Articles & Commentaries

2024/20 “Indonesia’s Export-Proceeds Holding Policy: A Preliminary Assessment” by Manggi Habir

 

Containers are being loaded and unloaded at Tanjung Priuk Port in Jakarta, Indonesia, on 12 February 2024. Photo by Darryl Ramadhan/NurPhoto/NurPhoto via AFP.

EXECUTIVE SUMMARY

  • To ensure that sufficient export payments are kept within Indonesia’s banking system for a longer period, the government introduced a Natural Resource Export Proceeds (Devisa Hasil Ekspor or DHE) policy, effective from 1 August 2023.
  • Implementation of this policy is currently limited to natural resource exporters in mining, plantation, forestry and fisheries. This approach is driven by two key objectives. First, it aims to bolster the country’s financial reserves in order to support the Rupiah and improve USD liquidity in the local money markets. Second, it is to steer natural resource exporters towards more downstream value-added activities within their respective supply chains.
  • Preliminary results have been favourable, showing a high level of compliance and sizeable collection of export funds.  But the affected exporters have voiced concern over their cashflow challenges and are calling for more flexible and lenient policy terms. Since exporters already suffer cashflow problems in a favourable commodity price market, there is concern that the policy will not be sustainable during a commodity down cycle.
  • Acceding to the exporters’ appeal for flexible and lenient terms would imply a reduction of the export earnings to be held within designated Indonesian banks. One alternative option is to reduce the amount and tenure of holdings, but extend this policy to all exporters, with follow-up provisions for sufficiently attractive yields and tax arrangements to incentivise the collection of sufficient volume and longer term holding of export funds. This alternative does not address the government’s goal of promoting downstream activities, but this might be better addressed in a separate and more pertinent policy.

* Manggi Habir is Visiting Fellow at ISEAS – Yusof Ishak Institute and Independent Commissioner of PT ADIRA Finance.

ISEAS Perspective 2024/20, 18 March 2024

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INTRODUCTION

Prolonged high global interest rates, driven as they are by the US Federal Reserve’s tight money policy for cooling down inflation, are causing many central banks to follow suit. As investors shift into higher-yielding USDs, central banks are struggling to stabilise their own currencies. Aside from raising their own interest rates, monetary authorities are also sparingly dipping into their reserves to support their currencies. In addition to geopolitical tensions in Ukraine, Gaza and the Taiwan Straits as well as rising political uncertainty due to the numerous elections being held this year, the high global interest rate environment is forcing governments to scale down their 2024 economic outlook.

In Indonesia, the Bank Indonesia (BI) has already raised its benchmark Rupiah interest rate several times from 3.75% in July 2022 to a high 6% in October 2023.[1] A month before the country’s presidential election in February this year, BI decided to maintain this rate.

Graph 1: Bank Indonesia Benchmark Interest Rate 2022-2023

Source: https://www.bi.go.id/en/statistik/indikator/bi-rate.aspx

BI has also struggled to stabilize the Rupiah. The currency began in 2023 at the Rp 15,000 per USD level, then momentarily strengthened to Rp 14,750 in April, before continuously weakening and nearly touching Rp 16,000 in October.[2] That month, the country’s reserves dipped to USD 132 billion from a USD 145 billion peak in March, and USD 135 billion in September. This led BI to move up its Rp benchmark rate by another 25 basis point to its current 6.0 per cent; this helped the currency recover for the remaining months and close the year at Rp 15,400 per USD, while reserves correspondingly rose to USD 146.4 billion.[3]

Graph 2: 2023 IDR/USD and Reserves Trend

Source: https://www.bi.go.id/en/statistik/indikator/indikator-moneter.aspx

On August 1, 2023, in order to help stabilize its reserves the government made effective its “Export Proceeds” (Devisa Hasil Ekspor or DHE) policy. The policy requires natural resource exporters to hold a portion of their export proceeds at a designated bank in Indonesia for 3 months. This policy is still only six months old, so a proper assessment is premature. But the government has recently announced preliminary policy results and impacted exporters have also provided some meaningful feedback. This Perspective briefly reviews the background and details of this policy. It will then assess its effectiveness, highlight exporters feedback and conclude with a look at policy options ahead. 

POLICY BACKGROUND AND DETAILS

An earlier 2019 version of the DHE policy came out just before the Covid pandemic and as a result was not strictly enforced. The current updated version, which is formally known as Government Regulation No. 36 of 2023 on natural resources export proceeds,[4] carries more detailed terms and became effective August 1, 2023.

In line with the post-pandemic 2022 recovery, Indonesia’s export commodity prices rose to an all-time high that year, especially its mineral exports. In 2023, coinciding with the DHE policy, commodity prices have slightly retreated from its peak, but remain above their long-term average prices. It seems that natural resource exporters are still enjoying profit margins sufficient enough for them to bear the compliance cost of this policy.

The DHE policy has roughly two unrelated objectives. One is to collect a portion of exporter proceeds, including those still parked overseas, and place these funds within the local banking system for a longer period, thus helping strengthen the country’s reserves. This would also improve USD liquidity in the local money markets, and keep export proceeds parked at banks overseas to a minimum.

The second objective is to deter interested local and foreign investors who are merely seeking to extract raw natural resource, and to encourage them to expand and invest in downstream activities as well. This ties in with the government’s longer-term downstreaming programme and explains the policy’s fixation with natural resource exporters operating in mining, plantations, forestry and fisheries.

To achieve the above objectives, a few key DHE policy terms have been decided, and are as follows:

  • The policy currently applies only to natural resource exporters in mining, plantation, forestry and fisheries sectors. Those exporters that have downstream exported products are exempted.
  • The value of exports impacted are those above USD 250,000, thus exempting smaller natural resource exporters.
  • The funds held must amount to at least 30% of total export proceeds and must be kept for a minimum 3 months in special accounts with OJK-designated banks in Indonesia, or invested in financial instruments issued by these banks, the state-owned Export-Import Bank and/or Bank Indonesia.
  • Exporters are given some flexibility in using the 30% funds held in banks for imports, capital investments, loan repayments, export duties and other levies.
  • Loan repayments being made through escrow accounts must now use designated banks in Indonesia. Bank escrow accounts are set up by borrowers to collect their revenue proceeds and ensure priority for loan servicing and repayments, before funds can be used for operations. Those repaying their loans through escrow accounts at banks overseas must now open and use escrow accounts with designated banks in Indonesia. This is to ensure repatriation of export proceeds placed overseas.
  • Incentives for impacted exporters in the form of tax facilities on income generated from export proceeds have yet to be announced[5].

A PRELIMINARY ASSESSMENT

In December 2023, the government’s preliminary review noted that preliminary DHE policy results show a significant level of compliance (non-compliance of just 1%) among impacted exporters and the collection of a sizable level of DHE funds held in designated banks.

Table 1: Export Proceeds Collected and Held with Indonesian Banks under the new DHE policy

 Natural Resource ExportsAmount Collected and Held in Designated Banks
August 2023USD 10.5 bnUSD 2.7 bn
September 2023USD 9.0 bnUSD 2.3 bn
October 2023USD 10.2 bnUSD 2.9 bn

Source: https://kumparan.com/kumparanbisnis/evaluasi-kebijakan-devisa-hasil-ekspor-sda-diperpanjang-hingga-februari-2024-21i2yweUjTl

The next government review will be made in early 2024.[6] Based just on the two top natural resource exports, coal and crude palm oil (CPO), which for 2022 totalled USD 74.5 bn,[7] the 30% amount collected and held at designated banks for 3 months could annually reach a sizable USD 22.4 bn. Clearly, the potential volume of export proceeds locked in Indonesia for a longer term will be substantial.

Although BI’s decision to raise its benchmark rate to 6.0% in October last year was perhaps more critical in reversing the Rupiah’s weakening trend from a low Rp 15,911 per USD level to then close the year at a stronger Rp 15,400 per USD level, the export proceeds collected and held during this period should have added to the country’s reserves, thus allowing BI access to sufficient reserves for supporting the Rupiah, whenever needed.

The objective of repatriating export proceeds by requiring exporters to move their loan repayment escrow accounts to banks in Indonesia might be less impactful, though. This is because global and regional banks have already been moving away from lending to natural resource companies that do not meet stringent ESG (Environment, Social and Governance) requirements. For example, coal and CPO plantation financing are increasingly being done by local banks and therefore most loan repayment escrow accounts are already with Indonesian banks.

So far, impacted exporters have mostly complied with the new DHE policy, but they have voiced their concern about cashflow problems stemming from this policy.[8] Setting aside 30% of export revenue for 3 months has become a major challenge for them. The policy has a provision that exporters can still use the 30% bank-held funds for their operations, but to do so, they need to arrange back-to-back loans secured by these funds, which carries an added charge ranging from 50 to 100bp.[9]

Further complicating exporters’ cashflow management has been the government’s royalty and levy charges, which are paid upfront or on shipment before export proceeds are received. Furthermore, the rates of these charges have increased along with the rise in commodity prices. For coal exporters, the royalties paid upfront on coal export shipments are in the 14-28% range.[10] These coal royalties are administered and collected by the Ministry of Energy and Mineral Resources (ESDM), while for CPO exporters, the export levy is fixed and has recently risen to USD 74.0 per tonne.[11] Having to pay upfront export royalties and levies and tie-up 30% of their export revenue for 3 months has been a major problem for exporters. If natural resource exporters are already struggling with DHE cashflow problems in the current favourable commodity price environment, how they would cope in a downward cycle, raises concerns about this policy’s long-term sustainability.

POLICY OPTIONS AHEAD

Impacted exporters are already suggesting more flexible terms under the current DHE policy. One idea is to raise the threshold to above USD 500,000, up from the current USD 250,000. Another is to reduce the portion held from the current 30% of export proceeds and to shorten the current minimum 3-month tenor to either 1 or 2 months, during tight cashflow conditions.[12] The third point regards making the yields on the special accounts or security instruments sufficiently attractive to lure back these funds. Discussions on these are currently still ongoing. The only problem with the above proposals is that they would reduce the amount and tenure of natural resource export proceeds held, thus making the policy less effective.

It might be advisable to promote the government’s downstream policy with a separate more detailed policy; the DHE policy alone may not be sufficient to encourage natural resource players to go downstream. An effective downstreaming programme would require not just the right scarce natural resource, but also the appropriate human capital and institutional set up, which requires time to develop. Only then would this programme have the desired impact of creating jobs and providing growth opportunities.

By limiting the DHE policy’s focus to its reserve-stabilizing objective, the emphasis is more to the collecting and holding of a sizable amount in Indonesia’s banking system for a longer period. One potential option to this is a more lenient DHE policy that is applied to all exporters. Taking into account the impacted exporters’ feedback, and in order to make the policy more sustainable and palatable to all exporters, the portion of export proceeds held needs to be sufficiently low for exporters to bear, including for commodity exporters during a downturn. But conversely it should also be high enough to meet the government’s reserve stabilization needs.

Then, to incentivize exporters to hold more of their export proceeds for a longer period, the interest yields on the special DHE accounts, or the securities offered, should be competitive and set progressively higher the longer the funds are placed. In other words, the longer the tenor, the higher the yields. Since the government wishes to attract exporter funds parked overseas, the yields should at least reflect the country’s risk premium or its interest differential. For instance, the interest differential between the BI benchmark rate and the US Fed Fund rate during the 2019-2022 period was around 3.0-4.0%. But since 2023, the interest differential has narrowed to 1.0-0.5%, which explains the downward pressure on the Rupiah.

The government has yet to come out with their yield scheme on security instruments that would be part of the DHE policy. Setting yields that compare favourably with those provided by international financial centres, and taking into account the country’s sovereign risk premium would more effectively attract not only Indonesian exporter funds but also funds from global portfolio investors.

In the current election year, and before a new government cabinet is formed, adjusting the BI benchmark rate upward to widen the current IDR and USD interest rate differential in line with Indonesia’s sovereign risk premium, would be politically difficult. So far, export trends and commodity prices still remain favourable, and the government’s latest January 2024 reserve position stands at USD 145.3 billion. This is sufficient to cover 6.4 months of imports and the government’s debt servicing payments.[13] It will be interesting to see what incentives the government eventually comes out with and whether these will be attractive enough to exporters without BI having to raise its benchmark rate.

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).

 

2024/19 “Like, Subscribe and Vote: The Role of Political Influencers in the 2022 Philippine Elections and Beyond ” by Fatima Gaw and Aries A. Arugay

 

Twitter Page of one political blogger and influencer R J Nieto (Thinking Pinoy) at https://twitter.com/thinkingpinoyph?lang=en. Accessed on 11 March 2023.

EXECUTIVE SUMMARY

  • Social media influencers are emerging political operators in Philippine elections, but unlike high-level strategists and low-level trolls, they occupy a ‘grey area’ in the political economy of influence operations.
  • There are approximately 1,425 influencer accounts across YouTube, TikTok, Facebook, and Twitter identified to be part of influence operations in the 2022 Philippine elections, based on 18 multidimensional indicators.
  • Influencers are hired based on their social capital, historical performance, and political notoriety. Premiums are provided to influencers who are open to switching camps and to those who double down during peak campaign periods.
  • Influencers carry out varied functions in the post-election period, either to defend the policies of the candidates they electorally supported, conduct disinformation campaigns against political adversaries, or clash with previously allied influencers given the clashes between their politician-clients.
  • At present, there is a clear and wide policy regulation gap with regard to dealing with political influencers and the disinformation they generate for political purposes.

* Fatima Gaw is a Media, Technology & Society PhD student at Northwestern University, USA. Aries A. Arugay is Visiting Senior Fellow and Coordinator of the Philippine Studies Programme, ISEAS – Yusof Ishak Institute and Professor of Political Science, University of the Philippines-Diliman.

