Articles & Commentaries

2021/135 “Indonesia’s Economic Recovery Programmes: Progress and Challenges” by Siwage Dharma Negara and Muhammad Oktovan Tito

 

This aerial picture shows motorists commuting in Jakarta on September 15, 2021. Picture: Bay Ismoyo, AFP.

EXECUTIVE SUMMARY

  • Indonesia is struggling to deal with the economic and social impact of the Covid-19 pandemic, which has reversed its development achievements over the last two decades.
  • In response to the current pandemic wave, the government has introduced new restrictions on public activities (Emergency PPKM) and added US$3 billion into its National Economic Recovery (PEN) budget. The new restrictions and longer-than-expected Covid-19 containment will stretch the country’s limited resources and further hinder its economic recovery.
  • The government faces serious challenges in carrying out its economic recovery programme. The size of the stimulus package (at about 4% of GDP) is too small to address the magnitude of the crisis.
  • Given its limited resources, the government will need to correctly prioritise the vulnerable sectors. Aiding the recovery of the micro, small and medium enterprises (MSMEs) should be a key focus, as they account for 60% of GDP and 97% of domestic employment. About half of the 64 million MSMEs have gone bankrupt since the pandemic started.
  • The government will also have to overcome massive implementation difficulties. Disbursement of the budget for recovery has been painfully slow, due to bureaucratic red-tape and the decentralisation of government. Regional authorities are not always aligned with the central government’s priorities. Poor data gathering results in vulnerable groups missing out on sorely needed assistance. Finally, there is the perennial problem of funds leakage due to corruption.

* Siwage Dharma Negara is Senior Fellow at ISEAS – Yusof Ishak Institute. Muhammad Oktovan Tito is Research Intern at ISEAS – Yusof Ishak Institute. He is currently studying at King’s College London. The authors thank Cassey Lee, Lee Sue-Ann, and Manggi Habir for their helpful feedback on an earlier draft. The usual disclaimer applies.

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INTRODUCTION

At the start of 2021, Indonesia appeared to have passed the worst of the pandemic. Its quarterly GDP growth had been improving after suffering a contraction of 5.32% in Q2 2020: Indonesia’s economy contracted by 2.07% in 2020 and experienced a reduced contraction of 0.74% in Q1 2021. Real GDP rose 7.07% in the second quarter from a year earlier, and several early projections indicated that Indonesia was on track to achieve 4-5% growth in 2021.

However, a second wave hit the country in June 2021: Daily cases tripled from 4,800 in early June to almost 22,000 by the end of the month. The country has been struggling to overcome the prolonged impact of the pandemic, and this year’s economic recovery is expected to be slower than initial projections.

In July, the IMF revised downward its forecast for Indonesia’s 2021 economic growth from its April forecast of 4.3% to 3.9%. Slower growth means it will take longer for Indonesia to get back to where it was before Covid-19. The pandemic has reversed two decades of gains in poverty and employment. A study conducted by SMERU shows that the poverty rate had increased from 9.2% in 2019 to 10.2% in 2020, and it would have been higher without the massive social assistance programmes launched by the government.[1]

Furthermore, the pandemic has left Indonesia with a 5.8% shortfall of real GDP in Q2 2021 when compared to pre-pandemic levels. Open unemployment has increased from 5% in 2019 to 9.7% by 2021. As a result, the World Bank has downgraded Indonesia to lower-middle-income status on 1 July, with a gross national income per capita of US$3,870.[2]  The government is facing tough challenges, and needs to overcome the pandemic and ensure effective implementation of economic recovery programmes.

This essay looks at the progress and challenges of the national economic recovery programmes (Program Pemulihan Ekonomi Nasional or PEN). We argue that given the protracted uncertainty about the pandemic and its impact on the economy, the most effective way of addressing the vulnerabilities in the short term is to increase the stimulus, improve its effectiveness through a targeted approach, and raise the speed of the disbursement of the stimulus measures. The following section gives an update on the Covid-19 situation in Indonesia. The subsequent section discusses the national economic recovery programmes and the challenges their implementation faces. The last section concludes with some thoughts on the way forward.

THE COVID-19 SITUATION: IMPROVING BUT STILL SOME WAY TO GO YET

Indonesia’s Covid-19 situation seems to be improving since the peak in July caused by the Delta variant. As shown in Figure 1, daily new confirmed cases passed 50,000 for the first time on 18 July, four times the previous peak on 1 February 2021. As of 20 September, the daily cases have declined to below 2,000 cases per day. Correspondingly, daily deaths hit 2,000 in July, five times higher than the previous peak reached on 31 January (Figure 1), but by the end of September, this has sharply declined to below 150.  However, it is important to note that these official figures could underestimate the actual cases given the low test rates and problematic data collection.[3]  

Figure 2 shows that just around 13% of Indonesia’s population is fully vaccinated so far. Considering the need for vaccinations to ‘break’ the link between infections and hospitalisations and deaths,[4] this rate is too low for a fast recovery. At this current rate, Moody’s Analytics has predicted that Indonesia can only reach herd immunity in 2023, while most Asia-Pacific countries are expected to manage that in 2022.[5]

Indonesia also has one of the lowest test rates in Southeast Asia, with just 150,000 tests per million population (tmp). This is significantly lower than its neighbours; for example, Malaysia has 560,759 tmp and The Philippines 151,000 tmp.[6]

Accelerating vaccination rollout, increasing testing rate, as well as ensuring public compliance on strict health protocols and safe distancing are necessary steps for Indonesia to take before it can reopen its economy safely.

GOVERNMENT POLICY ON COVID-19 PANDEMIC CRISIS

In response to the worsening Covid-19 situation, the Indonesian government implemented on 3 July a multi-tiered Emergency Restriction on Public Activities (PPKM) policy to reduce mobility.[7] There are four levels of PPKM designated for each area, based on the severity of infections, hospitalisations, and deaths in proportion to the area’s population. At the time of the writing, Bali and most of Java are classified under PPKM Level 3 or 4.[8]

Crucially, non-essential businesses are mandated to implement a 100% work-from-home (WFH) policy and non-crucial commercial activities are not allowed (see Table 1 in the Appendix). Essential businesses, meanwhile, are allowed to implement a 50% WFH policy and essential government services a 25% WFH policy. Educational institutions are also instructed to conduct online learning. Furthermore, domestic travellers via air, sea and railway must present a vaccine certificate and a negative PCR test. Places of worship are also temporarily closed. Food stalls, street vendors, and hawker stalls are currently allowed to open until 9 pm, limiting patrons’ mealtime to 30 minutes in Level 3 and 20 minutes in Level 4 areas.[9]

The PPKM measures will impact the economy significantly. Last year’s lockdown in April (PSBB) alone resulted in an estimated US$26.4 billion loss in GDP, with the services and industry sectors losing 29.7% and 23.4% of their sectoral GDP, respectively.[10] Figure 3 shows that transport/travel restrictions and wholesale/retail trade restrictions during PSBB accounted for one-third of the GDP losses. As PPKM measures also impose stringent travel restrictions and strict limits on retail trade operations, they will likely have detrimental impacts on the economic recovery.

To support PPKM implementation and rescue the economy, the government has increased the budget for its National Economic Recovery Programmes (PEN) by 6% from IDR 699.43 trillion to IDR 744.75 trillion on 18 July.[11] Table 1 shows that approximately half of the budget is directed towards healthcare and subsidies and aids, while the other half is for business incentives, financial assistance for micro, small, and medium enterprises (MSMEs) and corporations, and priority projects.

The following section looks at some of the challenges faced by the government in implementing the national economic recovery programmes.

CHALLENGES AHEAD AND MITIGATION STRATEGIES

There are three major challenges faced by the government in managing the current situation. These are: (1) The size of the stimulus; (2) The target of the stimulus, and; (3) The distribution and realisation of the stimulus.

Firstly, the size of the stimulus, which is about 4% of GDP, is way too small to boost its economic recovery.[12] Understandably, this is because of limited fiscal space. Since the introduction of PEN 2021, the GDP growth has only increased by 2.3% (see Table 2 Appendix). Furthermore, household consumption and government expenditure have only grown by 6% and 7.6%, respectively, since 2Q20 (Ibid.). Given the recovery gap of approximately 7% to reach its pre-pandemic GDP, the growth in household consumption, the main component of GDP, and government expenditure require a more significant stimulus.

Secondly, given the limited fiscal space, setting the right target for the stimulus is critical. The government needs to place more emphasis on supporting MSMEs recovery. MSMEs comprise 99% of Indonesian businesses and contribute more than 60% of the GDP.[13] They also account for 97% of domestic employment and 56% of business investment as of 2018,[14] making them a significant cornerstone of Indonesia’s economy. Since the pandemic started, 30 out of 64 million MSMEs have gone bankrupt.[15] This has caused a substantial increase in unemployment rates, expectedly increasing to around 7.35% in August 2021, higher than the 7.07% figure in August 2020, and 5.23% in August 2019. Therefore, the government should focus on stimulating MSME recovery and transition to post-pandemic challenges.

Lastly, a serious challenge facing the implementation of the stimulus package is the low rate of disbursements, which will likely delay economic recovery. This needs to be speeded up.

As shown in Table 1, the realisation for PEN 2021 remains low at 43.8% as of 20 August 2021. There is a slow realisation for healthcare and social assistance, two critical components, at just one-third and half, respectively. Table 2 shows the comparison of the realised budget of PEN 2020 and PEN 2021. PEN 2021 is lagging in disbursement compared to PEN 2020, with 39.6 percentage points to catch up to the 2020 realisation of 83.5%. It will be even more challenging to meet the full disbursement target by the end of the year.

