIP is still dominant, despite fierce contestation between the party and Jokowi’s supporters. In East Java, Jokowi’s own popularity and his closeness to NU elites will give Prabowo a boost in this second most populated province after West Java. Even if Gibran succeeds in eroding Ganjar’s support base in these two provinces, Prabowo is still not guaranteed to win the presidential election in the first round. A run-off scenario is more likely to transpire, judging from the current poll. This is because the influx of new supporters from Jokowi’s base has been counteracted by the departure of Prabowo’s traditional support bases in West Java, Banten and Sumatra; Gibran is disliked as vice presidential candidate in these places.
Anies seems to be the beneficiary of the recent announcement of Gibran as Prabowo’s running mate. Some of Prabowo’s supports who disapprove of a Jokowi dynasty tend to shift to Anies’ camp. If this pattern continues, Anies and Prabowo could advance to the second round of the presidential election, after defeating Ganjar. Should PDIP then blame Jokowi and Gibran for their failure, that will open up the opportunity for groups opposing Jokowi-Prabowo to unite in the second round (involving embittered PDIP supporters and elites and the rank and file of coalition groups supporting Anies).
Ultimately, the decision to choose Gibran as running mate remains debatable. Ganjar might be the candidate who will suffer the most setbacks due to the growing rivalry between his PDIP party and Jokowi. It may mean that non-PDIP diehard supporters of Jokowi will flock to the Prabowo-Gibran pair. Anies, meanwhile, will benefit if Prabowo fails to stop his old support based, which tends to be anti-Jokowi, from switching to the opposing camp.
ENDNOTES
For endnotes, please refer to the original pdf document.
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