ISEAS Perspective 2024/19, 13 March 2024

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INTRODUCTION

Social media influencers have become mainstays in Philippine electoral politics. The 2016 campaign of Rodrigo Duterte was bolstered by political bloggers[1] such as Mocha Uson (Mocha Uson blog), RJ Nieto (Thinking Pinoy), and Carlos Munda(MindaNation), who were later appointed to government positions under the administration.[2] The Duterte government also legitimized influencers with presidential press accreditations, providing them the same access as professional journalists and media to events and personalities.[3] In the 2022 electoral cycle, Ferdinand “Bongbong” Marcos Jr. followed the same playbook for his presidential bid. Networks of digital influencers seeded authoritarian nostalgia emanating from the false legacy[4] of the dictator Marcos Sr. to prime voters for the promise of prosperity under another Marcos presidency.[5] Influencers also operated as political brokers of the Marcos agenda within social media communities, almost as impactfully as traditional political and media actors at certain points during the campaign period.[6]

In the Philippines, influencers are part of emerging and larger political influence operations that systematically promote propaganda to advance the interests of entrepreneurial political elites.[7] They are instructed by high-level strategists on the political message they need to promote, and the political posts they produce are then amplified by low-level trolls and fake accounts.[8] Unlike these other operators, influencers are hypervisible as they maintain public-facing accounts, engage broader audiences and interests, and monetize this visibility. More importantly, their political capital is not due to their expertise, position, or experience but to their cultural relevance in spaces outside and beyond politics.[9] This makes them both a critical entry point to uncover the political economy of influence operations and difficult operators to detect, given the greyness of their political interlocution.[10]

This article discusses the political economy of covert influence operations focused on influencers commissioned to partake in political campaigns during the 2022 Philippine Elections.[11] It maps the entanglement of social media influencers in electoral politics by (1) identifying the influencers engaged in covert influence campaigns within socio-technical networks using computational methods, (2) characterizing the political-economic relations between influencers and clients through qualitative field research, and (3) estimating the cost of commissioning them for political campaigns through economic modelling. We argue that the political influencers as contemporary but covert campaigners operate behind the veneer of political participation only to undermine it, given the political-economic system in which they function, that incentivises obscurity and manipulation. This article concludes by examining the post-electoral role of these influencers and the absence of clear policies to regulate their activities in social media and politics in the Philippines.

MAPPING THE FIELD OF POLITICAL INFLUENCERS

Political influencers sit between two worlds—in politics and their role in bridging candidates and the voters, and in promotional culture with their commercial and brand engagements. This hybridity of political influencers informs not only our research approach but also our analysis of our empirical data.

Around 44,530 influencers took part in the 2022 Philippine elections since the filing of the certificate of candidates in October 2021. Using 18 multidimensional indicators that examine manipulative network, behavioural, and content characteristics of these influencers, a recent study[12] identified 1, 425 influencer accounts across YouTube, TikTok, Facebook, and Twitter which reveal evidence of engaging in covert influence operations. These accounts scored high in multiple indicators, such as belonging to the same co-share network and repeatedly sharing from the same sources, having post-recurrence with high semantic similarity among posts within a given period, or containing references to conspiracy and manipulation based on a dictionary derived from fact-checked stories. Many of these influencers are on YouTube and TikTok, with 584 and 544 influencer accounts respectively. Not only are these platforms creator-friendly with their institutional partner programmes and monetization schemes, they are also platforms with less stringent content moderation policies and public oversight, given their algorithmic content feed.

The influencers identified to be covert political campaigners are not limited to the political field, or those known to cover topics related to politics and socio-economic issues, but also include influencers in other areas of interest. Most are ‘amateur’ commentator and curator accounts who share their take as ‘ordinary people’ on political issues and topics, with only subtle partisan leaning. Hyper-partisan influencers are accounts that explicitly promote a partisan camp by circulating the unofficial party line and responding to criticisms against their preferred candidates. Specific to TikTok are two types of influencers: the ‘stan’ accounts who portray politicians as ‘idols’ and their supporters as ‘fans’, glorifying candidates as larger-than-life spectacles, and the ‘trending’ influencers who stylize the politicians in accordance with the cultural ‘trends’ and vernacular taste of the platform. Like fake news operators in the alt-news and entertainment media, which unlike those that only ‘mimic’ professional news media, these identify themselves as alternative media sources through repackaging of partisan content as newsworthy. Mainstream influencers are those who have gained broad popularity on social media and now position partisan posts as ‘personal’ endorsements. The final type of complicit influencers is polarizing influencers; these mobilize absolute support for their candidate of choice, and launch uncivil attacks against opposing candidates and their supporters.

Figure 1. Covert political Influencer types exemplified as social media profiles, based on K-means clustering of 18 indicators (Gaw et al., 2022).

In the 2022 general elections, influencers were enlisted to campaign for candidates by intermediaries who may or may not have been directly involved in the above-board campaign operations. This ambiguity gives the political clients the plausible deniability of engaging in political influence operations. There is also no documentation of the transactions between the influencers and the intermediaries: no written contracts, non-disclosure agreements, or any documentary stipulation of the obligations of the parties. Communication is either in private messages on social media, which is inaccessible to media or researchers, or through discrete face-to-face meetings. The lack of concrete or traceable evidence not only emphasizes the underhanded nature of covert political influence work but also that there is a mutual understanding about the gains and risks of such engagement.[13]

Unlike its commercial counterparts, influencers in the business of political campaigns do not follow a standard rate card. There is no set pricing for influencers at different tiers of popularity, and most of the time, it is the influencers who set the amount for the work they render for their clients. While different factors influence these rates, social capital, political notoriety, and their ability to promote their clients’ agenda emerge to be the consistent criteria that affect the pricing of influencer work. In some cases, premium is offered for influencers who are willing to switch camps or double down their campaigning during the peak of the campaign season. The length and scope of engagement also work differently for influencers who have established their footing in social media, and those considered micro-influencers who only have small followings. Big-name influencers often are employed under politicians’ payroll and are committed to doing the politicians’ bidding in an unspecified number of posts. Those who have a modest following are contracted on a per-trial basis. If their campaign posts ‘click’ with the intended voter segment, they are likely to continue to be commissioned for a longer period.[14]

These quantitative and qualitative data are the building blocks of political-economic assumptions about the political influencers and their involvement in political campaigns in the 2022 Philippine Elections. The extent to which the rates of political influencers are paid more or less than the commercial influencers across the board is unclear. It is estimated that the political spending on influencers for political campaigns ranges from PhP 600M to 1.5B (USD 10.9M to 27M). This first estimate assumes that most influencers are compensated per post, except for a few influencers who exceed a follower threshold (> 500,000 followers) and are assumed to be on a retainer contract. These estimates do not include the income earned by influencers from platform monetization. It has also not been possible to factor in other variables such as political ideology, reputational risk, and campaign roles, among others.[15]

INFLUENCERS AS POLITICAL BROKERS

Politicians spend billions in advertising to reach mass audiences, but they ultimately rely on political brokers on the ground in local towns and barangays (villages) to convert this reach into possible votes.[16] These brokers tend to have strong social ties in the community, the cultural familiarity to appeal to the voters’ sensibilities, and strategic skills to navigate local political relations.[17]

Influencers operate as contemporary political brokers in a hyper-mediatized political ecosystem. Their authentic performance as ‘ordinary’ people, their community-building skills, and their vernacular expertise of the platforms make them perfect intermediaries between politicians and voters in digital communities,[18] many of which are explicitly rooted in their locales. While candidates can directly engage with voters through their digital accounts, vlogs and live videos, influencers’ non-elite position allows them to translate political messages into cultural narratives that resonate with the public. At the same time, influencers tend to have cultivated enough cultural status for them to exercise political capital in political discourses online to bridge the relations between national political figures and ordinary Filipino voters. For instance, earlier research documented YouTubers such as Banat By and Maharlika performing a brokerage role in promoting the anti-media agenda of the Duterte administration.[19] They were able to do this by establishing communities with hundred thousand viewers not only through their ‘amateur’ political commentary but also through their anti-establishment cultural brand. Their relatability as ‘one of the people’ transmuted into credibility in opining both about day-to-day news stories and high-stakes political events, even for unpopular political position such as in the case of the franchise renewal issue of major broadcasting network ABS-CBN in 2020.

Traditional political brokers are known to work for politicians,[20] but influencers as emerging political brokers are more ambiguous about their political-economic relationship with candidates. Many influencers align themselves with politicians that advance the issues and policies that matter to them,[21] but a significant number are also involved in covert political influence operations.[22] This has been the case in the Philippines since the 2016 Duterte campaign, and these influencers have proven to be effective in performing brokerage for Duterte and helping him maintain his popularity throughout his administration. [23]

CONCLUSION: POLICY ISSUES AND CHALLENGES

It was not a surprise that political influencers carried over their operations beyond electoral purposes. Under the Marcos Jr. administration, his own influencers have shifted gears toward promoting the vision and programmes of their client as president and chief executive of the country. However, unlike during the Duterte administration when influencers were allowed to be autonomous and flexible in their messages, the incumbent government has only retained a few influencers; many have not even been given official media access to President Marcos Jr.[24] Apart from this, the current political squabbles between the Marcos and Duterte dynasties have also translated to even nastier fights between their respective influencers. Previously united during the electoral campaign, these influencers are presently engaged in political combat that has further contributed to the toxicity of social media space in the Philippines.[25]

While the current “influencer wars” figure prominently in social media, clear and glaring policy gaps in social media regulation still exist. To the surprise of many, the Marcos Jr. administration is mulling possible policy interventions to combat disinformation.[26] Beyond social media literacy, it remains to be seen whether this includes addressing the political economy of the “influencer industry” in the country. There is little time though. If clear policy regulations are not put in place within this year, it certain that influence operations will shape the midterm elections next year.

Side by side with policy action is the need for more research. Critical to this research agenda is emphasizing that influence operations through brokerage is work, and brokers are expected to gain from their mediation, which in the case of the 2022 elections, amounts to millions and billions of pesos, based on estimates. The culture of political patronage in the Philippines also historically shows that these exchanges are not only or always financial but also come in the form of political appointments and favours,[27] exemplified in both recent and early histories. Future research needs to trace these strings of relations and transactions by regarding influencers as (potential) political brokers. Influencers should be examined beyond the veneer of participatory culture and the obscurity of influence operations, if mechanisms are to be developed to govern these complicit political operators.

ENDNOTES


Note: This article primarily draws from the research report “Political Economy of Covert Influence Operations in the 2022 Philippine Elections” by Fatima Gaw, Jon Benedik A. Bunquin, Samuel I. Cabbuag, Jose Mari H. Lanuza, Noreen H. Sapalo, and Al-Habbyel B. Yusoph, in partnership with Internews.

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).

 

“Prosperity or Predicament? Decoding Certification Challenges in Malaysia’s Palm Oil Industry” by Serina Rahman and Lee Poh Onn

 

 

2024/18 “Assessing Vietnam’s Challenges in Fighting IUU Fishing” by Nguyen Khac Giang

 

Boats belonging to Vietnamese fishermen anchored together after the crew was detained in Thai waters for illegal fishing by the Royal Marine Police in Thailand’s southern province of Narathiwat on 1 August 2016. (Photo by MADAREE TOHLALA/ AFP).

EXECUTIVE SUMMARY

  • Illegal, unreported and unregulated (IUU) fishing has been a significant problem for Vietnam’s booming fishing industry. This issue escalated into a major policy concern for Vietnam when the European Commission (EC) issued the country a “yellow card” warning in October 2017.
  • In addition to causing economic losses, IUU fishing raises concerns about the legitimacy of Vietnam’s maritime claims in the South China Sea.
  • Vietnam has taken significant steps to address the issue of IUU fishing, motivated not only by the desire to have the yellow card lifted, but also to transition towards a more sustainable fishing industry, enhance its international reputation, and affirm its commitment to a rules-based international order.
  • Despite making considerable progress, Vietnam continues to face multifaceted challenges. These include the lack of an effective surveillance system, inadequate enforcement capabilities, and the need to maintain a robust fishing fleet to counteract China’s “grey zone” tactics in the South China Sea.
  • Addressing the issue of IUU fishing will contribute to a more sustainable fishing industry, improve the livelihoods of millions of fishermen, drive economic growth, and strengthen Vietnam’s efforts in protecting its maritime sovereignty.

*Nguyen Khac Giang is Visiting Fellow in the Vietnam Studies Programme at ISEAS – Yusof Ishak Institute. He was previously Research Fellow at the Vietnam Center for Economic and Strategic Studies.

ISEAS Perspective 2024/18, 8 March 2024

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INTRODUCTION

Illegal, unreported and unregulated (IUU) fishing poses a significant threat to Vietnam’s thriving fishing industry, which recorded an export value of US$9.2 billion in 2023,[1] ranking as the world’s third-largest. Since 2017, the European Commission (EC) has issued a “yellow card” warning against the country’s fishing industry for its failure to comply with EC regulations on IUU fishing. Given that the European Union (EU) is the world’s largest market for seafood products globally, the EC’s warning has placed a considerable burden on Vietnam’s seafood exports.[2] Furthermore, the yellow card has caused reputational damage to Vietnam’s seafood in other markets and hampered Vietnam’s efforts to legitimise its maritime claims in the South China Sea.

The Vietnamese government has made significant efforts to implement the recommendations of the EC in order to combat IUU fishing. Despite these efforts, the EC has not yet withdrawn its warning. This article analyses the economic and political impact of IUU fishing on Vietnam, assesses the challenges faced by the country in addressing the issue, and proposes steps that the Vietnamese government should take to expedite the resolution process.

THE EC’S YELLOW CARD

Vietnamese fishing vessels have been notorious for illegally trespassing into other countries’ maritime territories, sometimes venturing as far as the South Pacific. For instance, between 2013 and 2017, 20 Vietnamese vessels were apprehended and prosecuted for illegally fishing within Australia’s Exclusive Economic Zone (EEZ).[3] According to statistics from Vietnam’s Directorate of Fisheries, from December 2013 to the end of 2016, 726 fishing boats and 5,752 fishers were arrested by foreign authorities for engaging in IUU fishing activities.[4]

Before 2017, Hanoi had not taken strong measures to combat IUU fishing. This was partly due to a limited surveillance capacity, but also because the government was focused on strengthening its fishing fleet as a tool to counteract China’s “grey zone” tactics in the South China Sea. It only became a policy priority in 2017 when the EC issued a “yellow card” against the country.

As the EU is the largest seafood market globally, accounting for 34 percent of total market imports, it wields the market power to unilaterally impose sanctions on violators.[5] In 2008, the European Commission established a legal framework (Decision No. 1005/2008) to prevent, deter, and eliminate the trade of IUU seafood products into the EU.[6] This framework allows the EU to issue formal warnings (yellow cards) to non-EU countries with inadequate measures in place to combat IUU fishing activities. Failure to improve can result in a ban on their fish from the EU market (red card), among other penalties. By 2023, the EU had issued warnings to a total of 27 countries, with six countries receiving a red card. In Southeast Asia, four countries were warned: Thailand and the Philippines had their warnings lifted, Cambodia was red-carded, and Vietnam remains yellow-carded.

Despite strong political determination, tackling IUU fishing and removing the EC warning remains a daunting task for Vietnam. Its domestic waters have seen a sharp decline in fish stock due to overfishing.[7] Additionally, escalating tensions in the South China Sea, a traditional fishing ground for Vietnamese fishermen, have made fishing a perilous and challenging endeavour. Similar to their counterparts in the Philippines, Vietnamese vessels are frequently harassed and even attacked by China’s maritime militia and law enforcement vessels.[8] As a result, many Vietnamese fishermen have turned to the waters of other countries, contributing to the issue of IUU fishing.