Figure 4 shows the breakdown of the unrealised budget by the components of PEN 2021. Strikingly, healthcare, aid for MSME and corporations, and social assistance comprise 80% of the unrealised spending in PEN 2021.

The low realisation rates are partly due to the highly bureaucratic process of disbursing the funds.[18] [19] [20] There is anecdotal evidence that unclear and complex bureaucratic processes across the implementing agencies have constrained the implementation of PEN.[21] These administrative barriers have been made worse by Indonesia’s vast decentralised system, which gives regional governments unique power to implement their respective policies/programs.

Another challenge for programme implementation is the lack of up-to-date and accurate data for better allocation of state resources. For example, the Social Affairs Ministry’s integrated social welfare data (DTKS) does not capture many vulnerable groups, such as those without employment social security records (BPJS). As a result, operators face difficulty in transferring funds to intended programme beneficiaries. Worse, data discrepancies have led to not only slow but also mistargeted distribution of Covid-19 relief. No doubt, there are variations between programmes. For example, the social protection programmes that were most effectively scaled up were those with well-established institutions and accountability and clearly identified beneficiaries.[22]

Finally, the government must improve monitoring of resource allocation to minimise leakages during the disbursement process. There are reports of widespread leakages in the disbursement of the social assistance programme, or bansos, which comprises 25% of PEN 2021. A former investigator of the Corruption Eradication Commission (KPK)[23] claimed that as much as IDR 2 trillion (US$139.5 million) was lost through opaque contracts involving government-appointed suppliers of bansos packages. Given the critical importance of bansos to ensure the livelihood of vulnerable people, it is imperative that the government controls such corrupt practices. A more transparent tender process in awarding bansos suppliers is needed.

CONCLUSION

Compared to the huge economic impacts due to the pandemic, arguably, the size of the stimulus is too small to get the economy to recover quickly to pre-pandemic levels. Given the budget constraints, government spending needs to target vital sectors, particularly MSMEs, whose survival and robust recovery would benefit millions in the workforce. Effective and quick government spending is critical to support the recovery momentum. Yet, budget disbursement has been stubbornly slow, with only 43.8 per cent of the stimulus budget being disbursed as of late August 2021. The government must also improve the coverage and targeting mechanism of PEN this year. Without effective PEN disbursement, there is concern that the damaging effects of the pandemic will drag on, causing harm even in the long term.

ISEAS Perspective 2021/135, 20 October 2021

APPENDIX


ENDNOTES

[1] https://smeru.or.id/id/content/situasi-kemiskinan-selama-pandemi. Accessed 22/09/2021

[2] Indonesia graduated to upper-middle-income status with a GNI per capita of US$4,050 in 2020.

[3] https://theconversation.com/tiga-alasan-mengapa-data-covid-19-di-indonesia-tak-dapat-dipercaya-dan-bagaimana-mengatasinya-159535. Accessed 19/10/2021.

[4] https://news.sky.com/story/covid-19-data-shows-vaccines-reduce-risk-of-hospitalisation-and-death-but-you-need-to-read-it-with-a-clear-head-12365728. Accessed 29/7/2021.

[5] https://www.thejakartapost.com/news/2021/06/04/indonesia-wont-reach-herd-immunity-until-2023-moodys.html. Accessed 29/7/2021.

[6] https://www.worldometers.info/coronavirus/?zarsrc=130. Accessed 29/7/2021.

[7] https://indonesien.ahk.de/en/infocenter/news/news-details/covid-19-developments-in-indonesia

[8] https://www.kompas.com/tren/read/2021/07/26/083000465/daftar-daerah-yang-kembali-menerapkan-ppkm-level-3-dan-4-hingga-2-agustus?page=all. Accessed 29/7/2021.

[9] https://www.tribunnews.com/nasional/2021/07/26/batas-waktu-makan-di-tempat-pada-daerah-dengan-ppkm-level-3-maksimal-30-menit-level-4-cuma-20-menit. Accessed 29/7/2021.

[10] https://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/133789/filename/134002.pdf. Accessed 17/8/2021.

[11] https://money.kompas.com/read/2021/07/18/063000126/varian-delta-bikin-anggaran-pemulihan-ekonomi-naik-totalnya-rp-74475-triliun. Accessed 29/7/2021.

[12] https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19. Accessed 04/09/2021. There is no appropriate fiscal stimulus size given different fiscal capacity among countries. For comparison, US allocates 25%, Singapore and Australia 18%, Japan and Germany 16%, Korea and Sweden 4% of its GDP.

[13] https://www.asiapacific.ca/publication/new-normal-digitalization-msmes-indonesia. Accessed 17/7/2021.

[14] https://www.oecd.org/publications/sme-and-entrepreneurship-policy-in-indonesia-2018-9789264306264-en.htm. Accessed 17/8/2021/

[15] https://www.cnnindonesia.com/ekonomi/20210326124010-92-622407/30-juta-umkm-bangkrut-7-juta-orang-kehilangan-kerja. Accessed 30/7/2021.

[16] https://ekonomi.bisnis.com/read/20210721/10/1420229/realisasi-pen-per-16-juli-capai-372-persen-kesehatan-masih-kedodoran. Accessed 30/7/2021.

[17] https://databoks.katadata.co.id/datapublish/2021/01/07/hingga-akhir-2020-realisasi-anggaran-penanganan-covid-19-dan-pen-cuma-834. Accessed 30/7/2021.

[18] https://radartegal.com/realisasi-pen-di-daerah-rendah-karena-birokrasi-sri-mulyani-ini-perlu-untuk-kita-atasi-bersama.7547.html. Accessed 30/7/2021.

[19] https://news.ddtc.co.id/penanganan-covid-19-terhambat-birokrasi-pp-23-2020-perlu-direvisi-22802. Accessed 30/7/2021.

[20] https://ekonomi.bisnis.com/read/20200803/9/1274195/serapan-anggaran-pen-birokrasi-dan-akurasi-data-masih-mengganjal. Accessed 30/7/2021.

[21] Robert Sparrow, Teguh Dartanto & Renate Hartwig (2020) Indonesia Under the New Normal: Challenges and the Way Ahead, Bulletin of Indonesian Economic Studies, 56:3, 269-299.

[22] Ibid, p. 284. Accessed 30/7/2021.

[23] https://www.tribunnews.com/nasional/2021/07/07/eks-kasatgas-kpk-kerugian-negara-dalam-kasus-korupsi-bansos-covid-19-bisa-mencapai-rp-2-triliun. Accessed 1/8/2021.

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2021/134 “Southeast Asian Responses to AUKUS: Arms Racing, Non-Proliferation and Regional Stability” by William Choong and Ian Storey

 

The new Australian submarines would likely be based on the successor to the Royal Navy Astute-class attack submarines. Photo: Andy Buchanan, AFP.

EXECUTIVE SUMMARY

  • Southeast Asian responses to the Australia-UK-US (AUKUS) technology-sharing agreement, which aims to provide Australia with nuclear-powered submarines, have varied considerably.
  • Malaysia and Indonesia have warned the agreement could trigger an arms race, undermine regional stability and weaken nuclear non-proliferation regimes.
  • The Philippines’ national-security establishment has welcomed AUKUS though President Duterte shares the concerns of Malaysia and Indonesia.
  • Singapore and Vietnam have been implicitly supportive of the tripartite pact while Thailand has remained silent.
  • Concerns over arms racing and nuclear proliferation are overblown. AUKUS is a response to China’s rapid military modernisation and assertive behaviour in the maritime domain. Australia’s acquisition of nuclear submarines will not violate non-proliferation treaties.
  • AUKUS is a wake-up call to ASEAN that it needs to be more proactive on security issues and cannot take its centrality for granted.

* William Choong and Ian Storey are Senior Fellows in the Regional Strategic and Political Studies Programme at the ISEAS – Yusof Ishak Institute.

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INTRODUCTION

On 15 September 2021, Australia, the United Kingdom (UK) and the United States announced a three-way technology-sharing agreement called AUKUS. The primary purpose of AUKUS is to provide Australia with nuclear-powered submarines, but it also includes a commitment to jointly develop other technologies such as quantum computing, artificial intelligence and other undersea capabilities. According to a joint statement, the deal underscores the three countries’ commitment to deepen diplomatic, security and defence cooperation in the Indo-Pacific so as to meet the “challenges of the twenty-first century”.[1]

China warned that AUKUS would “undermine regional peace and stability, aggravate arms race(s) and impair international nuclear non-proliferation efforts”.[2] Southeast Asian responses varied. Malaysia and Indonesia expressed concerns about the risks of arms racing, while Singapore, Vietnam and the Philippines were generally more accepting of the arrangement.

AUKUS should be seen as an attempt to address the perceived imbalance in the regional balance of power stemming from China’s military buildup and assertiveness. More pertinently, the advent of AUKUS and other US-led initiatives such as the Free and Open Indo-Pacific (FOIP) strategy and the Quadrilateral Security Grouping (the Quad, linking the US, Australia, India and Japan), underscore the fact that extra-regional powers are seeking minilateral options outside the multilateral framework led by ASEAN.

This Perspective examines the responses to AUKUS of the six major maritime Southeast Asian countries – Malaysia, Indonesia, the Philippines, Singapore, Vietnam and Thailand -and assesses the validity of some of the concerns that have been expressed.