ECONOMIC AND POLITICAL TOLLS

While IUU fishing may offer short-term benefits to a small group of fishermen, it inflicts substantial damage on the wider fishing industry. In Southeast Asia, Vietnam bears the second-highest economic loss from the issue, estimated at US$1.6 billion annually.[9] More alarmingly, in the long term, IUU fishing exacerbates the depletion of seafood resources. In the period 2016-20, Vietnam had a fish stock of approximately 3.95 million tonnes, with a total allowable catch of 1.67 million tonnes per year.[10] However, the total catch of Vietnam is estimated to be as huge as around 3.8 million tonnes per year, making it impossible for fish stocks to recover.[11]

In an era of growing consumer awareness about environmental sustainability, IUU fishing also profoundly impacts Vietnam’s trade with key markets, particularly the EU. Traditionally one of the top destinations for Vietnam’s seafood products, the EU has become less accessible due to the EC’s yellow card. This warning subjects all Vietnamese seafood exports to the EU to pre-checks, leading to increased costs and longer delivery times, not to mention the reputational damage that renders Vietnamese seafood less attractive to EU consumers. Consequently, while the EU used to account for up to 35 per cent of Vietnam’s seafood export value in 2017, this figure dropped to just 12 per cent in 2022.[12]

Moreover, there is a looming threat of an escalation to a “red card,” which would result in a total ban on Vietnam’s seafood products, which could potentially cause a loss of US$500 million per year in Vietnam’s export revenue. The seafood harvesting and processing sectors, projected to decline by as much as 30 per cent in capacity, would be among the hardest hit, jeopardising millions of jobs.[13] Additionally, if other high-value markets such as Japan and the United States also adopt EU standards, Vietnam’s seafood exports might face even greater challenges. The yellow card and the possibility of a red card also undermine the preferential tariff treatment Vietnam enjoys under the EU-Vietnam Free Trade Agreement.[14]

Politically, the IUU fishing issue also weakens Vietnam’s position in the South China Sea. This is because China could exploit the issue to undermine Vietnam’s maritime claims and drive a wedge between Vietnam and other regional countries.[15] Vietnam’s IUU fishing has also led to diplomatic tensions with other Southeast Asian nations, undermining the solidarity of ASEAN on South China Sea issues. Furthermore, in the event of a “red card” from the EC and similar sanctions from the United States and Japan, Vietnam’s fishing industry would suffer greatly. Without access to key markets, the income of Vietnamese fishermen would further decline, potentially leading to a lack of motivation for them to continue fishing. This could severely impact Hanoi’s strategy of encouraging fishermen to “hold fast to the sea” in order to defend the country’s maritime claims.[16]

VIETNAM’S UPHILL BATTLE AGAINST IUU FISHING

The Vietnamese government has prioritised fighting IUU fishing since 2017. For example, it has achieved notable progress in revamping the legal framework against IUU fishing in line with the EC’s recommendations. This includes the formulation, finalisation and promulgation of a fisheries law, two decrees, and 10 guiding circulars and legal documents.[17] Additionally, a National Steering Committee on IUU Fishing Prevention has been established in Hanoi, led by a deputy prime minister, and extensive awareness campaigns have been conducted in 28 coastal provinces. Significant resources have also been allocated towards enhancing surveillance capabilities.[18]

Vietnam has also been proactively cooperating with other countries and transnational organisations to tackle IUU fishing, particularly with nations where Vietnamese IUU fishing violations occur frequently. It has signed memoranda of understanding to prevent IUU fishing with Australia and the United States, established a hotline with the Philippines, and is in the process of negotiating similar hotlines with Indonesia, Malaysia, Thailand and Cambodia.[19] Vietnam became a signatory of the United Nations Fish Stocks Agreement in 2018 and the Agreement on Port State Measures in 2019. Currently, Vietnam is a cooperating non-member of the Western and Central Pacific Fisheries Commission (WCPFC) and participates in the Ocean and Fisheries Working Group of the Asia-Pacific Economic Cooperation.[20]

The EC has recognised Vietnam’s significant improvements in the monitoring, control and surveillance of fishing vessels, as well as its efforts to install monitoring systems, provide regulations and implement gear marking for fishing vessels.[21] Since the initial nine recommendations in 2017, the EC’s most recent inspection in October 2023 revealed that only two key issues remain unresolved: IUU fishing outside of Vietnam’s EEZ and the traceability of fishery products.[22]

Despite a robust regulatory framework, Vietnam has struggled to prevent its fishermen from engaging in IUU fishing in other countries’ waters. In the first eight months of 2023, a total of 36 vessels with 202 fishermen were detained by foreign countries, including Malaysia, Indonesia, Thailand and Cambodia. Although the number of violations has drastically declined by 84.35 per cent compared to 2016,[23] the EC has made it clear that it will not lift the yellow card warning if this issue is not completely resolved.[24] According to the IUU Fishing Risk Index, which assesses countries’ vulnerabilities and responses to IUU fishing activities (with a ranking of 1 being the best and 5 being the worst), Vietnam’s score for 2023 is 2.57. Although this marks a significant improvement from the 2019 score of 3.16, Vietnam remains in the bottom 17 of 152 countries and territories included in the index.[25]

There are four main reasons why the problem of Vietnamese fishing violations in foreign waters persists.

First, implementing comprehensive governance and surveillance systems across 28 coastal provinces is difficult, particularly given Vietnam’s decentralised administrative system. While the central government considers resolving the IUU fishing issue a priority, some provincial authorities have not taken it seriously enough, leading to inconsistent fisheries management and sanctioning of violations across the provinces. For instance, six out of 28 provinces still have not established a local Fisheries Surveillance force (Kiểm ngư), making it difficult to effectively manage fishing activities.[26] During the October 2023 session of the National Assembly, Minister of Agriculture and Rural Development Le Minh Hoan expressed his frustration that nearly 60 per cent of violations in various provinces have not been properly addressed. He even threatened to escalate the issue to the prime minister for disciplinary measures against officials who have been negligent.[27]

Second, unlike neighbouring countries such as Thailand and the Philippines, Vietnam has struggled to build a comprehensive fishery production chain linking fishermen, port authorities, fisheries management authorities, and businesses. This makes it challenging to ensure sufficient and accurate traceability mechanisms in fishery processing plants. The fragmented fishing ecosystem explains why Vietnam has not completed the process of registering fishing boats and of issuing fisheries exploitation permits. It also has not finished updating the data on fishing vessels into the national fisheries database (VNFishbase). As of 29 August 2023, only 71,658 out of 86,820 fishing boats measuring six meters or longer (82.5 per cent) have been registered and updated in the database. Meanwhile, the number of boats that have been newly granted valid permits is only about 70 per cent.[28]

Third, Vietnam still struggles with the issue of enforcement. The problem of fishing boats operating without fully meeting all the necessary conditions persists. Despite the installation of vessel monitoring systems (VMS) on almost all boats (28,753 out of 29,381 boats with a length of 15 meters or more),[29] many still turn off or remove the VMS in order to install it on other boats and fish in prohibited areas, evading supervision from authorities in the process, and engaging in illegal fishing in foreign waters. Although such actions may result in hefty administrative fines if caught, these measures have not been strong enough to deter fishermen effectively.

Fourth, the goal of combating IUU fishing is occasionally compromised by Vietnam’s effort to protect its maritime claims in the South China Sea. For Hanoi, fishermen play a crucial role in exerting its maritime sovereignty, highlighted by the slogan “Each fishing boat is a living landmark, each fisherman is a soldier protecting the sovereignty of the sea and islands.”[30] For example, while anti-IUU fishing recommendations emphasise the need to reduce fisheries subsidies, the Vietnamese government has increased fishing subsidies in various forms since 2014.[31] These fisheries support policies, without adequate supervision and management, might perpetuate IUU fishing practices.[32]

CONCLUSION

In order to effectively address the issue of IUU fishing and remove the EC yellow card, Vietnam must strengthen law enforcement, including considering the criminalisation of IUU fishing and stricter sanctions against violations.[33] For various reasons,[34] Vietnam has not criminalised IUU fishing although this issue has been widely discussed. Vietnam also needs to establish a sustainable production chain to ensure traceability and better governance for the fishing industry. Minister of Agriculture and Rural Development Lê Minh Hoan has stated that creating a comprehensive ecosystem for the fishing industry, similar to that of the Philippines or Thailand, is essential to make Vietnam’s fishing industry sustainable and to combat IUU fishing.[35]

Relatedly, the Vietnamese government must take appropriate actions to ensure the livelihoods of fishermen and workers in the supporting industry. Due to efforts to combat overfishing and prevent IUU fishing, the number of Vietnamese fishing vessels has significantly decreased from 110,950 in 2017 to 86,800 in 2023, with a projected continued decrease to 83,600 by 2030.[36] Consequently, the number of individuals employed in the marine fishing industry is expected to decrease from 730,000 to 600,000 by 2030. As such, it is crucial that the authorities provide adequate support and training for those who may lose their jobs as a result of these changes.

Vietnam also needs to enhance international cooperation with Regional Fisheries Management Organizations (RFMOs) and neighbouring countries for good practices in fishing governance. For this purpose, Vietnam can learn from regional countries, particularly South Korea, Thailand and the Philippines, who have successfully worked with RFMOs to have their yellow cards lifted.[37] In the masterplan to combat IUU fishing by 2025, which was approved by the government in 2022, Vietnam has made a commitment to become an official member of WCPFC, ratify the International Labour Organization’s Work in Fishing Convention (C188), and accelerate negotiations with neighbouring countries and several Pacific Island nations for Vietnamese fishing vessels to legally operate in their waters.[38]

To balance the risk of IUU fishing and the need to maintain maritime sovereignty, Vietnam has taken steps to develop a more professionalised maritime militia force instead of relying on fishermen to protect its maritime claims. Since 2019, Vietnam has established “standing maritime squadrons” to support law enforcement agencies under the management of provincial military commands.[39] Empowering this force – in accordance with international law – will alleviate the burden on Vietnam’s maritime law enforcement in dealing with China’s grey zone tactics.[40] This approach will also help reduce risks for fishermen and make it politically feasible to decrease the number of fishing vessels as recommended by the EC.

The EC has carried out four inspections over the past six years to evaluate Vietnam’s improvements in fisheries governance. Another round of inspections is scheduled for May 2024. The Vietnamese government aims to get the “yellow card” lifted by then. Whether Hanoi will be successful in this effort remains to be seen, but it is safe to say that the process of getting the yellow card removed has greatly benefited Vietnam in several ways. It presents an opportunity to rethink the sustainability of the fishing industry, a situation that is particularly important given Vietnam’s rapidly depleting fish stocks. The process has also encouraged Vietnam to actively engage with international partners and neighbouring countries, and to participate in various forums and international conventions to combat IUU fishing. As an emerging middle power, Vietnam’s interest lies in upholding a rules-based international order, and following the anti-IUU fishing framework is a vital part of this commitment. Moreover, as more resources are channelled into making the fishing industry more sustainable, Vietnam now has the financial, technical, and political capability to become a “maritime economy” by 2030.[41] This not only promises to improve the livelihood of millions of fishermen, thus contributing to economic growth, but also strengthen Vietnam’s ability to safeguard its maritime sovereignty.

ENDNOTES


For endnotes, please refer to the original pdf document.

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2024/17 “Can Bersatu Go It Alone?” by Azmil Tayeb

 

Facebook Page of the Parti Pribumi Bersatu Malaysia at https://www.facebook.com/pribumibersatuofficial/photos. Accessed 3 March 2024.

EXECUTIVE SUMMARY

  • It is the aim of this article to assess Bersatu’s chances of going it alone in the event that Perikatan Nasional (PN) implodes. 
  • Unlike its current coalition partner Parti Islam Se-Malaysia (PAS), Bersatu has yet to compete on its own and therefore does not have a track record to which it can refer.
  • At the moment, Bersatu is dependent on PAS’s grassroots machinery to mobilize its supporters, a privilege it will have to do without if it goes solo.
  • The competition for Malay voters, who are Bersatu’s natural constituency, will be stiff due to a crowded playing field comprising other Malay parties such as UMNO, PAS and Amanah.
  • Bersatu’s best chance lies in winning seats that used to be UMNO strongholds but are now under PN; many Malays voted for PN because of their disgust with UMNO, not because they are ideologically-committed PAS supporters.
  • For this to happen, Bersatu must distinguish itself from UMNO by showing that it is a better guardian of Malay and Islamic interests, developing a strong and extensive grassroots network, and promoting a young crop of leaders within the party.

* Azmil Tayeb was a Visiting Senior Fellow at ISEAS – Yusof Ishak Institute. He is Associate Professor at the School of Social Sciences, Universiti Sains Malaysia.

ISEAS Perspective 2024/17, 6 March 2024

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INTRODUCTION

In the 2022 general election, the Perikatan Nasional (PN), which comprised of Parti Islam Se-Malaysia (PAS), Bersatu and Gerakan, posted a strong showing by winning 74 seats nationwide, placing it in a prime position to form the government. The uneasy partnership formed between other coalitions, mainly Pakatan Harapan (PH) and Barisan Nasional (BN), eventually denied PN the opportunity.

However, PN did grow from strength to strength, sweeping 146 of 162 Malay-majority seats (90 percent) in the 2023 six state elections. Its stellar electoral performance came at great expense to UMNO, which saw many of its long-time supporters voting for PN. New and young Malay voters also flocked to PN in droves, mainly inspired by PN’s effective messaging on TikTok. Simply put, the majority of Malay voters are presently with PN.

PAS came out as the biggest winner in the recent elections, now having 43 seats in parliament, with 31 seats being held by its partner, Bersatu. The seat haul has made PAS the largest party in parliament. In the 2023 state elections held in six states, 105 of the 146 seats (72 percent) won by PN went to PAS.

In other words, the balance of power within PN strongly tilts towards PAS. There is a strong perception that PAS is playing the role of a big brother in PN with Bersatu being its sidekick (Gerakan is negligible as the token non-Malay-Muslim representative in PN holding a single state seat).[1] The power imbalance has certainly emboldened PAS to become more assertive within PN, primarily by allocating most state government positions in PN-governed states to PAS state assemblypersons, much to the consternation of its partner, Bersatu (see Table 1).[2] The defection of several Bersatu MPs who have publicly expressed support for Anwar Ibrahim’s government has further driven a wedge into the opening rift within PN.[3]

Though PN is in no danger of collapsing anytime soon, it does beg the question of what is the way forward for the coalition and its component parties? In the case of PAS, the party has contested on its own for much of its existence and as such its past electoral record as a solo contender is readily available for analysis. The same cannot be said for Bersatu. Since its founding in 2016, it has always competed as part of a coalition and never on its own. Before the infamous Sheraton Move in late February 2020, Bersatu was part of the PH coalition, and afterwards it joined the PN coalition. Not even a full year into being part of the PH government, Bersatu was already having serious discussions about leaving the coalition, which it did less than a year later.[4] Should tensions within PN escalate beyond repair and Bersatu decides to leave PN to go it alone, what are its chances of being electorally competitive? The overarching aim of this article is to assess Bersatu’s electoral prospect as a solo party should PN break up, a situation that remains in the realm of possibility.

Table 1: Composition of state exco in PN-governed states (share of total in brackets)

 State assembly seatsExecutive council
 PASBersatuGerakanPASBersatuGerakan
Kelantan430010 (91%)1 (9%) 
Terengganu275010 (91%)1 (9%) 
Kedah211117 (64%)3 (27%)1 (9%)
Perlis9505 (63%)3 (37%) 

ASSESSING PAS’S ELECTORAL STRENGTH OUTSIDE ITS STRONGHOLDS

To have a clear idea of Bersatu’s current electoral viability as a solo contender, we should first look at its dominant partner in PN, namely PAS. Historically PAS has not been successful when contesting on its own outside its north and northeast bastions. PAS’s appeal to voters from other parts of peninsular Malaysia primarily comes from association with coalition partners.

Being in a coalition with the Chinese-dominated DAP and the urban-based PKR helped to soften PAS’s image in the eyes of non-Muslim and moderate Malay voters. After Pakatan Rakyat broke up in 2015, however, PAS turned away from the path of moderation and inclusivity to take a rigid ethnoreligious stance, which it still maintains today. Its current president, Hadi Awang, has since consolidated his control of the party, stamping out internal dissent and steering the party to the far-right.[5]

In the 2018 general election, PAS was technically part of a nominal coalition, Gagasan Sejahtera, but contested mainly on its own to win 18 seats in Kelantan, Terengganu, and Kedah (it also managed to wrest Terengganu state government away from BN). Simply put, there is a limit to how much PAS can achieve as a solo competitor. In the 2022 general election, PAS surprised everyone by winning 43 parliamentary seats, more than doubling its gain in 2018. Many Malays who had not supported PAS in the past voted for PAS candidates competing under the PN logo; this propelled PAS to overachieve.

In the 2022 general election, PN campaigned using two logos: in the PAS strongholds of Kelantan, Terengganu and Kedah, it used PAS’s logo during the two-week campaign and on the ballot paper; in other parts of peninsular Malaysia, PN used its own logo. Using PAS’s logo in those three states makes sense since it is well recognized by voters due to the party’s deep roots there.

Interestingly, many PAS candidates outside of these three states who competed under PN’s logo, also won their seats, most interestingly in areas where PAS had not done well in the past such as Tangga Batu and Jasin in Melaka. Why did these PAS candidates perform well in constituencies traditionally not known to be friendly to PAS? Was it because voters were not aware that these PN candidates were from PAS due to them using PN’s logo? Or did voters see PAS, by way of PN, as a more viable choice than UMNO? PAS, we must remember, has always benefitted electorally whenever there is a crisis within UMNO, such as during the 1999 general election (Anwar Ibrahim’s sacking and imprisonment) and the 2018 general election (Najib Razak’s 1MDB financial scandal). Even so, PAS still struggled to expand beyond its north and northeast strongholds on its own. Only when it teamed up with DAP and PKR as part of the Pakatan Rakyat coalition (2008-2015) did PAS finally gain a foothold in states such as Selangor, Penang, and Perak. When it contested on its own in 2018, PAS went back to being a regional party despite winning a respectable number of seats.     

One of PN’s assets in GE15 was the deployment of PAS’s formidable grassroots machinery, for which the party is well known. PAS provided the manpower that drove PN’s campaign, from volunteers at ceramah venues, to its Unit Amal manning security and traffic, and to canvassers who knocked on every door and called every registered voter to vote. Bersatu being a young party was unable to match PAS’s decades-long experience of grassroots work and therefore was completely dependent on PAS for support. This was evident in the GE15 and the six state elections; programmes by Bersatu candidates were observably handled mostly by PAS members. If PN implodes, Bersatu will no longer be able to lean on PAS’s grassroots machinery. This is perhaps the biggest challenge that Bersatu faces if it opts to go it alone.

Being a much younger party, Bersatu is simply unable to match PAS’s well-oiled political machinery, ideologically-committed members and deep-rootedness in society as a seven decade-old movement. Now that Bersatu is part of the opposition, it has become difficult for it to grow the war chest needed to mobilize its grassroots machinery. Adding insult to injury, its bank accounts have been frozen and seized by the Malaysian Anti-Corruption Commission (MACC) for investigative purposes.[6] PAS winning seats beyond its usual strongholds in GE15 has further widened the gap between the two parties. Having 43 seats has made it the biggest party in parliament, emboldening the party to exert a more muscular role within the PN coalition.

Bersatu has denied that there is friction between the party and PAS by reiterating that its secretary general, Hamzah Zainuddin, remains the opposition leader.[7] This is a response to rumours that PAS wants its rising political star, Ahmad Samsuri Mokhtar, the current Chief Minister of Terengganu and newly elected MP of Kemaman, to lead PN instead. For now, PAS has not aggressively lobbied for Ahmad Samsuri to replace Hamzah Zainuddin as the leader of PN, but if PAS makes such a move, it might lead to an irreparable rupture within PN. The possibility that PN will break up and its component parties will go their separate ways looms on the horizon. This is an eventuality that Bersatu needs to brace itself for.       

LESSONS FROM HISTORY

Malaysia’s post-independence history is replete with instances of Malay-Islamic splinter parties joining other coalitions or competing alone. PAS was established by ulama (religious scholars) in 1952, who broke with UMNO for the latter not being Islamic enough for them. Soon after, another split in UMNO took place in 1953 when its founder, Onn Jaafar, was unhappy with the party’s increasingly racial orientation and left to form the multi-ethnic Independence of Malaya Party (IMP), which was supplanted a year later by Parti Negara.[8]

In 1987, intense leadership rivalry between Tengku Razaleigh Hamzah and Mahathir Mohamad led to the creation of Semangat 46, founded by the former and his supporters. Semangat 46 won 8 parliamentary seats in the 1990 general elections when it joined forces with two politically disparate coalitions at the same time: Gagasan Rakyat with DAP and labour-based Parti Rakyat Malaysia (PRM); and Angkatan Perpaduan Ummah with PAS. The crown of its 1990 electoral achievement was winning the Kelantan state government with PAS. Semangat 46 soon became stridently Malay-centric as it competed with UMNO for Malay support, at the expense of severing its relationship with DAP and PRM. Semangat 46’s support base was primarily limited to Kelantan, which led to uneasy and oftentimes tense power-sharing with the more dominant PAS. By 1996, Semangat 46 had lost steam and ultimately collapsed.[9]

Two decades later, in 2016, Bersatu was created by former UMNO leaders who did not agree with the direction the party was taking amid Najib Razak’s 1MDB scandal. Bersatu realized early on that for it to have any chance of being electorally competitive it had to team up with the then-opposition PH, instead of running solo. The strategy was to engage UMNO in Malay-majority areas in a straight contest. Bersatu competed in 52 seats but only managed to win 13 of them, a subpar performance and a testament that UMNO was still a formidable force despite a discernible shift of Malay votes to PH.[10] 

Amanah, which split from PAS in 2015 as PAS turned more hardline, has found mixed success competing as a component party of Pakatan Harapan. Amanah has not been able to siphon away PAS supporters and has negligible presence in Kelantan, Terengganu, and Kedah. However, being part of PH has provided Amanah with the opportunity to compete and win in Malay-majority constituencies in other regions of peninsular Malaysia. Riding on the popularity of PH in 2018, Amanah managed to gain 11 parliamentary seats, which led to 10 cabinet positions in the PH government (2018-2020). In the 2022 general election, Amanah’s share of parliamentary seats dropped to 8, despite contesting in more constituencies.   

ELECTORAL PROSPECTS OF BERSATU GOING IT ALONE

Bersatu was founded, among others, by the former Prime Minister, Mahathir Mohamad, his son Mukhriz Mahathir and the former Deputy Prime Minister, Muhyiddin Yassin, all known stalwarts of Malay nationalism. All but one of Bersatu founding members were from UMNO, this being Syed Saddiq Syed Abdul Rahman, currently the MP of Muar and one of the founders of the party MUDA. As such, Bersatu is naturally competitive in areas where Malays comprise more than two-third majority, areas where UMNO had long been dominant.

Unfortunately for Bersatu, the political field in these Malay-majority areas are crowded with other parties. Bersatu’s former PN partner PAS also contests in these areas. From the Unity Government side, Bersatu will have to face either UMNO, Amanah or to a lesser extent, PKR. In other words, the contests in GE16 will most likely be three-way cases if Bersatu decides to leave PN (see Table 2).

Similar three-way dynamics in Malay majority areas were evident in GE14 where Bersatu, which contested under PH logo, faced off with BN-UMNO and PAS. Bersatu benefitted from the defections of UMNO supporters disgusted by the 1MDB scandal, and the party went on to win 13 parliamentary seats albeit some of them by a slim margin, such as Sungai Besar in Selangor (714 votes), Kuala Pilah (200 votes), and Tanjung Piai (524 votes).

As Bersatu transitioned into an opposition party after GE15, the face of its leadership also changed (see Table 2). Hamzah Zainuddin, the party’s secretary general and MP for Larut, became the PN leader in parliament, replacing Muhyiddin Yassin.[11] Home Minister during the 33-month PN government, Hamzah was formerly an UMNO MP who switched to Bersatu after the 2018 general election.[12] Alongside Hamzah in the Bersatu leadership line-up is Azmin Ali, his co-plotter in the Sheraton Move that brought down the then-PH government. Azmin, who was the former deputy president of PKR and Chief Minister of Selangor, was tasked to head PN’s efforts to take over Selangor in the 2023 state elections. PN did surprisingly well in Selangor by gaining 22 of 56 seats with several surprise wins in urban seats such as Taman Medan, Gombak Setia and Azmin’s own Hulu Kelang. PN’s achievement in Selangor might inject Bersatu with optimism that it can be competitive in urban and semi-urban Malay-majority seats.   

Table 2: Bersatu and its competitors in the 2018 general election

PAS40
BN-UMNO46
BN-MIC1
BN-MCA4
Gerakan1
DAP1
Total seats contested52
Total seats won13

Malay voters might find Bersatu attractive in areas where BN-UMNO had always done well historically and had deep roots. These are not as ideologically committed as PAS voters and the main reason they support PN has been unhappiness with UMNO’s corruption-charged president, Ahmad Zahid Hamidi.[13] They do not subscribe to PAS’s rigid interpretation of Islam but nevertheless are strongly pro-Malay-Islam and will not go back to UMNO until the party undergoes a major overhaul, something that does not seem likely anytime soon.  

Thus, the key to Bersatu’s competitiveness as a solo contender hinges on its ability to attract the former UMNO supporters who had been shifting their allegiance to PN since GE15. As mentioned above, these voters are not ideologically bound to PN like dyed-in-wool PAS members who had gone through a rigorous indoctrination process. These former UMNO voters support a party they believe is the most dependable when it comes to safeguarding the interests of Malays and Islam, a position held by UMNO for the longest time. Now the vanguard role has gone to PN, due to its exclusive ethnoreligious focus, and that coalition is seen as a more reliable defender of Malay and Islamic interests in Malaysia. These voters are not likely to return to UMNO’s fold for the simple fact that DAP is part of the Unity Government. The challenge for Bersatu now is how it is to bring these Malay voters into its fold.

It may be illuminative at this point to take a closer look at two long-held UMNO parliamentary seats which were snatched by PAS candidates contesting under PN in GE15 (see Table 3 and 4).

Table 3: Election results in Jasin (P139), Melaka (source: https://undi.info/)

 GE14GE15
BN-UMNO26,56027,571
PH26,341 (Amanah)21,674
PAS / PN8,860 (PAS)27,893 (PN)
Number of voters61,76177,598
Voters’ turnout84 percent81 percent

Table 4: Election results in Kuala Krau (P87), Pahang (source: https://undi.info/)

 Total votes in GE14Total votes in GE15
BN-UMNO18,05821,481
PH5,071 (Bersatu)3,593
PAS / PN15,182 (PAS)22,505 (PN)
Number of voters38,31147,753
Voters’ turnout81 percent79 percent

One common characteristic of these two seats is that UMNO managed to increase their total votes in GE15 despite losing, bucking the trend observed in other Malay-majority constituencies. UMNO candidates lost by a razor-thin margin: 322 votes for Jasin and 1,024 votes for Kuala Krau. These are the type of seats that might provide Bersatu with a fighting chance should it decide to contest alone. Kuala Krau, for instance, contains numerous Felda settlements, which for the longest time had been a vote bank for UMNO. Jasin too was a long-time UMNO-BN fortress until PAS-PN took over in 2022. There are at least 20 seats akin to Jasin such as Kepala Batas and Tasik Gelugor in Penang, Lumut in Perak, Rompin in Pahang, and Pagoh in Johor that can be amenable to Bersatu. Bersatu can be electorally viable if it can convince enough UMNO voters and non-PAS PN voters in these areas to come over to its side. There are many UMNO voters who are not happy with the party joining the Unity Government and their resistance was apparent during the six state elections last year when there was a low vote transferability from UMNO to the Unity Government.[14] Bersatu can capitalize on the Unity Government’s inability to attract support from UMNO supporters who prefer to sit on the fence or support PN.

What can Bersatu do to attract these Malay voters to the party? One way is for Bersatu to rebrand itself as a new much-improved UMNO – something the current UMNO has miserably failed to do.[15] In the GE15 and the six state elections in 2023, Malay voters who felt that Malay and Islamic interests needed to be protected did not have any other choice besides PN, which ran an effective campaign to discredit UMNO and project itself as the only credible alternative.

If PN breaks up, Bersatu can show that it is in a better position to safeguard Malay and Islamic interests than PAS. It can chart its own way of doing so without being burdened by elements of religious zealotry found in PN now. Bersatu does to a degree emulate BN’s concept of “primus inter pares” (first among equals) when it comes to cooperation with other ethnic groups, which for decades had formed the bedrock of the BN-led government, and established a non-Malay wing that fielded candidates. Perhaps by actively courting non-Malay support, particularly those not happy with the direction PH is heading in, Bersatu may gain a competitive edge over UMNO and PAS. 

National surveys have also shown that Bersatu leader Muhyiddin Yassin still retains popular support especially among Malays, compared to other leading Malay figures such as Anwar Ibrahim, Zahid Hamidi and Ismail Sabri.[16] This is primarily due to his decisive action during the onset of the COVID19 pandemic and the paternalistic image of Abah (father) he projected during the time of crisis. Bersatu can still bank on Muhyiddin’s respectable approval rating to siphon support from UMNO and PN voters.