SOUTHEAST ASIAN RESPONSES

Malaysia

Malaysia’s reaction to AUKUS has been predictable and in accordance with its long-standing shibboleths on regional security. In a phone call with Australian Prime Minister Scott Morrison, and reiterated in a statement released the next day, Malaysian Prime Minister Ismail Sabri Yaakob expressed concern that the new security arrangements could be a catalyst for a nuclear arms race in the region and might provoke some countries to act aggressively, especially in the South China Sea. In raising these concerns, he stressed Malaysia’s commitment to Southeast Asia as a Zone of Peace, Freedom and Neutrality (ZOPFAN) and the Southeast Asia Nuclear Weapons Free Zone (SEANFWZ), as well as Malaysia’s stance on not allowing nuclear-powered vessels to enter its territorial waters.[3] Subsequently, Defence Minister Hishammuddin Hussein and Foreign Minister Saifuddin Abdullah issued statements of their own, echoing the Prime Minister’s disquiet.[4] In an extraordinary move, Hishammuddin announced he would pay a working visit to China for consultations.[5] Former Prime Minister Mahathir Mohamad also weighed into the debate, warning that AUKUS increased the risk of Great Power conflict in Southeast Asia.[6]

Malaysia’s concerns are not without merit but are overblown. AUKUS is designed to provide Australia with nuclear-powered submarines – not nuclear-armed submarines. Australia has stated categorically that it does not intend to acquire nuclear weapons and remains committed to nuclear non-proliferation.[7] However, Australia’s acquisition of nuclear-propelled submarines may set a precedent for Japan and South Korea if one day they decide to go on the same path.

In recent years, successive Malaysian governments have warned that the increased presence of foreign warships in the South China Sea is destabilizing and risks triggering a military confrontation.[8] Malaysia has stood its ground on its territorial claims and EEZ rights, rejected China’s nine-dash line claims and retained close defence links with the US, Australia and, through the Five Powers Defence Arrangements (FPDA), the UK.[9] Given China’s assertive behaviour in Malaysia’s Exclusive Economic Zone (EEZ), it is doubtful the country’s national security establishment is as concerned about AUKUS as Malaysian politicians appear to be. 

With regard to ZOPFAN and SEANFWZ, the former is a dead letter while the latter is not open for Australia to sign. A Malaysian initiative endorsed by ASEAN in 1971, ZOPFAN was meant to eliminate major power rivalry in Southeast Asia during the Cold War. Although the concept remained in the ASEAN lexicon post-Cold War, in practice, member states have established forums to engage external powers on regional security issues including the ASEAN Regional Forum (ARF) in 1994, the East Asian Summit (EAS) in 2005 and the ASEAN Defence Ministers’ Meeting Plus (ADMM-Plus) in 2010. SEANFWZ, adopted by ASEAN in 1995, prohibits member states from possessing nuclear weapons. It includes a protocol that is open to accession by the five recognised nuclear-armed states (US, Russia, UK, France and China) but none of them have signed it.

Hishammuddin’s announcement that he would visit China to discuss AUKUS came under criticism from the opposition Pakatan Harapan (PH) coalition which, although sharing the Prime Minister’s concerns, felt that through this act, Malaysia could be perceived as taking sides.[10] He may have taken these criticisms on board, instead holding a video call with Chinese Defence Minister General Wei Fenghe. In a Tweet, Hishammuddin did not mention whether AUKUS had been discussed.[11]

Indonesia

In a statement on 17 September 2021, Indonesia’s Foreign Ministry said it “cautiously” took note of AUKUS, and stressed that Jakarta was “deeply concerned” over the “continuing arms race and power projection in the region”. Indonesia called on Australia to continue meeting its nuclear non-proliferation obligations, and called on Canberra to maintain its commitment towards regional peace and security in accordance with the Treaty of Amity and Cooperation in Southeast Asia (TAC) to which Australia is also a High Contracting Party.[12] It should be noted though that Indonesia’s fears about “the continuing arms race and power projection” (italics added) – refers not only to the three AUKUS partners, but all regional states, including China.

A fuller assessment of AUKUS came from senior Indonesian diplomat Abdul Kadir Jailani. Writing in the Jakarta Post, he echoed his government’s assessment, but noted that no international norm appeared to have been violated. He added that “deeper conversations” about AUKUS would help build mutual trust, confidence and diplomacy.[13]

Concerns about arms racing and power projection need to be set in proper perspective. It should be noted that Indonesia’s fears about such developments – worded as “the continuing arms race and power projection” (italics added) – refers not only to the three AUKUS partners, but all regional states, including China. In addition, to argue that AUKUS would precipitate an arms race is an inversion of cause-effect logic. It is clear that AUKUS is a direct result of China’s “increasingly provocative actions”.[14] Australia’s Defence Strategic Update in 2020 noted that Canberra’s strategic environment had deteriorated more quickly than anticipated since its 2016 defence white paper. While there were few explicit references to China, it was clear that Beijing’s military buildup was the main focus of Canberra’s concerns.[15] The 6.4 per cent increase in China’s defence spending in 2020 (US$9 billion in real terms) is more than the combined real increase in Indo-Pacific regional states in that year.[16] China’s economic coercion of Australia – including the imposition of high tariffs on Australian products – after Canberra called for an inquiry into the origins of the coronavirus also played a part in Australia’s decision to strengthen its power projection capabilities.

On deeper examination, Indonesia’s response is less negative than originally perceived. One Indonesian analyst noted that Indonesia’s “tepid response” is “noticeable”.[17] He added that past US-backed initiatives to deter China – for instance, the Obama administration’s pivot to Asia – incited negative reactions from several ASEAN countries. Yet Indonesia’s reception to AUKUS has been more nuanced.[18]

The Philippines

The responses from the Philippines brought into sharp relief serious divisions within the administration of President Rodrigo Duterte over national security issues. Since Duterte took office in 2016, US-Philippines relations have been under strain due to his pledge to “divorce” America and seek closer relations with China and Russia. This has resulted in the scaling back of some bilateral defence engagements (compounded by the COVID-19 pandemic) and Duterte’s threat to terminate the 1999 Visiting Forces Agreement (VFA) – a threat that was only withdrawn in July during a visit to Manila by US Defense Secretary Lloyd Austin.[19] It was no surprise, therefore, that following the AUKUS announcement, presidential spokesman Harry Roque said that Duterte was worried the pact could trigger a “nuclear arms race”.[20]

Prior to Roque’s statement, however, two key members of Duterte’s cabinet had already come out in full support of AUKUS. Defense Secretary Delfin Lorenzana stated it was Australia’s right to improve its defence capabilities as the Philippines was also doing to protect its territories.[21] Foreign Minister Teddy Locsin released an erudite statement which welcomed the establishment of AUKUS and made three key points.[22] First, ASEAN members, singly and collectively, lack the military capabilities to ensure peace and security in Southeast Asia. Second, with the region’s main balancer, the US, geographically distant, the strengthening of Australia’s power projection capabilities would help maintain the regional balance of power and enable Canberra to better respond to threats facing the region. Third, as Australia is not seeking to acquire nuclear weapons, AUKUS does not violate SEANFWZ nor Canberra’s commitments to the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) or ASEAN centrality. Lorenzana’s and Locsin’s support for AUKUS reflects the Philippine national-security establishment’s support for the US alliance system and growing concerns about China’s assertive policy in the South China Sea.

Singapore

Singapore’s reaction to AUKUS has been relatively measured, and reflects the country’s support for the deployment of US military forces in the region. After being briefed on AUKUS by his Australian counterpart Scott Morrison, Prime Minister Lee Hsien Loong noted the long-standing relations between Singapore and Australia. He expressed hope that AUKUS would contribute constructively to the peace and stability of the region as well as complement the regional architecture.[23]

Speaking to reporters subsequently, Foreign Minister Vivian Balakhrishnan expressed the same sentiments. He noted that Singapore had long-standing relationships with all three AUKUS members, and that such “large reservoirs of trust and alignment” were “very helpful”.[24] This meant that Singapore was not “unduly anxious” about the new developments.[25] The key point, the minister said, was that AUKUS was “part of a larger geo-strategic realignment”; Singapore had to take it in its stride and make sure it did not end up in an “unviable or dangerous” position.[26] From a wider perspective, AUKUS was not really the “centrepiece of concern”, and the bigger question was the management of US-China relations.[27]

Singapore’s position is not unexpected. The island republic has always sought to facilitate a balance of power where no major power dominates; it also seeks to involve major powers, in particular the US, in its security.[28] In this context, AUKUS, in the face of growing Chinese military power and assertiveness, would serve as another plank in maintaining and restoring the regional balance of power.