The biggest challenge for Bersatu remains its weak grassroots machinery, which will be exposed once it separates from PAS. As a relatively young party, Bersatu does not have time to set down roots at the communal level. It is also a party that is primarily driven in a top-down fashion, founded as it was by political elites. To become electorally viable, Bersatu must develop its own grassroots network of volunteers and party cadres to rival UMNO and PAS, especially if it aims to compete in rural and semi-rural areas. Even to be competitive in Malay-majority seats in urban areas such as Gombak Setia, Hulu Kelang and Taman Medan – seats won by Bersatu in the 2023 state election with significant help from PAS volunteers – requires Bersatu to run a well-oiled political machine that can cater to the needs of urban dwellers.[17] Without political mobilization at the grassroots level, particularly in the Malay heartlands, Bersatu’s chances of success at going it alone is slim to none. The failure of Amanah to make an impact in Kelantan despite splintering from PAS is a perfect case in point.

Finally, Bersatu needs to showcase a new crop of young and fresh leaders to inspire voters.  Old leadership is what Malay voters associate with UMNO, and for Bersatu to supplant UMNO as the new vanguard for Malay and Islamic interests, it needs to groom and promote a leadership cohort that is professional, reform-minded, policy-oriented and unburdened by political baggage. One that comes to mind is the current state assemblyperson of Seberang Jaya in Penang, Izhar Shah Arif Shah, who won the seat formerly held by PKR in 2023 on his first try. Right now, the next line of leaders in Bersatu such as Azmin Ali and Ahmad Faizal Azumu (the former Chief Minister of Perak and Minister of Youth and Sports) are keeping a low profile as the opposition voice against the Unity Government. Azmin perhaps is the more controversial and polarizing of the two but his experience in managing Selangor, the richest state in the federation, can be an asset to Bersatu in moving forward.

Bersatu’s current partner PAS has started to shift gradually to non-ulama leadership by giving more prominent roles to leaders with a professional background such as Ahmad Samsuri Mokhtar and Syahir Sulaiman.[18] It is high time that Bersatu follow suit.

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.
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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).

 

2024/16 “Does Derisking or Decoupling Signal the Death Knell for the Export-led Model in Southeast Asia?” by Jayant Menon

 

Trucks passing by during the loading and unloading of containers at Tanjung Priuk Port in Jakarta, Indonesia, on 12 February 2024. Photo by Darryl Ramadhan/NurPhoto/NurPhoto via AFP.

EXECUTIVE SUMMARY

  • The death of the export-led model has been predicted many times. Most recently, it has come from the rise in anti-globalisation-driven protectionism and calls for derisking or decoupling, but again the rumours of its demise may be greatly exaggerated.
  • If the export-led model of old is dead or dying, then it is being superseded by one in which the composition and the pattern of trade may change, but not at the cost of its importance. The composition is shifting from goods to services while the pattern of trade is being driven more by geopolitics than by efficiency.
  • Trade statistics may have underestimated the true significance of digital trade and exaggerated the trade slowdown, given the measurement problems involved. Digital goods and services are likely to make up most of future trade growth, with digitalisation facilitating future services trade growth.
  • The export-led model is likely to survive. Southeast Asia’s long-standing commitment to free and open trade has facilitated massive economic transformation and brought much social progress. Furthermore, the growth and spread of supply chains in the region have underpinned its economic success, and this is largely irreversible.

* Jayant Menon is Senior Fellow at ISEAS – Yusof Ishak Institute. He thanks Cassey Lee and Maria Monica Wihardja for useful comments, without implicating them in any way.

ISEAS Perspective 2024/16, 4 March 2024

INTRODUCTION

While the rise in anti-globalisation sentiments can be traced back to at least the 2008 Global Financial Crisis (GFC), the COVID-19 pandemic reinforced it, leading to an increase in protectionism throughout East Asia and around the world. Many of the barriers to labour mobility introduced during the pandemic have been slow to come down and, in some countries, these have still not been completely reversed. Meanwhile, industrial policy has enjoyed a major return to popularity, especially in the United States (US).

These developments have been facilitated by, and ironically contributed to, an increasingly ineffectual World Trade Organisation (WTO). To some, the rules-based multilateral trading system is under threat, and may even signal the end of the export-led model in spearheading growth in the region. 

In essence, the export-led model involves a country pursuing economic growth and development mainly by opening itself up to international trade, where most of the increase in employment and per capita incomes derives from the successful export of goods and services. This is in contrast to the import substitution model where countries strive to become self-sufficient by developing their own industries under protectionist and industrial policies.

The objective of this article is to examine whether the increasing moves to derisk or decouple signifies the death knell for the export-led model, particularly for the Southeast Asian region. In other words, will the region’s long-standing commitment to openness be able to withstand the rise in anti-globalisation sentiments and the return to popularity of industrial policy? If the export-led model is indeed dead or dying, what will replace it and in what form? Or is the export-led model evolving rather than dying, and what shape is it likely to take, going forward? These are the questions that we will try to answer.

To set the stage, we begin by examining the trend in the reemergence of industry policy and protectionism, focussing on the US, before asking if the recent distinction being drawn between derisking and decoupling is real or rhetorical. We then consider the key question of whether the export-led model is dead, dying, or evolving.

THE US EMBRACE OF INDUSTRIAL POLICY AND SECURITY-DRIVEN TRADE POLICY

Industrial policy, in one form or the other, is not new to the US. More recently, it started gathering momentum with the Export Control Reform Act of 2018, which preceded the Inflation Reduction Act (IRA) and the CHIPS and Science Act in August 2022. The return of industrial policy is driven by a combination of the need to address climate change challenges through clean energy transitions as well as geostrategic concerns that focus on reducing dependence on China. In less than a year, the 2022 IRA and CHIPS Acts have already had significant direct and indirect effects on the East Asian region, especially on China and Southeast Asia. The subsidies linked to domestic content requirements in these statutes have shifted sourcing patterns, while restrictions on the exports of advanced microchips to Chinese firms have directly affected trade. World Bank (2023) shows how these laws have reduced exports to the US from China by about 10 percent since they came into effect and by almost 5 percent for ASEAN countries, while imports from the United States-–Mexico–Canada Agreement (USMCA) countries have increased. With the nexus between trade and investment, global FDI flows have also slowed since the GFC to a decade-low just before the pandemic hit (United Nations 2017), making them fall even further.

These are worrying trends, but it is important to look beyond the numbers to determine whether or not rumours of the death of the export-led model are exaggerated. Underlying drivers of the current trend favouring industrial policy and other forms of protectionism may represent either transitory forces or a more permanent shift in direction. And there are questions about how accurately the statistics capture the rapidly changing nature of globalisation and the associated changes in international production, trade and investment flows.

The direct impact of US industrial policy extends beyond its borders through the provision of preferential treatment to FTA partners and thereby discrimination against others. It may also have spill-over effects by contributing to an already growing appetite for similar policies in the East Asian region and around the world, especially Europe. This tit-for-tat policy game is not confined to tariffs but also applies to subsidies and other instruments of protection as countries try to compensate for and compete on a playing field that is growing increasingly uneven.

Since it is having both direct and indirect effects on trade in the region, as well as on policy setting, it is important to look more closely at what is driving the interest in industrial policy in the US. For decades, US trade policy was run by the US Trade Representative’s (USTR) office. The USTR negotiated all key trade agreements and was strongly pro-trade and pro-liberalisation. Under the Biden administration, the power on setting the trade agenda appears to have shifted to the Commerce Department. This shift in power has already had a profound influence on US trade policy.

Unlike the USTR, whose mission is to promote trade and investment through advancing liberalisation and maintaining a rules-based order, the Commerce Department is focussed on the defence and promotion of US companies and the protection of US technologies. Although the zeal with which the USTR has been pursuing its mission has weakened under the Biden administration, it is the shift in power to the Commerce Department that has markedly changed the nature and direction of US trade policy. This shift favouring the Commerce Department itself reflects the underlying ‘securitisation’ of US trade policy and the rise in US nationalism in technology and other associated forms.

It is the Commerce Department that has been overseeing the rollout of the massive subsidies being offered to re-shore, near-shore or friend-shore semiconductor manufacturing, restricting sales of advanced US technologies to various Chinese companies and other protectionist policies. This led some commentators like Alden (2023) to conclude that the US shift to a more nationalist trade policy, driven by domestic industrial interests and national security concerns, will be durable.

The question we need to ask is whether this shift will also permanently change Asia’s commitment to open and free trade and investment.

DECOUPLING AND DERISKING: REAL OR RHETORICAL?

At the G7 Summit in Tokyo in May 2023, US President Joe Biden tried to clarify that the objective of US economic relations with China was not to decouple[1] from it but to derisk and diversify. Biden has repeated the ‘derisk, not decouple’ mantra several times since, most recently at the United Nations General Assembly in September 2023.

These statements should be welcomed by East Asian countries whose manufacturing supply chains are intricately linked to China. Given the highly interdependent nature of production through supply chain networks, policies that directly impact China will reverberate throughout the region. But this rhetorical shift may not translate directly into substantive change. The United States may stall punitive measures initially, to be followed by a reversal or reduction. On the other hand, Biden’s statements may turn out to be simply a play on words. If it is mostly a rhetorical rather than substantive change, as many fear, then the real risk of further escalation in tensions, and increased supply chain disruption, will remain.

Elon Musk recently described the economic relationship between China and the global economy as akin to conjoined twins,[2] implying that the two were inseparable. This expressed position also reflects the growing chasm between private sector interests and government policy, even when the latter claims to reflect and serve the former. If Musk is correct about China and the global economy, then the interdependence between China and ASEAN is greater still. ASEAN’s supply chains remain China-centred and the idea that they can decouple from China is both impractical and imprudent.[3] There may be room, however, for diversification. Over-reliance on one or a few countries, or indeed firms, carries obvious risks.[4] ASEAN’s economic prospects are heavily dependent not just on China, but also the US. Reducing dependence on both countries through diversification would also reduce risk.

While diversifying trade patterns will increase the resilience of trade flows, and thereby the sustainability of the export-led model, will it be sufficient to counter the long-term trend decline in trade growth? Trade growth has been slowing in East Asia for some decades. While it averaged over 8 per cent in the years leading up to the 2008 GFC, it slowed to around 5.2 per cent after 2010 and is expected to fall to 4.4 per cent in the post-pandemic years (Pacific Economic Cooperation Council 2023). When normalised by GDP, the slowdown is less pronounced but it still remains significant.

The slowdown in trade growth has led some to suggest yet again that the export-led model is dead. Similar predictions were made soon after the 2008 GFC when current account imbalances came to dominate the global economy. The focus then was to rebalance sources of economic growth by shifting them from the external sector to domestic demand. Though much attention had focused on China, other Asian countries with sizeable current account surpluses also proposed rebalancing. The International Monetary Fund (IMF) was prominent in calling for China to rebalance in the early 2010s (Singh 2011; Arora and Carderelli 2011). The fact that it is still calling for it in 2023 suggests that the expected rebalancing has not happened (Bloomberg 2023).

The two-decade steady decline in the region’s trade growth rate is a cause for concern but a lot will depend on what is driving it. While supply chains are shortening (Antras 2020), and some policy-induced reshoring has taken place (Nguyen 2024), the slowdown has mainly affected goods rather than services trade (McKinsey 2016). The potential for growth in trade in services, especially intermediate services, is huge, and technological change related to digitalisation will further reduce barriers to trade in services (Baldwin 2022).

EVOLVING, NOT DYING

This has led some commentators like Baldwin (2023) to assert that globalisation is not dead but is simply transforming. Similarly, if the export-led model of old is dead or dying, then it may be superseded by one in which the composition and the pattern of trade change, without affecting its role or importance. The composition will shift away from goods towards services while the pattern of trade will be determined less by efficiency and more by geopolitical factors.

Recent research by the World Bank (2021) and the IMF (2018) warn that the trend of premature deindustrialisation and the spread of automation and digital technologies has made the traditional development model of export-led manufacturing seen in East Asia less viable for developing countries to replicate in the future. The World Bank study goes so far as to suggest that a services-led export model is the only alternative for developing countries. While debate continues (see Hauge 2018) on the respective roles that services and manufacturing play in different developing economies, there is growing agreement that diversification must increase within, not just between, these sectors.

Rapid growth in digital trade is related to this compositional shift towards services. Digital trade did not exist when the trade slowdown started two decades ago. In fact, trade has now rapidly evolved to include trade in digital goods and services, digitally ordered goods and services and digitally delivered services. Digitalisation increases the scale, scope and speed[5] of trade. And this will affect assessment of the viability of the export-led model in at least three ways.

First, digital goods and services are likely to make up most future trade growth, while digitalisation will facilitate future services trade growth.

Second, reported statistics on trade may underestimate the true volume of digital trade, given a host of measurement difficulties (see, for instance, IMF 2023). As the most rapidly growing component of trade, some of which is in place of conventional trade flows, the underestimation of digital trade volume may have significantly exaggerated the extent of the trade growth slowdown.

Third, many of the barriers that inhibit goods trade in developed countries do not apply to services trade (Baldwin 2022), accounting for its rapid growth, while the increasing use of the digital medium enhances the ability of traders to circumvent existing barriers, reducing the effectiveness of protectionist policies. New technologies and business models are challenging the way that international trade and investment policy is made. As far as the performance of the export-led model is concerned, the above factors suggest that trade may be growing a lot faster than statistics suggest, and further, that this trend is only likely to increase.

There are several reasons why the export-led model is unlikely to die anytime soon. Though the shift towards embracing industrial policy may represent more than a transitory phenomenon in the US, the fact that its security-driven trade policy has favoured friend-shoring and near-shoring more than reshoring implies a change in the pattern rather than the volume of trade. Such policies have so far favoured countries which have FTAs with the US, especially USMCA countries and trusted allies like India and Viet Nam, at the expense of China and ASEAN. This could change if members of the Indo-Pacific Economic Framework for Prosperity succeed with efforts to improve market access provisions, which seems increasingly unlikely (see Menon 2023a), or if attempts by ASEAN countries like Indonesia[6] and the Philippines to sign limited FTAs for critical minerals materialise (see Moriyasu 2023).

Japan’s recent foray into industrial policy is also aimed at reducing reliance on imports from China, by offering incentives to its firms to relocate their imports to ASEAN countries though with relatively limited impact so far. Again, this will mainly change the pattern rather than the significance of trade. Similarly, the rapid growth in digital trade is altering the product composition of trade, as new digital goods and services are traded and as modes of delivery change. To the extent that these changes affect volumes of trade, the trade statistics probably underestimate its true significance given that measurement difficulties lead to under-reporting (Menon 2023b).

CONCLUSION

The recent rise in protectionism and the return to popularity of industrial policy around the world have led some to conclude that the export-led model is dead, yet again. Similar predictions were made soon after the 2008 GFC but these were proven to be wrong then, as they might be again. The main reason why the export-led model is likely to survive this time, in one form or the other, is the region’s long-standing commitment to free and open trade, which has facilitated massive economic transformation and social progress. This experience cannot be denied, overlooked, or forgotten. The growth and spread of supply chains in the region have underpinned its economic success and is largely irreversible.