Vietnam

Vietnam’s approach to AUKUS largely mirrors Singapore’s, underscoring the two countries’ big-picture approach in appraising regional realities. A Ministry of Foreign Affairs spokesperson noted that all countries should work towards the same goals of peace, stability, cooperation and development in the region. The spokesperson stressed that the nuclear energy used for Australia’s new submarine fleet must be used for peaceful purposes, serve socio-economic development, and ensure safety for humans and the environment.[29]

Vietnam’s reaction is not unexpected. Hanoi’s long-running dispute with China in the South China Sea has led it to pursue stronger relations with the US, as well as other Quad countries. While Hanoi has not expressed open and public support for the FOIP strategy that is shared by the Quad countries, it has expressed support for FOIP principles, such as the importance of maintaining freedom of navigation and resolving disputes peacefully and in accordance with international law.[30] In essence, Vietnam indirectly supports the Quad and FOIP as they provide Hanoi with a carapace against growing Chinese assertiveness. It has also sought to improve relations and defence cooperation with individual Quad members. In September, Hanoi signed an agreement with Japan for the transfer of defence equipment and technology. As a former Vietnamese ambassador put it, US-led groupings such as the Quad are playing an “important role” in countering China’s assertiveness. AUKUS, he added, should bring “new confidence” to countries contesting China’s excessive maritime claims.[31]

Thailand

As a treaty ally of the US, but also a close partner of China, Thailand responded to AUKUS with characteristic circumspection. Thailand wants to preserve cordial ties with both parties and does not wish to take a position on the trilateral arrangement and risk offending either Washington or Beijing. In any case, the Thai government is preoccupied with domestic political issues and has little bandwidth for regional security issues

Accordingly, there has been no official response from the prime minister’s office or the ministries of foreign affairs or defence. Ten days after AUKUS was announced, Prime Minister Prayut Chan-o-Cha delivered a pre-recorded speech at the United Nations in which he pledged Thailand’s support for the Treaty on the Prohibition of Nuclear Weapons (of which Australia is not a signatory) and the NPT.[32] His references to these two treaties could be a sign that Thailand has reservations about AUKUS.

In the absence of a response from the government, the void has been filled by prominent Thai observers who offered contrasting views on this matter. Hyperbolically, journalist Kavi Chongkittavorn has accused the three countries of fuelling an arms race in the Indo-Pacific, provoking tensions with China and forcing regional states to choose sides in the escalating US-China competition.[33] Former Thai foreign minister Kasit Piromya stated that no country wanted to be dominated by China and that therefore the US military presence is necessary, and presumably by extension, those of its allies and partners.[34]

IMPLICATIONS FOR SOUTHEAST ASIA

Kasit’s point is apposite as it applies to Southeast Asia and ASEAN, and underscores the Singaporean and Vietnamese underlying approach to AUKUS: in the face of growing Chinese power, any line of effort that can lead to regional stability is a net positive. Some Chinese commentators recognise that Australia plays a “critical role” in the region; they also view the three-way deal as a sign that countries are willing to come together to push back against Beijing.[35]

With regard to non-proliferation, there are clearly concerns about what AUKUS portends for nuclear non-proliferation in terms of setting a precedent for future proliferation by utilising naval reactor programmes to develop nuclear weapons “by the back door”.[36] These concerns are largely misplaced. Although a final decision has yet to be made, the most likely outcome after the 18-month consultation process among the AUKUS members is that Australia will join a UK-led project to design a successor to the Royal Navy’s Astute-class nuclear-powered attack submarines. The British-designed submarines for the Royal Australian Navy (RAN) would be constructed in Adelaide, but the nuclear reactors would be built in the UK and installed in Australia as a “black box”. British reactors have a lifespan of around 30 years which means Australia would not have to enrich uranium nor refuel the submarines, thus eliminating the risk of nuclear proliferation. The submarines will be armed with US-made Tomahawk cruise missiles and, probably, US-made torpedoes. Given the limited numbers of both US and UK nuclear-powered submarines, it is unlikely that Australia will lease any from either country, though US nuclear attack submarines could be forward deployed to Australia. Australian submariners would probably train on British submarines. Starting from the mid-2020s, the operational life of the RAN’s current fleet of Collins-class submarines will be extended for 10 years while the nuclear-powered boats are under construction.[37] The plan would be for the RAN to receive its first nuclear-propelled submarine in the late 2030s or early 2040s.

Concerns about AUKUS stem less from the trilateral deal per se, but more the attendant fears of a loss of regional stability with the projection of US and allied forces into the region amid intensified Sino-US competition. A case in point was the deployment of US naval forces – including the small carrier USS America – off the coast of Borneo in April 2020. This was in response to a Chinese survey ship, and accompanying coast guard and maritime militia ships, which were shadowing the West Capella, a drillship chartered by Petronas near the outer edge of Malaysia’s EEZ.[38] While the US effort has been noted as a decisive effort to confront China and reassure regional states,[39] it has also been argued that America’s lack of staying power in the area (the warships left after five days) escalated the situation for Malaysia and only served to “make things worse”.[40] In recent years, US freedom of navigation operations to challenge China’s excessive maritime claims in the South China Sea have raised the risk of accidental escalation.[41]

Lastly, AUKUS reflects ASEAN’s lack of ability to cope with China’s increasing assertiveness in the maritime domain, particularly in the South China Sea.[42] ASEAN’s concept of inclusive and cooperative security has proved to be inadequate; like the Quad, AUKUS as a balance-of-power entrenchment is a “natural response” to coping with China’s maritime expansionism in the region.[43] The establishment of the EAS in 2011 and the ADMM-Plus in 2010 led to optimism that the region’s security architecture would reduce the risks of flare-ups. But more recently, hopes for an effective Asian security architecture has started to dissipate.[44] As Nguyen Hung Son, the vice-president of the Diplomatic Academy of Vietnam, has noted, ASEAN needs to question why AUKUS has happened without its knowledge; one has to ask whether the “centrality” that ASEAN and its partners talk about is “merely lip service”.[45]

CONCLUSION

The AUKUS deal, and the Quad and FOIP strategy that precede it, underscore the fact that while ASEAN Dialogue Partners such as Australia, the UK and the US consistently echo the mantra of ASEAN centrality, they do not see the concept as inviolate or sacrosanct amid a fast-changing geopolitical environment. As former Indonesia foreign minister Marty Natalegawa notes, AUKUS is a reminder to ASEAN of the cost of “dithering and indecision” in a fluid strategic environment.[46] In fact, it has become increasingly apparent that China and the US, while reiterating the importance of ASEAN centrality, have sought to use such reiterations to woo the 10-member grouping to their respective sides, whether it be to the China-centric Belt and Road Initiative or FOIP.[47]

What AUKUS illustrates is that in the face of ASEAN’s apparent inability to respond effectively to changes in the geopolitical environment, the three-way deal, as well as the Quad, represent an evolving new Asian security architecture where minilateralism runs parallel to multilateral institutions centred on ASEAN. Given that AUKUS and the Quad are essentially responses to China’s military modernisation and belligerence, ASEAN would need to manage two challenges simultaneously: harnessing the power of such extra-regional initiatives to maintain a balance of power while simultaneously ensuring ASEAN cohesion and relevance in the fraught regional security environment.

ISEAS Perspective 2021/134, 14 October 2021

ENDNOTES

[1] The White House, “Joint Leaders Statement on AUKUS”, 15 September 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/15/joint-leaders-statement-on-aukus

[2] Ministry of Foreign Affairs of the People’s Republic of China, “Foreign Ministry Spokesperson Zhao Lijian’s Regular Press Conference on 22 September 2021”, 22 September 2021, https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/t1908814.shtml

[3] Ravil Shirodkar,“Malaysia Says AUKUS Alliance May Lead to Arms Race, Provocation”, Bloomberg, 18 September 2021, https://www.bloomberg.com/news/articles/2021-09-18/malaysia-says-aukus-alliance-may-lead-to-arms-race-provocation

[4]  “Enhanced Security Trilateral Partnership Between Australia, United Kingdom, and the United States (AUKUS)”, Press Statement, Senior Minister of Defence, YB Dato’ Seri Hishammuddin Tun Hussein, 19 September 2021; “Announcement by Australia, United Kingdom and the United States on Enhanced Trilateral Security Partnership – AUKUS”, Press Release, Ministry of Foreign Affairs, Dato’ Saifuddin Abdullah, 19 September 2021, https://www.kln.gov.my/web/guest/-/announcement-by-australia-united-kingdom-and-the-united-states-on-enhanced-trilateral-security-partnership-aukus

[5] Hadi Azmi, “Aukus fallout: Malaysia plans China consultations as anxiety simmers over defence pact”, South China Morning Post, 22 September 2021, https://www.scmp.com/week-asia/economics/article/3149713/malaysia-plans-china-consultations-anxiety-simmers-over-aukus

[6] Ibid.

[7]  “Australia to pursue nuclear-powered submarines through new trilateral enhanced security partnership”, Media Statement, Prime Minister, Minister of Defence, Minister for Foreign Affairs, 16 September 2021, https://www.pm.gov.au/media/australia-pursue-nuclear-powered-submarines-through-new-trilateral-enhanced-security

[8] “Warships in South China Sea will invite conflict, says Dr M”, Malay Mail, 21 October 2019, https://www.malaymail.com/news/malaysia/2019/10/21/warships-in-south-china-sea-will-invite-conflict-says-dr-m/1802234

[9] See Ian Storey, “Malaysia and the South China Sea Dispute: Policy Continuity amid Domestic Political Change”, ISEAS Perspective #18/2020, 20 March 2020, /articles-commentaries/iseas-perspective/malaysia-and-the-south-china-sea-dispute-policy-continuity-amid-domestic-political-change-by-ian-storey

[10] “Hisham’s China visit plan on Aukus is ‘off the mark’, says PH”, Free Malaysia Today, 25 September 2021, https://www.freemalaysiatoday.com/category/nation/2021/09/25/hishams-china-visit-plan-on-aukus-is-off-the-mark-says-ph

[11] Hishammuddin Hussein, Twitter, 27 September 2021, https://twitter.com/HishammuddinH2O/status/1442467191262040072

[12] Ministry of Foreign Affairs of the Republic of Indonesia, “Statement on Australia’s Nuclear-powered Submarines Program”, 17 September 2021, https://kemlu.go.id/portal/en/read/2937/siaran_pers/statement-on-australias-nuclear-powered-submarines-program

[13] Ibid.

[14] Charles Edel, “China Has Only Itself to Blame for AUKUS”, Foreign Policy, 24 September 2021, https://foreignpolicy.com/2021/09/24/china-aukus-submarines-defense

[15] International Institute for Strategic Studies, The Military Balance 2021 (Abingdon: Routledge for the IISS), p. 226

[16] Ibid.

[17] Ristian Atriandi Supriyanto, “Why Southeast Asia Should Welcome AUKUS”, Foreign Policy 28 September 2021, https://foreignpolicy.com/2021/09/28/southeast-asia-asean-australia-aukus-china-united-states

[18] Ibid.

[19] See Ian Storey, “After Seventy Years, It’s Time to Modernise the US-Philippines Alliance”,  Fulcrum, 23 September 2021, https://fulcrum.sg/after-70-years-its-time-to-modernise-the-us-philippines-alliance

[20] Ruth Abbey Gita-Carlos , “Duterte ‘concerned’ over AUKUS nuclear submarine deal”, Philippine News Agency, 28 September 2021, https://www.pna.gov.ph/articles/1154907

[21] “Australia has right to improve sub defense capability: Lorenzana”, Philippine News Agency, 17 September 2021, https://www.pna.gov.ph/articles/1153864

[22]  “Statement of Foreign Affairs Teodoro L. Locsin, Jr. On the Australia-United Kingdom-United States (AUKUS) Enhanced Trilateral Security Partnership”, 19 September, https://dfa.gov.ph/dfa-news/statements-and-advisoriesupdate/29484-statement-of-foreign-affairs-teodoro-l-locsin-jr-on-the-australia-united-kingdom-united-states-aukus-enhanced-trilateral-security-partnership

[23] Ministry of Foreign Affairs (Singapore), “Prime Minister Lee Hsien Loong’s Telephone Call with Australian Prime Minister Scott Morrison”, 16 September 2021, https://www.mfa.gov.sg/Newsroom/Press-Statements-Transcripts-and-Photos/2021/09/20210916-PM-Call-With-Scott-Morrison

[24] Ministry of Foreign Affairs (Singapore), “Transcript of Minister of Foreign Affairs Dr Vivian Balakrishnan’s Doorstop with Singapore Media via Zoom at the 76th Session of the United Nations General Assembly”, 25 September 2021, https://www.mfa.gov.sg/Newsroom/Press-Statements-Transcripts-and-Photos/2021/09/20210926-76th-UNGA-doorstop

[25] Ibid.

[26] Ibid.

[27] Ibid.

[28] William Choong, “China-US Relations: Singapore’s Elusive Sweet Spot”, ISEAS Perspective no. 80, 23 July 2020, /wp-content/uploads/2020/07/ISEAS_Perspective_2020_80.pdf

[29] Tu Anh, “Vietnam Spells Out Stance on AUKUS”, Hanoi Times, 23 September 2021, https://hanoitimes.vn/vietnam-spells-out-stance-on-aukus-318802.html

[30] Mateusz Chatys, “Vietnam and Japan: Partners Amid Superpower Rivalry”, Fulcrum, 1 October 2021, https://fulcrum.sg/vietnam-and-japan-partners-amid-suVietnperpower-rivalry

[31] Radio Free Asia, “Southeast Asian Nations Cautious Over New AUKUS Defense Pact”, Radio Free Asia, 17 September 2021, https://www.rfa.org/english/news/china/aukus-southeastasia-09172021164007.html

[32] “Prime Minister Delivered Statement at the General Debate of the 76th Session of the United Nations General Assembly (UNGA76)”, 25 September 2021, https://www.mfa.go.th/en/content/pmunga76-2?cate=5d5bcb4e15e39c306000683e

[33] Kavi Chongkittavorn, “ Thai view on the new AUKUS alliance”, Thai PBS World, 27 September 2021, https://www.thaipbsworld.com/op-ed-thai-view-on-the-new-aukus-alliance

[34] “Philippines Throws Support Behind AUKUS Pact”, Radio Free Asia, 21 September 2021, https://www.rfa.org/english/news/china/pact-09212021152655.html

[35] Oriana Skylar Mastro and Zack Cooper, “In Defence of AUKUS”, Lowy Interpreter, 5 October 2021,  https://www.lowyinstitute.org/the-interpreter/debate/aukus-and-australia-s-nuclear-submarines

[36] James Acton, “Why the AUKUS Submarine Deal is Bad for Nonproliferation – And What to Do About It”, Carnegie Endowment for International Peace, 21 September 2021, https://carnegieendowment.org/2021/09/21/why-aukus-submarine-deal-is-bad-for-nonproliferation-and-what-to-do-about-it-pub-85399

[37] “Australia Confirms Life-Of-Type Extension For Collins-Class Submarines”, Naval News, 19 September 2021, https://www.navalnews.com/naval-news/2021/09/australia-confirms-life-of-type-extension-for-collins-class-submarines

[38] Euan Graham, “U.S. Naval Standoff With China Fails to Reassure Regional Allies”, Foreign Policy, 4 May 2021, https://foreignpolicy.com/2020/05/04/malaysia-south-china-sea-us-navy-drillship-standoff

[39] Blake Herzinger, “Learning in the South China Sea: the U.S. Response to the West Capella Standoff”, War on the Rocks, 18 May 2020, https://warontherocks.com/2020/05/learning-in-the-south-china-sea-the-u-s-response-to-the-west-capella-standoff

[40] Graham, “U.S. Naval Standoff With China Fails to Reassure Regional Allies”,

[41] Karen Leigh, Peter Martin and Adrian Leung, “Troubled Waters: Where the U.S. and China Could Clash in the South China Sea”, Bloomberg, 17 December 2020, https://www.bloomberg.com/graphics/2020-south-china-sea-miscalculation

[42] William Choong, “Why the Quad Will Endure”, 9DashLine, 13 April 2021, https://www.9dashline.com/article/why-the-quad-will-endure?rq=choong; Ian Storey, “Will 2022 see signing of a South China Sea Code of Conduct?”, Straits Times, 2 October 2021, https://www.straitstimes.com/opinion/will-2022-see-signing-of-a-south-china-sea-code-of-conduct

[43] Hoang Thi Ha, “The AUKUS Challenge to ASEAN”, Straits Times, 25 September 2021, https://www.straitstimes.com/opinion/the-aukus-challenge-to-asean

[44] Desmond Ball, Lucie Beraud-Sudreau, Tim Huxley, C. Raja Mohan and Brendan Taylor, “Asia’s New Geopolitics: Military Power and Regional Order”, IISS Adelphi no. 478-480,

(Abingdon, UK: Routledge for the IISS, 2021), pp. 12-13, https://www.routledge.com/Asias-New-Geopolitics-Military-Power-and-Regional-Order/Ball-Beraud-Sudreau-Huxley-Mohan-Taylor/p/book/9781032187365

[45] Foreign Policy Community of Indonesia (Livestream), “AUKUS: Responses from Southeast Asia”, 1 October 2021, https://www.youtube.com/watch?v=nDpeZcsPoCQ&t=2140s [16:17-17:30]

[46] Dian Septiari, “Oz Seeks to Reassurre ASEAN After AUKUS Gambit”,  Jakarta Post, 21 September 2021, https://www.thejakartapost.com/seasia/2021/09/21/oz-seeks-to-reassure-asean-after-aukus-gambit.html

[47] Tan See Seng, “Southeast Asia’s Struggle for Autonomy Amid US-China Rivalry”, in International Institute for Strategic Studies, Asia-Pacific Regional Security Assessment 2021 (Abingdon: Routledge for the IISS), p. 72.

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“The Democratic Action Party in Johor: Assailing the Barisan Nasional Fortress” by Kevin Zhang, John Choo and Fong Sok Eng

 

 

2021/133 “Peril or Opportunity? The Case of Malaysia’s First Non-party Leader Prime Minister” by Ooi Kok Hin

 

Ismail Sabri Yaakob was named Malaysia’s new prime minister on 20 August 2021 after the previous government collapsed. Photo: Arif KARTONO, AFP.

EXECUTIVE SUMMARY

  • Ismail Sabri Yaakob, Malaysia’s ninth Prime Minister, is the first who is not a party leader. He is only the third highest-ranked leader in UMNO. He is Malaysia’s third premier in 39 months.
  • In his first Prime Ministerial address, Ismail Sabri articulated a new vision called “Keluarga Malaysia” (Malaysian Family), affirming inclusiveness and urging all parliamentarians to work towards common ground. However, his commitment to this is uncertain given his track record of stoking ethnic sentiments for political gain.
  • Ismail Sabri’s grip over UMNO is tenuous and he faces a party election that must be held by late 2022. The current top two leaders in UMNO are hostile to Bersatu, which is part of Ismail Sabri’s coalition. If Ismail Sabri is defeated in the party election, his position as Prime Minister will become untenable.
  • The Islamist party PAS holds significant leverage in the current government. Ismail Sabri is the first PM to give PAS complete control over the religious affairs ministry. He walks a tightrope as he needs PAS to offset his weakness in UMNO, but he must also retain the support of East Malaysian parties wary of PAS’s legislative agenda.
  • To circumvent the uncertainties surrounding his fragile coalition and the anticipated leadership tussle within UMNO, Ismail Sabri has reached out to the Pakatan Harapan opposition coalition. An imminent test of his government’s ability to forge multi-party consensus on policies to lift the country out of the health and economic crises will be seen in whether the opposition’s inputs are incorporated into the annual budget to be presented in October.  Progress in achieving this would augur well for the evolution of Malaysia’s democracy away from the divisive and “winner takes all” politics of the past.
  • However, the impending state and party elections indicate that Malaysia will undergo a period of political uncertainty, which is not atypical following the ending of strongman rule and one-party dominance.