There is evidence that this commitment is still present. Recently, Malaysia decided to remove price controls and subsidies[7] on sensitive agricultural products, while reiterating its commitment to openness. The country also questioned the need to return to pre-pandemic levels of dependence on foreign workers deemed critical to retaining the competitiveness of its tradable goods sector. But pragmatism has trumped nationalism and the policy of openness to such flows has been reinstated. The Philippines has removed[8] the long-standing and controversial foreign equity limitation on public services, allowing 100 per cent foreign ownership in all public service sectors outside of public utilities, but including railways and airports.

These are indicators of the region’s commitment to openness, reaffirming its liberalisation credentials even during uncertain times when the temptation to turn inward is at its highest. The ASEAN-led Regional Comprehensive Economic Partnership initiative with its open rules of origin at a time of global pressures against liberalisation is an example, as is the recent launch of negotiations for the ASEAN Digital Economy Framework Agreement.

If there is a risk to the export-led model, then it is likely to come from outside rather than from within the region. But whether the region’s long-standing commitment to openness will be sufficient to withstand the disruption from a sharp escalation in geopolitical tensions that leads to more fragmentation remains the primary concern.

REFERENCES

Alden, E. 2023. Why the U.S. Trade Office No Longer Runs Trade. Foreign Policy. 7 March. https://foreignpolicy.com/2023/03/07/ustr-tai-trade-biden-america-first-china-decoupling/

Antras, P. 2020. De-Globalization? Global Value Chains in the Post-Covid-19 Age. ECB Forum on Central Banking, Portugal. https://www.ecb.europa.eu/pub/conferences/shared/pdf/20201111_ECB_Forum/academic_paper_Antras.pdf

Arora, V. and R. Carderelli. 2011. Rebalancing Growth in Asia: Economic Dimensions for China. Washington, DC: IMF. https://www.elibrary.imf.org/display/book/9781616350567/9781616350567.xml

Baldwin, R. 2023. Globalisation isn’t dead, it’s transforming. Strategy. 26 June.https://www.imd.org/ibyimd/videos/globalization-isnt-dead-its-transforming-and-that-will-change-how-we-do-business/

Baldwin, R. 2022. The peak globalisation myth: Part 4 – Services trade did not peak. VoxEU, 3 September. https://cepr.org/voxeu/columns/peak-globalisation-myth-part-4-services-trade-did-not-peak

Bloomberg. 2023. IMF Chief Urges China to Rebalance Economy Toward Consumption. 26 March. Bloomberg News. https://www.bloomberg.com/news/articles/2023-03-26/imf-chief-urges-china-to-rebalance-economy-toward-consumption

Gill, I. 2022. The Green Great Game: Techno-nationalism, climate critical minerals and low-carbon technologies, PIIE-LKY School of Public Policy STEP Conference, Singapore, November 10-11.

Hauge, J. 2018. Manufacturing still matters: five reasons why the IMF is wrong. The Conversation, 19 June. https://theconversation.com/manufacturing-still-matters-five-reasons-why-the-imf-is-wrong-96163

IMF. 2023. Handbook on Measuring Digital Trade: Second edition, Washington, DC: IMF. https://www.imf.org/en/Publications/Books/Issues/2023/08/17/Handbook-on-Measuring-Digital-Trade-Second-edition-537466

IMF. 2018. World Economic Outlook. Washington, DC: IMF. https://www.imf.org/en/Publications/WEO/Issues/2018/03/20/world-economic-outlook-april 2018

McKinsey. 2016. Digital Globalization: The New Era of Global Flows. 24 Fenruary.https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/digital-globalization-the-new-era-of-global-flows

Menon, J. 2023a. What Can Malaysia Expect from IPEF? Perspective 2023/64, Singapore: ISEAS-Yusof Ishak Institute. /articles-commentaries/iseas-perspective/2023-64-what-can-malaysia-expect-from-ipef-by-jayant-menon/

Menon, J. 2023b. The export-led model is evolving, not dying. East Asia Forum Quarterly 15(4), pp. 40-3. East Asia Forum Quarterly: Volume 15, Number 4, 2023 (anu.edu.au)

Menon, J. and A. Melendez. 2019. Upgrading the ASEAN–China Free Trade Agreement, East Asia Forum, 14 August. https://eastasiaforum.org/2019/08/14/upgrading-the-asean-china-free-trade-agreement/

Moriyasu, K. 2023. US and Indonesia upgrade ties with eye on critical minerals pact. Asia Nikkei Review, 13 November. https://asia.nikkei.com/Politics/International-relations/Indo-Pacific/U.S.-and-Indonesia-upgrade-ties-with-eye-on-critical-minerals-pact

Nguyen, Q-C. 2024. The Deglobalization Myth: How Asia’s supply chains are changing.Singapore: Hinrich Foundation. https://research.hinrichfoundation.com/hubfs/White%20Paper%20PDFs/STI%202023%20Deep%20Dive%20-%20How%20Asia%20supply%20chains%20are%20changing%20-%20Hinrich%20Foundation%20-%20January%202024.pdf?__hstc=251652889.dfdf1fb5caa00cfca72bc5c2e17970eb.1705164831972.1705164831972.1705164831972.1&__hssc=251652889.2.1705164831973&__hsfp=3748387669

Pacific Economic Cooperation Council. 2023. The State of the Region. Singapore: Pacific Economic Cooperation Council. https://www.pecc.org/pecc/208-publications/949-state-of-the-region-2023-2024

Pangestu, M. 2022. Critical Minerals: challenges for diversification, climate change and development. Peterson Institute for International Economics Webinar, 27 April. https://www.piie.com/sites/default/files/2023-04/2025-04-27pangestu-ppt.pdf

Singh, A. 2011. Tipping the Scales—Rebalancing Growth in Asia. IMF Blog, 29 April. Washington, DC: IMF. https://www.imf.org/en/Blogs/Articles/2011/04/29/rebalancing-growth-in-asia

United Nations. 2017. Investment Trends Monitor, Geneva: United Nations Conference on Trade and Development. https://unctad.org/system/files/official-document/diaeiainf2019d1_en.pdf

World Bank. 2021. At Your Service: The Promise of Services-Led Development. Washington, DC: World Bank. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/155731631771398616/main-report

World Bank. 2023. East Asia and Pacific October 2023 Economic Update. Washington, DC: World Bank. https://www.worldbank.org/en/publication/east-asia-and-pacific-economic-update

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).

 

“How Thailand’s Move Forward Party’s Fandom Strategy Shaped the 2023 General Election” by Alexandra Colombier

 

 

“China’s Cultural Diplomacy in Indonesia: The Case of a Transnational Singing Contest” by Chang-Yau Hoon and Ardhitya Eduard Yeremia

 

 

2024/15 “The Israel-Palestine Conflict Reveal Political Divisions within Thailand” by Daungyewa (Hong) Utarasint

 

A woman hugs her husband, who was among six Thai workers who returned from Israel at Suvarnabhumi Airport on 4 December 2023. Photo by VARUTH HIRUNYATHEB/Bangkok Post/Bangkok Post via AFP.

EXECUTIVE SUMMARY

  • There are distinct divisions in Thailand between Muslim communities, particularly the Malay Muslims in the southernmost provinces, and the mainstream Thai population. These contribute to a spectrum of political ideologies that carry significant domestic and international implications.
  • As the Israeli-Palestinian conflict drags on, divergent views in Thailand on the issue continue to grow. This is most obvious between views held by the broader Thai population on the one hand, and those held by Thai Muslims, especially those who are Malay Muslims from the country’s southernmost provinces, on the other.
  • Although the Thai government voted in favour of an immediate humanitarian ceasefire at the United Nations General Assembly meeting on December 12, Thai netizens have expressed contrary views on the matter on social media. Conversations with officials from international organisations based in Thailand also suggest that many Thai authorities collaborating with them tend to demonstrate solidarity with the Israeli Defense Forces (IDF).
  • While many Thais and media outlets focus on the demise of Thai workers on October 7, the 172 deaths of Thai workers in Moshav and Kibbutz in Israel over the years should be given attention as well. 
  • The Thai government will need to exercise greater sensitivity in its foreign policy towards Israel and Palestine, bearing in mind the unrest in the southernmost provinces of Thailand. It is crucial that it avoids inciting resentment among the Malay Muslims. 

* Daungyewa (Hong) Utarasint is a former Visiting Fellow at ISEAS – Yusof Ishak Institute. She is Visiting Assistant Professor of Arts and Humanities at NYU Abu Dhabi (NYUAD). Her current research investigates women and voting behaviour amid conflict in the southernmost provinces of Thailand, and examines obstacles to women’s political participation and how religion and cultural norms affect women’s political mobility.

ISEAS Perspective 2024/15, 27 February 2024

Download PDF Version

INTRODUCTION

Tensions in the Middle East continue to escalate. On October 7, Hamas launched a surprise attack on Israel, resulting in 1,200 deaths, and Israel has retaliated with bombing of Gaza, an action that critics have described as ‘collective punishment’. Israel asserts that its sole intention is to eliminate Hamas. However, the sustained bombing has led to widespread destruction of homes, mosques, churches, schools, universities, and hospitals. This outcome raises suspicions that the initial expressed targeting of Hamas was meant to mislead. To date, Israeli military action has killed more than 26,000 Palestinians.

Meanwhile, world opinion has polarised into two camps: pro-Palestine and pro-Israel. The Israel-Palestine conflict has long been a complex issue, and many mistakenly perceive the conflict as a clash between two religions, Islam and Judaism, fanning both Islamophobia and anti-Semitism around the globe. It reveals widespread ignorance of the history and complexities of the Israel-Palestine conflict. The shockwave from the war spread as far as Chicago, where a 6-year-old Palestinian American boy was stabbed to death for being a Muslim. At the same time, anti-Semitic incidents have also intensified after October 7. 

The rising death toll of Palestinians has sparked global protests against the Israeli government for continuing the air strikes in Gaza. Like much of the world, Thailand grapples with divergent views on the Israeli-Palestinian conflict. More significantly, there is a marked difference in opinion between the broader Thai population and Thai Muslims, especially Malay Muslims from the southernmost provinces.

One particular factor affecting public opinion in Thailand as a whole is the fact that Thai workers were among the victims of the Hamas attack on October 7. According to the Thai Ministry of Labour website, as of October 21, 31 Thai workers had died, 16 sustained injuries, and 19 remained captives by Hamas. This situation has significantly heightened awareness in Thailand about the large number of Thai workers stationed in Israel.

This article highlights the distinct political identities and divisions between Muslim communities—particularly the Malay Muslims from Thailand’s southernmost provinces—and the mainstream Thai population, and discusses how these divisions contribute to a spectrum of political ideologies that carried significant domestic and international implications.

We can take the May 2023 general election as a point of departure. Voting patterns then show a significant divergence: a majority of voters supported the progressive-liberal Move Forward Party, while the Malay Muslim community primarily cast their ballots for the Prachachart Party, an ethno-religious party with a strong base in the southern provinces of Yala, Pattani, and Narathiwat. This outcome underscores the distinct political views among these communities.

Similarly, perspectives on international issues, such as the Israel-Palestine conflict, vary markedly— and that is the focus of this article. We explore these differing viewpoints and responses to see how such divisions contribute to the diverse ideologies that influence Thailand’s domestic and international strategies.

THE THAI GOVERNMENT AND THE THAI PRIME MINISTER’S STANCE ON THE ISRAEL-PALESTINE CONFLICT

Thailand’s foreign policy has consistently followed a ‘Bamboo Diplomacy’ approach, characterised by flexibility and adaptability to changing international dynamics. As a member of the United Nations, Thailand has recognised both the State of Palestine and the State of Israel, and maintains strong diplomatic relations with Iran. This approach enables Thailand to navigate the current crisis with a malleable strategy towards Israel, Palestine, and Iran. Despite pressure from both Pro-Palestine and Pro-Israel advocates for the Thai government to take sides, it has chosen to remain neutral and silent in order to preserve its positive diplomatic relationships with all involved parties.

However, immediately after the news broke that Hamas had captured Thai migrant workers in Israel, Thai Prime Minister Srettha Thavisin publicly denounced Hamas for its atrocious acts.[1] In response, Thai scholars criticised Srettha for this, arguing that caution was necessary since Thai hostages remained in custody. Given the delicate situation, the complexities of foreign policy in the Middle East and the involvement of major world powers, Srettha’s hasty actions may have plunged Thailand into a complex diplomatic situation. 

Although the Thai government voted in favour of an immediate humanitarian ceasefire at the United Nations General Assembly meeting on December 12, some Thai netizens have expressed contrary views on social media. Conversations with officials from international organizations based in Thailand reveal that a significant number of Thai authorities collaborating with them demonstrate solidarity with the Israeli Defense Forces (IDF). Remarkably, some supporters of the Move Forward Party, who are typically advocates for democracy and human rights, openly support the Israeli government’s collective punishment in Gaza, which has been labelled by some as genocide. Furthermore, many Thai social media influencers derive their news and analytical perspectives from the Israel Defense Forces’ X and Instagram profiles.[2]

THAI PUBLIC AND MUSLIM COMMUNITY: CONTRASTING OPINIONS ON ISRAEL-PALESTINE

Scholars and experts who have shared their insights and views on the Israel-Palestine conflict have encountered a strong backlash, including slurs and derogatory comments on social media. Thai Muslim scholars and experts, in particular, have been subjected to prejudiced remarks, been labelled as supporters of a specific side or been called spokespersons for Hamas. Some comments have been extreme and offensive, such as “Of course, you are Muslim, so you support them”; “You sound like a spokesperson for Hamas.”; “We should throw pigs at people in Palestine as a retaliation”, and many more. The term khaek is often used in these comments, a derogatory term for Muslims in Thai. Many comments further alleged that these scholars and experts were betraying Thailand. These commenters reasoned that if Hamas killed Thais, those who expressed sympathy for Palestinians should no longer be considered Thais.[3] 

Amidst growing tensions in the region, on October 21, over 300 Thai Muslims and Palestinians gathered at the Israeli Embassy in Bangkok.[4] The assembly was a peaceful demonstration of support intended to express solidarity with the Palestinians in Gaza, with participants calling for a ceasefire. On November 4, more than 4,000 Malay Muslims gathered to perform Salat-ul-Hajat prayer (the prayer of need) in front of Pattani’s Central Mosque.[5] On December 17, Malay Muslims in Pattani Province held a second rally under the banner “I Promise”.[6] Demonstrators pledged to continue advocating for peace for the Palestinians in Gaza. Despite global rallies, in Thailand, only a small number of Thai and Malay Muslims mobilised to protest against the war in Gaza.

THAI WORKERS IN ISRAEL

The motive behind Hamas’ strategy of kidnapping remains unclear. From a tactical standpoint, taking hostages in a conflict zone is often seen as a means to gain bargaining power. Consequently, Hamas’ hostage-taking may be less about nationality than it is about enhancing their negotiation capabilities. Thus, it is conceivable that Hamas indiscriminately kidnapped any individual present to increase their leverage. Media analysts and speculators have been diligently examining Hamas’s reasons for kidnapping Thai nationals. Some of them posit that Hamas disapproves of Thai workers occupying jobs in the Kibbutz that Palestinians could fill. Others suggest that Hamas views Thai workers in Israeli agriculture as indirectly supporting Israeli policies towards Palestinians. Hamas may perceive Thais working in Israel as collaborators with the Israeli authorities. Besides, speculation has been rife that some Thai paramilitaries, previously active in the conflict-ridden southernmost provinces of Thailand, have joined the Israeli Defense Forces, potentially sparking retaliation from Hamas. However, Thai netizens discovered that at least one of the Thais who enlisted in the Israeli Defense Forces was raised in Israel, debunking rumours that he was a mercenary, as social media had suggested without substantiation.

The presence of Thai workers in Israel is not a recent development. Following the first Intifada in 1987, the Israeli state began replacing Palestinian workers with workers from Asia and Africa, primarily for roles in the agricultural sectors. Many Thai workers poured into Israel in the 1990s, the majority of them employed at the cooperative agricultural communities of Moshav and Kibbutz.

Although Israel and Thailand formalised a labour welfare agreement in 2011, a Human Rights Watch report found that Thai agricultural workers still faced labour rights abuses. A BBC investigation also revealed that many Thai workers lived under squalid conditions, suffering exploitation and abuse. Between 2012 and 2018, reports indicated that 172 Thai workers had died in Israel.[7] One such worker, Mr. Praiwan Seesukha, tragically died in his sleep in 2013. Human Rights Watch stated that Praiwan had been working an exhausting 17 hours a day, seven days a week, with no days off.[8] Israel refuted the claims, arguing that the BBC report distorted the reality.[9] The Israel Ministry of Health stated deaths during sleep were attributed to Brugada syndrome, a genetic condition prevalent among certain tribes from the northeastern region of Thailand. 

While many Thais and media outlets focus on the death of Thai workers on October 7, it is crucial for the Thais and the Thai government to examine the 172 deaths of Thai workers in Moshav and Kibbutz over the years as well. 

PRACHACHART PARTY NEGOTIATE FOR THE RELEASE OF THAI HOSTAGES

Since the 14 May general election, the spotlight has been directed at the turmoil in the heart of the nation; the political atmosphere in Thailand’s three southernmost provinces was equally tense. The stakes became particularly pronounced when Pita Limjaroenrat, the leader of the Move Forward Party—who secured the most votes—was barred by parliament from becoming Prime Minister of Thailand. The emotions in Thailand’s Deep South have run as intensely as in Bangkok, albeit with a different connotation; it melds elements of ethno-religious identity politics with pro-democracy ideals, and stands apart from the rest of Thailand.

From July 19 to August 22, the parliamentary process for nominating, selecting and voting for the Prime Minister was in disarray. On July 19, Wan Muhammad Noor Mata (Wan Nor), the House Speaker and Prachachart Party leader, rejected MP Rangsiman Rome’s urgent motion to reconsider the nomination of Pita Limjaroenrat for the position of Prime Minister. In response, the Move Forward Party’s supporters expressed their discontent with Wan Nor. Following Wan Nor’s ambivalent role as House Speaker, and in light of the Prachachart Party’s decision to align with the Pheu Thai Party and with pro-military groups such as the Palang Pracharath Party and the United Thai Nation Party, many Malay Muslim pro-democracy advocates have expressed their discontent. A considerable number have pledged to withhold their support in subsequent elections.

Amidst this domestic unrest, Prime Minister Srettha’s harsh denouncement of Hamas marked a sharp turn in foreign affairs. Wan Nor, the House Speaker, alongside his team, initiated outreach within their closed-circle networks, particularly among the Thai-Shia community, to establish contact with senior authorities in Iran and Hamas to negotiate the release of Thai hostages. Simultaneously, a distinct group of mediators, consisting of Thai officials from the Foreign Ministry and the military, actively sought to broaden their diplomatic channels through nations such as Turkey, Malaysia, Qatar, Egypt, and Saudi Arabia. Their objective was to secure the most favourable terms for the hostages’ release.

While the Srettha administration’s prompt diplomatic actions to secure the release of Thai hostages are acknowledged, the efforts are perceived by many, particularly the hostages’ relatives, as tardy. To be sure, prominent figures such as Wan Nor, the House Speaker; Areepen Utarasint, his advisor; Syed Sulaiman Husaini, the leader of Thailand’s Shia community; and Lerpong Sayed, a lecturer at Iran’s Al-Mustafa International University and the head of the Thai-Iran alumni association, who is also Syed Sulaiman Husaini’s younger brother, have been instrumental in the negotiation process. These negotiators hail from Thailand’s three southernmost provinces and share the Muslim faith, and therefore, they exert a pivotal influence behind the scenes. In an interview with VOA Thai, Lerpong asserted, “I think Thailand was the most successful in the world in helping the hostages.”[10]

On October 30, when 17 Thai hostages were returned to Thailand, each returnee wore a T-shirt featuring both Israeli and Thai flags, signifying that the Thai government had sent ambiguous messages to the public. Furthermore, each returnee also donned a necklace inscribed in Hebrew and English with the phrase, ‘Release them (hostages) back home now!’ While the government attempts to maintain a neutral stance, the T-shirts emblazoned with the Israeli flag suggest otherwise. Syed Sulaiman Husaini, a key negotiator for the release of hostages from Hamas and the leader of Thailand’s Shia community, told an interviewer that during negotiations, he had assured Hamas that Thailand did not support Israel. However, the presence of both Israeli and Thai flags on the t-shirts worn by the released Thai hostages may have contradicted his statement. Syed expressed feelings of betrayal after witnessing the return of the hostages via the media, feeling that the Thai government disregarded him and his team’s efforts.[11] The Thai government has faced severe criticism from both Thai and Malay Muslim communities for its perceived insensitivity and lack of foresight regarding potential adverse consequences for the remaining Thai hostages still in captivity.

CONCLUSION

Even if all of the hostages have been freed, this action alone is unlikely to mend the longstanding division between the Thai state and the predominantly Muslim region of Southern Thailand. While the people in Southern Thailand undoubtedly welcome the release, this does not resolve or lessen the existing tensions. The reason is that most Thai hostages are from Northeastern Thailand (Esan). The election results and the local response to the Israeli-Palestinian conflict, which this article mainly focuses on, underscore the disconnect between Thailand’s three southernmost provinces and the rest of the country. This situation highlights a division in political leanings between Muslim communities and the mainstream Thai population, leading to fissures in both the domestic and international domains.

While Srettha’s government endeavours to repatriate Thais wishing to return home, the aftermath has compelled the government to reassess and enhance its protocols for similar future situations. This scrutiny has highlighted deficiencies in the Thai government’s bureaucratic processes, especially within the Ministry of Labour, which has been criticised for not fully informing workers about the risks of working in conflict zones and for failing to safeguard the welfare of its citizens abroad consistently. Furthermore, the Thai government needs to exercise greater sensitivity in its foreign policy towards Israel, bearing in mind the ongoing unrest in the southernmost provinces of Thailand. It is crucial that it avoids actions that can incite resentment among the Malay Muslims. 

Finally, and above all, nationalist Thais must recognize that expressing sympathy for Palestine does not equate to disloyalty to Thailand. It is a misrepresentation to equate all Palestinians with Hamas. Moreover, it is not the case that all Jewish individuals support Israel’s stance towards Gaza. It is essential to refrain from generalizing about religions, ethnicities, and nations when discussing conflicts and violence.

TIMELINE OF THE RELEASE OF THAI HOSTAGES:

  • The October 7 incident resulted in 39 Thai fatalities and 4 injuries, with 25 Thai individuals being taken as hostages.
  • A ceasefire agreement, spanning four days, commenced on November 24 (Friday), which included terms for an exchange involving 50 members from Hamas and 150 from Israel.
  • On the evening of November 24, the first day of the hostage swap, Israel and Palestine conducted an exchange involving 13 Israelis and 39 Palestinians.
  • Between November 24 and 25, Hamas released 14 Thai hostages.
  • On November 26, an additional 3 Thai hostages were released.
  • On November 29, 2023, Thai Foreign Minister Parnpree Bahiddha-Nukara travelled to Israel to welcome the released hostages.
  • On November 30, Hamas released 14 hostages, including 4 Thais, in exchange for Israel releasing 30 Palestinian hostages. The released individuals travelled through Egypt on their way back to Israel. 
  • Israeli officials stated that the Qatari government brokered the ceasefire agreement between Israel and Palestine. However, a different set of mediator actors orchestrated the agreement concerning the 25 Thai hostages and 2 Russians.
  • However, as of December 4, 8 (or 9) Thai hostages remained in captivity.

ENDNOTES


For endnotes, please refer to the original pdf document.

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2024/14 “Demographic Transitions in Southeast Asia: Reframing How We Think and Act About Ageing” by Maria Monica Wihardja and Reza Siregar

 

People walk past the Dinsaw booth displaying elderly care robots at the international media centre during the Asia-Pacific Economic Cooperation (APEC) summit in Bangkok on 18 November 2022. Photo by Ludovic MARIN/AFP.

EXECUTIVE SUMMARY

  • Population ageing could be a sign of longer lives and healthier old ages, but this demographic factor poses both challenges and opportunities at the same time.
  • Managing the ageing transitions will therefore critically shape the existential conditions of each demographic stage.
  • This study maps the Southeast Asian economies into various demographic typologies and documents policy recommendations that these economies could adopt, for example, by drawing on the experiences and policy initiatives of other East Asian countries in navigating their ageing population.

* Maria Monica Wihardja is an economist and Visiting Fellow at ISEAS – Yusof Ishak Institute and Adjunct Assistant Professor at the National University of Singapore; and Reza Siregar is Head of the Indonesia Financial Group (IFG) Progress Indonesia.

ISEAS Perspective 2024/14, 21 February 2024

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INTRODUCTION

The Southeast Asian (SEA) region is experiencing intense demographic changes. Unlike their counterparts in Europe and the United States, countries in East and Southeast Asia are ageing at record speed, (World Bank, 2019).[1] While countries in SEA are heterogeneous in their demographic profiles – from the already aged population in Singapore to the still very young population in Cambodia and Lao PDR – none of them is spared from the challenges brought by an ageing population.[2]

Although population ageing could be a sign of longer lives and healthier old ages, demographic transitions can be a ticking time bomb and turn out to be disastrous if countries fail to invest in necessary systems and reforms in time. This paper discusses the challenges faced, and suggests policy recommendations for SEA countries, focusing on the ten ASEAN countries at different stages of demographic transitions, with some comparisons with, and lessons to be learned from, Japan, South Korea and China.

DEMOGRAPHIC TYPOLOGY IN SOUTHEAST ASIA

Scholars have conceptualised three forms of “dividends” from demographic changes (World Bank, 2015). A ‘first demographic dividend’, associated with a growing share for the working-age population, presents opportunities for countries to reap the expanding working age population, which they can do by investing in human capital, creating enough productive jobs and building institutions conducive to savings and transfers. A ‘second demographic dividend’, associated with a declining share for the working-age population, presents the countries with the next group of opportunities to benefit from the more sophisticated workforce; this they can do by moving the workforce into higher productivity sectors and jobs and mobilising savings that the current cohorts of older people had squirrelled away and invested when they were younger. A ‘third demographic dividend’, associated with an already aged or super-aged population, presents further opportunities by ensuring that older people can live with dignity and security, for example, by reframing ageing from being a burden to being a blessing.  

Evidence from East Asia during the 1970-2000 period suggests that the contribution on GDP growth from a ‘second demographic dividend’ through a higher productivity growth was 2.2 times larger than the contribution from a ‘first demographic dividend’ through a demographic change (a higher share of working-age population) (World Bank, 2015). Since human capital accumulation is cumulative, failing to reap an earlier demographic dividend could dent the long-term potential of a country. Table 1 summarises various demographic transitions and the channels through which demographic dividends can be reaped. Based on this typology, two countries, Singapore and Thailand, entered the ‘post-dividend’ demographic transition in 2023, associated with the third demographic dividend. Five countries, i.e., Indonesia, Brunei Darussalam, Malaysia, Myanmar, and Vietnam, have entered the ‘late-dividend’ demographic transition, associated with the second demographic dividend. Meanwhile, Lao PDR, the Philippines and Cambodia are still in the ‘early-dividend’ demographic transition, associated with the first demographic dividend.

Table 1: Southeast Asian countries in different stages of demographic transitions

Source: Table 5.1, World Bank, 2015; and authors’ analysis

*Note: This typology is used by the World Bank (2015) and we updated the calculation to year 2023 (see Annex 1).

It is not too late for lower- and upper-middle-income SEA countries to prepare and implement necessary reforms to reap the demographic dividends associated with their stages of demographic transitions, but the progress to reform so far in many of these countries has been slow. Accelerating reforms will be critical for the region and individual countries.

DEMMOGRAPHICS-SENSITIVE POLICIES

What types of policy reforms are needed to address demographic shifts? In the following sections, we will discuss three priority areas that are most salient for SEA countries: (i) facilitating intra– and inter-generational transfers and equity, (ii) maintaining economic growth and labour market dynamism, and (iii) supporting the well-being of the growing older population.

Facilitating intra- and inter-generational transfers and equity

The importance of intra- and inter-generational transfers and equity can perhaps be best analysed by looking at how consumption is financed across one’s lifetime, including through private and public transfers as well as asset-based reallocations (Annex Figure 1). People tend to be net recipients of transfers (consuming more than what is earned from labour income) when they are children and when they are in the post-retirement ages, while people tend to be net donors of transfers when they are in their productive ages (earning more from labour income than what is consumed).

Among the goals of such a life-cycle analysis are to be able to answer the question of how current and future older people (i.e., the young generation today) are being and will be supported, to estimate the potential impact of demographic changes on public finance including the pension and insurance systems, and to ensure inter-generational equity where the younger generation will be supported when they become old to the same extent that they support the older generation today. The pension and insurance systems, capital and financial markets (asset reallocations) and fiscal policies (taxes and social assistance programmes) will define inter- and intra-generational transfers and equity within a country.[3]

As a case in point, public transfers play a big role in supporting the older people in Germany while asset reallocation and private transfers play a more dominant role in the Philippines (Annex Figure 1). While public transfers can protect the more vulnerable older population, asset reallocation and private transfers alone may not, since not all older people, especially poor and vulnerable older people, own assets or have personal savings and/or family to rely on, highlighting the need in the Philippines to improve the social pension, insurance and assistance systems.