* Ooi Kok Hin is a doctoral student in the Department of Political Science at the University at Albany, State University of New York. The author would like to thank Dr Lee Hwok Aun, Dr Meredith Weiss, Dr Nicholas Chan, and Daniel Teoh for their thoughtful comments and feedback.

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INTRODUCTION

The United Malays National Organisation (UMNO) has retaken the Prime Minister’s office just 39 months after losing the general election, but not all is well within the party. Although newly minted Malaysian Prime Minister, Ismail Sabri Yaakob, is from UMNO, he is not the top party leader and is politically dependent on its coalitional ally-cum-electoral rivals, the Parti Pribumi Bersatu Malaysia (Bersatu) and Parti Islam Se-Malaysia (PAS). Ismail Sabri’s “weak” position presents opportunities – and potential perils – for Malaysia as he seeks to foster a new political equilibrium and steer Malaysia toward recovery.

Ismail Sabri announced a bloated cabinet of 70 ministers and deputy ministers, almost a third of the total Members of Parliament.[1] As political scientist Wong Chin Huat observed, this “payroll vote” is necessary to sustain the prime minister’s slim majority in Malaysia’s parliamentary democracy.[2] He maintained continuity with Muhyiddin Yassin’s cabinet – all but four ministers are retained in the cabinet. Under Ismail Sabri’s cabinet, UMNO has a net gain of two ministers and crucially, has wrested the rural development ministry and the housing and local government ministry – both rich in resources and patronage – back from Bersatu. UMNO also now completely controls the Communications ministry, whose messaging channels and personnel hiring will be useful in the general election which has to be held within two years. Given his position as non-party leader with untested majority in Parliament (as of the time of writing), his premiership in the coming months will require him to consolidate his power internally (within UMNO as well as within his coalition) and externally (through a confidence and supply agreement with the opposition).

Ismail Sabri is the first Malaysian Prime Minister who is not a party leader. In parliamentary democracies, the positions of Prime Minister or Opposition Leader often belong to the leader of a political party. But Ismail Sabri is only the third highest-ranked leader in UMNO (Table 1). He is one of three Vice Presidents of the party (he received the highest votes among the three winners in the 2018 party election, and hence became the most senior among them). He was appointed to the premiership out of the force of circumstance: UMNO president Ahmad Zahid Hamidi faces 47 charges for misuse of funds,[3] and another 33 charges for corruption,[4] while UMNO deputy president Mohamad Hasan is not eligible because he is not a Member of Parliament.[5] Being the highest ranked UMNO leader in the previous cabinet under Muhyiddin, Ismail Sabri was appointed as Deputy Prime Minister on 7 July 2021. Slightly more than a month later, Muhyiddin resigned, on 16 August, after a faction of UMNO parliamentarians aligned to the party president withdrew their support and Muhyiddin failed to reach a confidence-and-supply agreement with the opposition to remain in power.[6] Five days of political uncertainty ensued, and it was Ismail Sabri who cobbled a sufficient majority to be sworn in as the ninth Prime Minister on 21 August.

Table 1: Top five UMNO leaders for the term 2018-2021

ISMAIL SABRI’S PREMIERSHIP ON ETHNIC RELATIONS: A HISTORY AND AN OUTLOOK

In his first address to the nation as Prime Minister, Ismail Sabri articulated a new vision called “Keluarga Malaysia” (Malaysian Family).[7] He pleaded for Parliamentarians to put aside differences and forge consensus, and affirmed the inclusive diversity of “the Malaysian Family.”

However, is “Keluarga Malaysia” a credible commitment on his part? In the past, Ismail Sabri had often demonstrated a willingness to stoke ethnic sentiments for political gains. For example, in 2015, a quick spiral of events turned violent in Kuala Lumpur: a theft incident in Lowyat Mall was followed by ethnically charged incitements and misinformation, which led to confrontations between Malay and Chinese groups. Ismail Sabri, who was then minister in charge of rural development, jumped the gun before police investigations concluded. He expressed sympathy for one group and called upon Malay customers to boycott Chinese businesses.[8] Not only that, he ended the Facebook post by lamenting that the Chinese will continue to “oppress the Malays” if they do not change.[9] He later clarified that his intention was to urge consumers to organize against price increases, but his emphasis on ethnicity was unmistakable.[10] He also seized the occasion to launch MARA Digital Mall, a knee-jerk reaction to the riot, to promote Bumiputra entrepreneurs.[11] The initiative proved to be a policy failure[12] and cost losses to the ministry.[13]

On another occasion, a mere three years ago, Ismail Sabri opposed the government’s plan to ratify the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD). In a public rally, he riled up the predominantly Malay Muslim crowd by grumbling about the erosion of Malay rights, lamenting the expansion of equal opportunities for other ethnic groups and falsely claiming that Bibles were being publicly distributed to Muslims.[14] As opposition leader in 2019, he challenged the government to ban the Chinese educationist group, the United Chinese School Committees’ Association (Dong Zong).[15]

Far from revisiting Ismail Sabri’s personal history, these instances point to a reckless proclivity in jeopardizing ethnic relations. He had no qualms speaking[16] and writing[17] the words “Bangsa DAP”, a derogatory term with racist undertones. In a divided society such as Malaysia, Ismail Sabri’s previous actions in public office do not inspire confidence.

Table 2: Key events in Ismail Sabri Yaakob’s political career

That said, historical precedents provide clues that Ismail Sabri will at least tone down his ethnic appeal when he governs as Prime Minister. Before he became the country’s first premier, Tunku Abdul Rahman was distrustful of non-Malay loyalty to the polity, stating that “It is not fair for the Malays to throw in their lot with others when others refused to be naturalized, refused to study the language, and refused to adopt the customs of the country.”[18] However, he went on to govern liberally as Prime Minister and even appointed a Chinese as finance minister. Similarly, Mahathir Mohamad was seen as the firebrand author of “The Malay Dilemma” prior to his premiership but it was he who promoted Bangsa Malaysia as Prime Minister. Former Prime Minister Najib Razak also started the 1Malaysia campaign immediately after becoming the premier. To an extent, Ismail Sabri has already moved in this direction with his “Keluarga Malaysia” vision, but a credible measure of his sincerity would be the extent to which he refrains from the ethnic appeals he had frequently invoked in the past.

Yet the logical reason underpinning this shift to the centre – to appeal to the broader electorate beyond one’s own party base – does not always reap the intended rewards. Najib’s 1Malaysia campaign failed to attract Chinese voters in the 2013 general election. Najib subsequently abandoned the 1Malaysia campaign and pivoted to the right in the run-up to the 2018 general election.[19] He openly flirted with PAS to enable the Islamist party’s president, Abdul Hadi Awang, to table a private member’s bill on the empowerment of Shariah courts.[20]

Ismail Sabri is in a unique position because while he is from UMNO, he initially did not have unanimous support from the party to remain in Muhyiddin’s cabinet.[21] He broke ranks with the top two party chiefs and led a group of UMNO Members of Parliament to side with the Perikatan Nasional government.[22] In doing so, he was rewarded and made Deputy Prime Minister with support from PAS and Bersatu.

Without full backing from his own party, Ismail Sabri is politically dependent on both PAS and Bersatu. As a matter of fact, a dark horse in Ismail’s cabinet is PAS. The party has been quiet since forming the Perikatan Nasional government with Muhyiddin (and now Ismail Sabri). If they become assertive and press for their ideologically-driven goals – for instance, a legislation empowering Shariah courts and paving the way for Hudud implementation – they could reinvigorate ethnic and religious polarization in the country. It is noteworthy that under Ismail Sabri’s new cabinet, PAS now completely helms the ministry of religious affairs for the first time.[23] PAS’s increasing leverage can be observed in a recent announcement of several bills being proposed to strengthen Shariah laws.[24] Will Ismail Sabri’s dependency on PAS’s loyalty lead to concessions in religious conservatism, or will he contain their ambition out of fear that PAS’s agenda will cost him support from East Malaysian parties? Already, the Sabah chief minister has publicly objected to the proposed bills on Control and Restrictions on the Expansion of non-Islam Religions, which is one of the four new Shariah bills.[25] Regardless, Ismail Sabri would be wise to avoid Shariah-related issues till at least after the Sarawak state election.[26] PAS’s ideological demands may strike a chord among Malay Muslim voters in the peninsula but they are a liability in Borneo, which is more diverse and wary of Islamization.

POLITICAL UNCERTAINTY AND POLITICAL EQUILIBRIUM

As Professor Abdul Rahman Embong concluded in a recent webinar organized by ISEAS –Yusof Ishak Institute, there may not be a clear winner in GE15.[27] If that turns out to be the case, political fragmentation will remain for a while. What is perceived as instability, however, is not necessarily a liability for Malaysia’s long-term democratic development. In Japan and Indonesia,[28] for example, there were a series of rapidly changing governments in the initial period following the fall of a strongman rule or dominant party rule before a new (and hopefully democratic) equilibrium was found.

The political order under Ismail Sabri is shaky. Within his party, Ismail Sabri must face the UMNO party election, which must be held by the end of 2022.[29] The timing for this will depend on the timing of the general election. Will Ismail Sabri contest the presidency? It is unprecedented enough that a non-party leader was appointed Prime Minister, but it is more bizarre if he does not consolidate power within his party. Marshalling the incumbency advantage as Prime Minister, Ismail Sabri could make a bid for the party presidency by assembling a team with UMNO ministers in his cabinet, such as Defence Minister Hishammuddin Hussein.[30] The party election will probably take place first before the general election so that whoever emerges party president will get to pick election candidates and lead the party into the general election.

An important detail in Ismail Sabri’s cabinet lies not just in who is in, but who is excluded: Ahmad Zahid (current UMNO president), Mohamad Hassan (deputy president), and Khaled Nordin (vice president and former Menteri Besar of Johor). The UMNO president has the power to sign the candidate nomination form, which means he has the final say in determining the party’s election candidates. Without becoming party president, Ismail Sabri cannot pick his slate of candidates (presumably loyal to him) and in fact, cannot unilaterally settle seat negotiations with other parties in his coalition, such as Bersatu. This could be a test of two incumbent advantages: does the incumbency advantage of the Prime Minister outweigh the incumbency advantage of the party president? In the event that Ismail Sabri is defeated in the party election, however, his position as Prime Minister will become untenable.

In preparing for UMNO’s party election, Ismail Sabri will have to strike a delicate balance between campaigning to be a party leader who prioritizes UMNO’s interest, without antagonizing or yielding to Bersatu. Between UMNO and Bersatu, ties are rocky and Ismail Sabri’s government is at risk if factions within the two parties fall out again. As it is, they are unable to even agree on the name of the new government: one faction still calls it the Perikatan Nasional government, while another faction rejects any association with Perikatan Nasional.[31] For as long as Bersatu exists, UMNO cannot be returned as the sole dominant party because of their overlapping constituencies. Thus, the current top two UMNO leaders have rejected cooperation with Muhyiddin’s Bersatu, to which Ismail Sabri’s faction is less hostile. They will need to wrestle for the UMNO leadership if they wish to form an electoral agreement and negotiate seats with Bersatu and Perikatan Nasional for the general election. Though ousted as prime minister, Muhyiddin does not plan to retire from politics. He has in fact already been appointed chairman of the National Recovery Council,[32] and recently vowed to lead Bersatu and Perikatan Nasional into the general election.[33]

This could well be the reason PAS sided with Bersatu under Perikatan Nasional and deprioritized their pre-existing partnership with UMNO under Muafakat Nasional. UMNO president was so slighted at PAS’s “loyalty” to Bersatu that he virtually claimed that the Muafakat Nasional partnership is as good as dead.[34] With Bersatu’s weak presence on the east coast, PAS are virtually assured of retaining their rule in their coveted bases, Kelantan, Terengganu and perhaps Kedah. On the other hand, a partnership with UMNO would entail a more equal sharing of power. Why would PAS settle for equal partnership when they can be the Big Brother on the east coast? Since UMNO is the traditional electoral opponent for PAS prior to the 2018 alignment, a consolidated UMNO would threaten PAS’s political interests. In addition, PAS has always been the political beneficiary of an UMNO split. This happened in the 1990, 1999, 2008, and 2018 elections, and it would therefore be in their interest to draw out the UMNO-Bersatu rivalry for as long as possible.

Given the context of his fragile coalition and uncertainty surrounding UMNO leadership, Ismail Sabri has sought to forge a temporary stabilizing order by reaching out to the opposition for support. He met with top opposition leaders prior to the cabinet announcement[35] and in September, leaders from the ruling and the opposition coalitions signed a Memorandum of Understanding for Transformation and Political Stability.[36] This could well be a rare opportunity for substantive reforms and democratization, though it is not clear whether the MoU has any legally binding obligations.[37]

CONCLUDING THOUGHTS

Ismail Sabri has been catapulted to Malaysia’s highest office under the most unusual circumstances. For the first time, the prime minister is not the president, chairman, or de facto leader of a political party. Compared to his predecessors, Ismail Sabri’s relatively “weak” position – within his party and the fragile coalition – presents unique challenges to his premiership.

The MoU signed by the ruling and opposition coalitions helps to set the tone for a new political culture that is less fixated on a winner-takes-all rationale.

The spirit of cooperation will be tested in late October when the government tables the budget. Will the government incorporate the opposition’s inputs into the budget and meet public expectations? If they do, will the opposition honour their word and pass the budget?

ISEAS Perspective 2021/133, 12 October 2021


ENDNOTES

[1] “Ismail Sabri’s govt: Who’s in, who’s out and what it means”, Malaysiakini, 27 August 2021. https://www.malaysiakini.com/news/588927

[2] Wong Chin Huat, “Parliament as Prime Minister’s electoral college: the defection game in Malaysia’s democratic backsliding”, The Round Table: The Commonwealth Journal of International Affairs, Volume 109, Issue 5, 2020. https://www.tandfonline.com/doi/abs/10.1080/00358533.2020.1819631

[3] “Zahid’s trial over 47 charges involving foundation’s funds to start Monday”, The Star Online, 17 November 2019. https://www.thestar.com.my/news/nation/2019/11/17/zahid039s-trial-over-47-charges-involving-foundation039s-funds-to-start-monday-nov-18

[4] “Zahid slapped with 33 more charges for receiving RM42.7m bribes”, The Edge, 27 June 2019. https://www.theedgemarkets.com/article/zahid-slapped-33-more-charges-0

[5] Mohamad Hasan, popularly known as Tok Mat, was former Menteri Besar of Negeri Sembilan from 2004 to 2018 and is now leader of the opposition in the Negeri Sembilan state assembly. In the 2018 party election, he defeated Annuar Musa, the current Minister of Communications and Multimedia, to be elected the 11th UMNO deputy president.

[6] “Malaysia’s opposition, key ally reject PM’s offer for bipartisan support”, Reuters, 13 August 2021. https://www.reuters.com/world/asia-pacific/malaysias-opposition-key-ally-reject-pms-offer-bipartisan-support-2021-08-14/

[7] “In first-ever speech, new PM asks MPs to save ‘Keluarga Malaysia’ together, offers Opposition leaders a chance to join Covid-19 fight”, Malay Mail, 22 August 2021. https://www.malaymail.com/news/malaysia/2021/08/22/in-first-ever-speech-new-pm-asks-mps-to-save-keluarga-malaysia-together-off/1999603

[8] “Malaysia minister asks Malays to boycott Chinese businesses to reduce prices”, TODAY Online, 2 February 2015. https://www.todayonline.com/world/asia/malaysia-minister-asks-malays-boycott-chinese-businesses-reduce-prices

[9] “Boycott Chinese businesses to lower price of goods, minister tells Malays”, Malay Mail, 2 February 2015. https://www.malaymail.com/news/malaysia/2015/02/02/boycott-chinese-businesses-to-lower-price-of-goods-minister-tells-malays/832557

[10] “Ismail Sabri explains Facebook posting”, New Straits Times, 2 February 2015. https://www.nst.com.my/news/2015/09/ismail-sabri-explains-facebook-posting

[11] “Ismail Sabri: Medan Mara digital mall not a racist venture”, the Star Online, 8 December 2015. https://www.thestar.com.my/news/nation/2015/12/08/ismail-sabri-yaakob-mara-digital-mall-not-racist-venture

[12] “Malaysia’s bumiputera-only digital malls struggle to stay open”, Straits Times, 22 January 2020. https://www.straitstimes.com/asia/se-asia/malaysias-bumiputera-only-digital-malls-struggle-to-stay-open

[13] “Mara digital malls in two states closed due to low sales”, the Star Online, 17 October 2019. https://www.thestar.com.my/news/nation/2019/10/17/mara-digital-malls-in-two-states-closed-due-to-low-sales

[14] The video clip, shared in a Facebook group called “Penyatuan Ummah” by a user, is titled “ICERD & Agenda DAP: Luahan Rasa DS Ismail Sabri Yaakob, Naib Presiden UMNO #Benteng153.” https://www.facebook.com/groups/PenyatuanUmmah/posts/924931844725949

[15] “Haramkan Dong Zong, Pertubuhan Rasis Sempit: Ismail Sabri”, UMNO Online, 14 August 2019. https://umno-online.my/2019/08/14/haramkan-dong-zong-pertubuhan-rasis-sempit-ismail-sabri/

[16] “Ismail Sabri: Malaysia currently ruled by ‘bangsa DAP’”, KiniTV, 2019. Video available at: https://www.dailymotion.com/video/x75351o

[17] Ismail Sabri, “Tahap mana lagi kita Bangsa Melayu dan Islam Malaysia harus bersabar apabila satu demi satu cubaan Bangsa DAP untuk mempersoalkan hak dan keistimewaan Orang Melayu Islam di Malaysia.,” Twitter.com. 4 August 2019. https://twitter.com/ismailsabri60/status/1158015391836172288?lang=en

[18] The Straits Times, 18 September 1951.

[19] A “Made for Television” moment was captured in December 2016 when Najib and Hadi, then party presidents of UMNO and PAS respectively, jointly appeared in a rally to support Myanmar’s Rohingya Muslims. The bitter irony was that it was the Perikatan Nasional government, of which UMNO and PAS were part of, which launched a harsh crackdown on Rohingya refugees in 2020.