Most developing countries in SEA do not yet have mature and well-functioning pension systems (ILO-ASEAN, 2020; Park, 2012). Among ASEAN member states, only 31.5 percent of persons aged 60 years old or older are covered under some form of regular or one-time lump-sum pension payment, compared to 55.2 percent for the Asia Pacific region and 77.3 percent for the East Asian region. Moreover, there are high disparities among ASEAN countries, with more than 80 percent coverage in Thailand and Brunei Darussalam and less than 20 percent coverage in Malaysia, Indonesia, Cambodia and Lao PDR (Figure 1).

Figure 1: Old-age pension beneficiaries in ASEAN member states as percentage (%) of reference population

Source: Table 10, ILO-ASEAN 2020

Note: Data is based on the latest available year.

As a result, they are ill-prepared to provide economic security for the large number of retirees who loom large on the region’s horizon, risking high poverty incidences among their old-age populations in the near future. Social changes such as changing women’s aspirations, including working in nine-to-five formal jobs accompanying the region’s robust growth, have also weakened traditional family-based old-age support, suggesting that formal pension systems will have to play a bigger role in economic security for the growing older population.

There are five policy reforms for developing SEA countries to embrace if they are to establish more mature and well-functioning pension systems (Park, 2012). The first is to strengthen the institutional and administrative capacity of pension systems to enable them to perform their core functions effectively, including collection of contributions. The second is to improve the governance and regulatory framework of pension systems. The third policy reform is to broaden the pension coverage especially since the biggest failure of pension systems is their limited coverage. The fourth is to enhance the financial sustainability of pension systems. This will require bold adjustments in certain parameters, such as retirement ages, contribution rate, coverage rate and benefits. The fifth lesson is the need to generate higher returns for pension assets and deepening domestic financial and capital markets, particularly for long-term maturity assets. Related to the last point on pension assets, Table 2 shows the pension funds’ assets as a percentage of GDP in East and Southeast Asian countries in the period 2001–2021 where data are available.[4] While this rate is as high as 105 percent in total OECD countries and 93.8 percent for Singapore in 2021, it is as low as 8.3 percent in the rapidly ageing Thailand, and 1.9 percent in the soon-to-be-ageing Indonesia.

Table 2: Ratio of pension funds’ assets to GDP (%) in selected countries[5]

Source: OECD Global Pension StatisticsNote: Pension funds’ assets are defined as assets bought with the contributions to a pension plan for the exclusive purpose of financing pension plan benefits.

The case of Indonesia shows that among the challenges to broadening coverage of pension systems are the large informal sector in the economy and the relatively low income per capita of the country (Siregar et al, 2021, Siregar et al, 2022).

The case of Vietnam shows that the financial sustainability of pension systems is crucial to ensuring inter- and intra-generational equity. Currently suffering from two “missing middles”, namely older population who receive neither monthly retirement benefits, national merit benefits nor social pension benefits, and workers in their productive age who are not poor enough to be covered by social assistance but not rich enough to benefit the social insurance system, pose serious challenges to Vietnam’s social protection system. Social assistance (non-contributory cash and in-kind transfers) only covers less than 20 percent of the workforce while social insurance (contributory pensions and health) covers only about 15 percent of the workforce (Hosny and Sollaci, 2022).

Vietnam’s unsustainable pension fund, which is partly due to the large informal sector (estimated at 68.5 percent in 2021), will become a large deficit in about three decades and this may necessitate higher taxes in the future, makes the system unfair both within and across generations (Leung, 2024; Giang, 2012). Besides increasing contribution rates and increasing normal retirement ages to improve the financial balance, in the longer term, the current defined-benefit pension system needs to transit into a more financially sustainable defined-contribution system. A voluntary contributory scheme introduced by the government in 2006 may need better incentives such as tax-funded matching contributions, to attract the more informal workforce into the pension system.

Productivity-led economic growth and labour market dynamism

After a country exits its early-dividend stage and slowly enters into the late- and post-dividend stage, the focus of an economy should be on boosting productivity growth to substitute for the losses in the economically active population. This effort could be complemented with efforts to increase the employment rate and the labour force participation rate, especially among female workers traditionally more disadvantaged than their male workers. Productivity measures such as Incremental Capital Output Ratio (ICOR) and Total Factor Productivity (TFP) can be used to measure labour and firm productivity along with a simple output per labour ratio. However, strengthening human capital by improving early childhood education and health including addressing high chronic malnutrition (stunting) issues should be prioritised.

Table 3 and Table 4 show how over the years (2000-2010 and 2010-2017), a decline in the growth of working-age population aged 15 years old and above (‘demographic change’) in ASEAN countries such as Singapore, Vietnam and Thailand between 2010 and 2017/8 are dragging down growth in per capita value added. This is in contrast to the positive contribution of demographic change to growth in per capita value added in these countries between 2000 and 2010. In Vietnam and Cambodia, declines in the growth of the working-age population were partly compensated by higher productivity growth rates. In Singapore, however, a decline in working-age population was not compensated by a higher productivity growth rate, bringing annual per capita value-added growth rate from 3.4 percent between 2000 and 2010 down to 2.7 percent between 2010 and 2018.

Table 3: Decomposition of Growth in Per Capita Value Added in Japan and Selected SEA Countries, 2000-2010

Source: World Bank’s Jobs Diagnostic Tool, authors’ calculations

Table 4: Decomposition of Growth in Per Capita Value Added in Japan and Selected SEA Countries, 2010-2017

Source: World Bank’s Jobs Diagnostic Tool, authors’ calculations

Demographic differences in the ASEAN+3 region have not only facilitated capital and technological flows but also the flows of labour (Menon, 2009). Although international migration policies could help slow down the rate of ageing, at least in the short run, it is unlikely to structurally reverse the age structure in the long run while managing the consequences of migration policies long after the economy was opened up to international migrants is critical (Magnus, 2015). 

Social well-being of the older population

As a country enters its post-dividend phase, one policy focus will be to sustain a decent standard of living for the whole population and maintain the well-being of the older population. There are three specific policy recommendations related to this: flattening the cost of old-age health care and services, harnessing technologies for the older population, and targeting social assistance for vulnerable older population.

(1)  Flattening health care costs

As labour force shrinks, soaring old-age health care costs could overstretch the capacity of the government’s budget and aged care system. As an example, South Korea’s health spending as a percentage of GDP was only 3.9 percent in 2000, but increased to 8.1 percent in 2019 (before the COVID-19 pandemic) and 9.7 percent in 2022.[6] Burgeoning health spending easily crowds out other types of spending including other public goods such as education especially in a political setting where citizens over 65 years old form a significant voting bloc such as in the case of Japan (Kuhn, 2023).

The increase in health spending as a percentage of GDP in rapidly ageing Southeast Asia countries is however more muted. Singapore’s GDP share of health expenditure has increased from 3.3 percent in 2000 to 4.4 percent in 2019; Vietnam from 3.8 percent to 5 percent and Thailand from 3.1 percent to 3.9 percent in the same period.  

Policies to help flatten old-age health care costs for both the current and future older populations is therefore key. Among policies that could be prioritised include (i) facilitating investment and new research and development to spur innovation for cheaper health services and products, (ii) reforming the often highly concentrated market structure in the pharmaceutical industries, (iii) the use of (AI) technologies and big data including to monitor health and detect illnesses early before they turn chronic as a preventive instead of curative measures, (iv) increase health care resilience by diversifying supply chains (as the COVID-19 has taught us), and (v) buttressing regional cooperation in health and care industries, including, for example, with Japan, which has a dominant share in the production of many advanced medical technologies such as MRI (Magnetic Resonance Imaging) machines.

It is also well documented that those who remain economically and socially engaged are relatively healthier than those who do not. Positive perceptions of ageing are correlated with a survival advantage, with individuals harbouring such views living approximately eight years longer and exhibiting better memory (Ng, 2024). Conversely, ageism – prejudice against older persons – is identified as a contributor to stress and social isolation, leading to an annual health cost estimate of USD63 billion (Ng, 2024). Therefore, to reduce health care costs, governments could support the older population to remain economically and socially engaged including by creating an age-friendly environment, helping them engage in ‘silver entrepreneurship’ (start-up entrepreneurship by people over the age of 50) and voluntary works while increasing the retirement age and the re-employment age.(7) 

(2)  Harnessing technologies for an ageing population

                                 

Although there have been scepticisms over the use of robots to address a care crisis—including those that arise from the ethical concern of ‘dehumanising care’ (Henwood, 2019) to the disconnection between state-driven vision of robotic care and the intricate everyday realities of care provision (Wright, 2023)—, AI, robots and automated solutions are commonly deployed in the healthcare eco-system and will continue to play a critical role in managing the care crisis in an ageing or aged society.

The wide application of digital technology may, however, leave behind older people who have no or low digital literacy. Ng and Idran (2022 & 2023) and Wright (2023) show how having older adults and care givers as the centre of addressing the care crisis using (digital) technologies is key. For example, Ng and Idran (2022) explore how older adults engaging on TikTok platforms could help reframe the perception on ageing and challenge socially constructed notions of old age by creating TikTok micro-videos that help fight stereotyping and discrimination against older people.  

(3)           Targeting vulnerable older population with social assistance

In many developing SEA countries, many still earn low incomes and cannot rely on their pension savings, medical insurance and old-age care as old-aged supports. Old-aged social assistance or safety nets are needed. The definition of ‘vulnerability’ itself could vary across countries but with regard to policy design, both the academic and policy communities have reached a consensus that given a limited budget, targeted social assistance is crucial for social policy making in general and for aging policy in particular. Kong and Yang (2018) provide a good example of how a pre-screening tool to identify vulnerable older population is done in the case of China; this is simple enough for policy makers to use and is effective in screening at-risk older population and estimating the appropriate amount of assistance required by the vulnerable older population.

CONCLUSION

In this paper, we focus on three key policy reform areas for SEA namely: (i) ensuring intra– and inter-generational transfers and equity, (ii) maintaining productivity-led economic growth and labour market dynamism, and (iii) supporting the well-being of the older population.

We need also to keep in mind the changing contexts in which countries are ageing today, including the emergence of big data and AI that enable health monitoring in innovative ways, more frequent and intense extreme weather events such as heat waves and natural disasters to which older people are most vulnerable, and changing aspirations of women and older adults with regards to labour force participation (Berd, 2023).

Since Southeast Asian countries are not ageing all at the same time, there is room for regional cooperation. However, of greater concern than protectionist policies on trade flows are the restrictions on cross-border labour mobility, capital and technology. Regional cooperation could ensure more seamless flows to help the region adapt to the inexorable demographic transition towards more aged population.   Importantly, we need to reframe how we think and act about ageing, and to see how expenditure on older population can become an investment. Hence, we have to focus our policy making from minimising the costs to maximising the return on investment (Berd, 2023). For developing SEA countries, the time to invest is now.  

REFERENCES

Berd, John. 2023. ‘Asia’s Future in the Face of Dramatic Demographic Shifts and their Impact on Healthcare.’ Presentation at the International Forum on the Super Aging Challenge. https://channel.nikkei.co.jp/wass2023e/ifsace231121_03.html

Giang, Thanh Long. 2024. ‘Vietnam’s Aging Population: Challenges and Policy Responses.’ Presentation at the ISEAS-Yusof Ishak Institute webinar, ‘Demographic Transitions in Southeast Asia: Reframing How We Think and Act about Ageing’, January 25. /media/event-highlights/webinar-on-demographic-transitions-in-southeast-asia-reframing-how-we-think-and-act-about-ageing/

Giang, Thanh Long. 2012. ‘Viet Nam: Pension system overview and reform directions.’ Chapter 9 in Park (2012).

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ANNEXE

Annex 1: Demographic Typology in Southeast Asia

This typology is used by the World Bank (2015) and we have updated the calculation to year 2023.

Annex Table 1: Criteria of demographic typology

Source: World Bank, 2015 (Table C.2)

Using this typology, we break down countries into two types: those with an increasing share of working-age population and those with a declining share of working-age population (which is usually irreversible). We further break down each of the two types.

We call a country ‘pre-dividend’ if the share of working-age population is increasing and the fertility rate is still above 4, which almost doubles the replacement rate of 2.1.[8] These countries are yet to reap the ‘first demographic dividend’ since the child dependency ratio is yet to decline, a necessary condition that enables countries to harness the first demographic dividend.

We call a country ‘early-dividend’ if the share of working-age population is increasing but the fertility rate has fallen below 4, where the share of young population is expected to rapidly decline. These countries are ripe to reap the ‘first demographic dividend’.

We call a country ‘late-dividend’ if the share of working age population is declining but their fertility rate was still above the replacement rate of 2.1 thirty years ago (a ballpark length from the birth of a parent to a child).[9] These countries are likely to be in the final phase of their ‘first demographic dividend’.

We call a country ‘post-dividend’ if the share of working-age population is declining and the fertility rate has already started to go below the replacement rate of 2.1 in the last three decades. These countries are likely to have passed (or missed) their ‘first demographic dividend’.

Based on this typology, two countries, Singapore and Thailand, have entered ‘post-dividend’ demographic transition. Five countries, i.e., Indonesia, Brunei Darussalam, Malaysia, Myanmar and Vietnam, have entered ‘late-dividend’ demographic transition, while Lao PDR, the Philippines and Cambodia are still in ‘early-dividend’ demographic transition. Compared to eight years ago, some of these countries have transitioned into a different demographic typology, such as Indonesia, Malaysia and Myanmar (from early- to late-dividend) and Thailand (from late-dividend to post-dividend) (Annex Table 2). From Annex Table 2, we can also see how socioeconomic development and ageing go hand in hand.     

Annex Table 2: Economies by demographic typology

Source: UN projections, authors’ calculations

Note: Greyed areas mark changes in demographic typology. Countries are ordered based on their income status.

Annex Figure 1: A life-cycle model of private and public financing of lifetime consumption: The Philippines vs. Germany

Source: World Bank (2015), Figure B5.4.1 Note: It is expected that an average person experiences a life-cycle deficit (what is consumed is higher than what is earned) when he or she is still a non-productive child or young adult and when he or she retires from work. When he or she is a non-productive child or young adult, this deficit is commonly financed by his or her parents (through private transfers) and/or the government (through public transfers), e.g., social assistance programmes for poor households with children. This group of population is usually a net recipient of transfers. As he or she starts working, and throughout his or her productive ages, he or she will start earning (labour and non-labour) income and paying taxes while saving part of his or her income (including through pension funds) and/or investing in assets, e.g., buying a house. This group is usually a net donor of transfers. When an individual retires, his or her consumption will again be financed by private and public transfers plus savings and earnings from capital gains. This group is also a net recipient of transfers. Intra- and inter-generational transfers take place from net donors to net recipients.     

ENDNOTES


For endnotes, please refer to the original pdf document.

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