[20] Helen Ting, “UMNO’s hand in Malaysian Islamic law,” East Asia Forum. 6 June 2017. https://www.eastasiaforum.org/2017/06/06/umnos-hand-in-malaysian-islamic-law/

[21] “Ismail Sabri to face ‘consequences’ for standing with Muhyiddin,” Malaysiakini, 4 August 2021. https://www.malaysiakini.com/news/585926

[22] “MPs from Umno-led BN break ranks to support Malaysia PM Muhyiddin Yassin”, Straits Times, 18 August 2021. https://www.straitstimes.com/asia/se-asia/31-mps-from-umno-led-bn-reiterate-support-for-malaysia-pm-muhyiddin-yassin

[23] The Minister of Religious Affairs, Idris Ahmad, and the deputy minister, Ahmad Marzuk Shaary, are both from PAS. It is the only ministry over which PAS has complete control.

[24] “Four new shariah laws in the works, says deputy minister”, Free Malaysia Today, 6 September 2021. https://www.freemalaysiatoday.com/category/nation/2021/09/06/four-new-shariah-laws-in-the-works-says-deputy-minister/

[25] “Sabah opposes proposed Shariah Bill to control non-Muslim religions – CM”, Borneo Post, 9 September 2021. https://www.theborneopost.com/2021/09/09/sabah-opposes-proposed-shariah-bill-to-control-non-muslim-religions-cm/

[26] A state of emergency has been extended in Sarawak until February 2022 to suspend the state election due to the COVID-19 pandemic. An extension is possible after the date.

[27] Abdul Rahman Embong, “Malaysian Political Dynamics: The Making and Remaking of Political Alignments and Social Cohesion”, ISEAS Malaysia Studies Programme Webinar, 25 August 2021.

[28] It was Ross Tapsell from the Australian National University who first drew the parallel between contemporary Malaysia and Indonesia in the immediate aftermath of the Suharto regime’s collapse. https://twitter.com/RossTapsell/status/1427418272874438656. Although the context differs because the Suharto’s regime collapsed while Barisan Nasional lost the election to the opposition coalition, there is some parallel in the rapid and fluid regrouping of political elites before a new political equilibrium stabilizes.

[29] “Postponement of Umno elections in order – Ahmad Maslan”, New Straits Times, 30 August 2021. https://www.nst.com.my/news/politics/2021/08/722916/postponement-umno-elections-order-ahmad-maslan

[30] “According to UMNO’s party constitution, clause 8.2 states that the annual general assembly (AGM) must be held annually at a time decided by the Supreme Council so long as it does not exceed 18 months after the previous AGM. The 2020 AGM was held on March 2021 (It was also postponed due to the pandemic). The 2021 AGM, the one that is currently being postponed, must be held within the subsequent 18 months, which is by August 2022.”

[31] “Cracks emerge between Umno and Bersatu day after Ismail named PM”, Malaysiakini, 21 August 2021. https://www.malaysiakini.com/news/588144

[32] “Malaysia appoints former PM to lead coronavirus recovery council,” Reuters, 4 September 2021. https://www.reuters.com/world/asia-pacific/malaysia-appoints-former-pm-lead-coronavirus-recovery-council-2021-09-04/

[33] “Bersatu to make comeback at next polls, says Muhyiddin,” The Malaysian Insight, 10 September 2021. https://www.themalaysianinsight.com/s/338562

[34] “Zahid hints Muafakat Nasional is dead,” The Malaysian Insight, 30 Sept 2021 https://www.themalaysianinsight.com/s/342460

[35] “Malaysia’s new PM Ismail Sabri Yaakob and opposition leaders agree to find common ground”, South China Morning Post, 25 August 2021. https://www.scmp.com/news/asia/southeast-asia/article/3146370/malaysias-new-pm-ismail-sabri-yaakob-and-opposition

[36] “ Malaysian govt, PH opposition sign historic bipartisan deal; polls not expected before Aug 2022”, Straits Times, 14 September 2021. https://www.straitstimes.com/asia/se-asia/malaysia-govt-and-opposition-ink-deal-on-historic-bipartisan-cooperation

[37] “A legal view of the MOU between the government of Malaysia and Pakatan Harapan — Philip TN Koh”, Malay Mail, 17 September 2021. https://www.malaymail.com/news/what-you-think/2021/09/17/a-legal-view-of-the-mou-between-the-government-of-malaysia-and-pakatan-hara/2006370

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2021/132 “Reform of Parliament: Lessons from 2020-2021” by Shad Saleem Faruqi

 

Parliament Building, located at Lake Gardens in Kuala Lumpur, Malaysia. Photo by CEphoto, Uwe Aranas. Source:https://commons.wikimedia.org/wiki/File:Kuala_Lumpur_Malaysia_Bangunan_Parlimen_Malaysia-02.jpg.

EXECUTIVE SUMMARY

  • An elected and representative legislature is the central pillar of a democratic polity. One third of the Articles of the Constitution of Malaysia require Parliament to perform a number of essential functions, such as the making of laws, scrutiny of executive policy, supervision of national finance, and control of emergency powers.
  • The House of Representatives gives legitimacy to the government, represents electoral constituencies, and approves electoral boundaries. Individual MPs help to redress the grievances of their constituents. The Senate represents the 13 States, the Federal Territories and minorities.
  • Despite its key role in Malaysia’s governance, Parliament has been in abeyance for much of 2020 and 2021. It played no role in restoring political stability to the nation after the fall of the Pakatan Harapan Government in February 2020, and has been an unwilling bystander in the devastating health and economic crisis caused by the Covid-19 pandemic.
  • Reform of the law and practice of Parliament are necessary to give effect to the constitutional provisions on Parliament’s functions and to enhance Parliament’s institutional efficacy.
  • This essay highlights those issues that surfaced in 2020 and 2021 when the institution of Parliament was at its ebb.

* Shad Saleem Faruqi is Emeritus Professor at UiTM; and holder of the Tunku Abdul Rahman Foundation Chair at the Faculty of Law, University of Malaya. He is also Senior Visiting Fellow at ISEAS – Yusof Ishak Institute.

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INTRODUCTION

When the Constitution of Malaya was drafted in 1957, fifty-seven out of 181 Articles of the basic charter were devoted to the role and function of an elected and representative Parliament, created to be the heartbeat of Malaya’s constitutional and political system.

Regrettably, a wide gap has developed between the Westminster theory that the government is answerable, accountable and responsible to Parliament, and the reality of an omnipotent executive. This is not peculiar to Malaysia and is a challenge in almost all of the 33 or so “Westminster” democracies operating in the world today.[1] The factors that have contributed to the shift of power from the legislature to the political executive vary from society to society and require separate treatment.

This essay outlines the constitutional functions of the Malaysian Parliament but takes note of the reality of pervasive executive dominance. A comprehensive list of reforms to reverse this trend is not possible in this essay[2] but lessons from the last two years are noted because Parliament was in abeyance for most of the time between January 2020 and September 2021.[3] It played no role in restoring political stability after the fall of the Pakatan Harapan Government in February 2020 and was an unwilling bystander in the devastating health and economic crisis caused by the Covid-19 pandemic.

ROLE AND FUNCTION OF PARLIAMENT

In Malaysia’s Westminster system of “parliamentary government”, the legislature is supposed to perform the following constitutional functions:

Giving democratic legitimacy to the government: Under Article 43(2)(a), the Monarch appoints a person to be the Prime Minister who in his judgement is likely to command the confidence of the majority of the members of the House of Representatives (the Dewan Rakyat).[4] If this majority is lost,[5] the PM has only two choices: advise a dissolution of the House or submit the resignation of the Cabinet.[6]

Legislative function: This includes the enactment, amendment, and repeal of ordinary laws,[7] emergency laws[8] and amendments to the Constitution.[9] Ideally, the legislative role should also include the scrutiny of delegated legislation[10] and a leadership role in law reform.[11] 

Oversight of executive policy and performance: The foundational principle of a parliamentary democracy is that Parliament should enforce accountability, answerability, and responsibility of the political executive to the Houses of Parliament or their committees. Article 43(3) sums it up well: “The Cabinet shall be collectively responsible to Parliament”.

Control of national finance: This should include oversight of the government’s long and short term financial and economic policies; examination of the use of financial resources optimally; allocation of the annual budget and supplementary budgets.[12] The Dewan Rakyat’s Public Accounts Committee reviews the reports of the Auditor-General to examine how the allocations were utilised.[13]

The constituency function:  In Malaysia’s electoral system of single-member constituencies, the 222 MPs represent the voters of one constituency each. It is part of each MP’s function to redress his/her constituents’ grievances and engage with them to obtain feedback on government policies and programmes. Many MPs run Service Centres to serve their constituents.[14]

Functions during an emergency: During an emergency, Parliament is not automatically dissolved or suspended (though it may be). Instead, Article 150 gives to Parliament three major functions during an emergency: (i) To scrutinise the Yang di-Pertuan Agong’s (King’s) Emergency Proclamation and, if need be, to annul it;[15] (ii) To scrutinise the Yang di-Pertuan Agong’s Emergency Ordinances and, if need be, to annul them;[16] and (iii) To enact Emergency Acts of Parliament.[17]

Electoral boundaries: It is part of the Dewan Rakyat’s function to approve or reject the Election Commission’s proposals for new electoral boundaries.[18] 

Malay Reserves Lands: Any de-reservation of a Malay Reserve requires legislation in the State Assembly along with a special majority resolution in both Houses of Parliament.[19]

Parliamentary privileges: Each House is empowered to exercise parliamentary privileges to protect the House, its members and officers and to ensure compliance with its decisions and orders.

Dewan Negara/Senate: Two Senators from each State represent the 13 States. In addition, 44 appointed Senators are supposed to give voice to the Federal Territories, minorities and marginalised groups.

Regrettably, except for the constituency function, Parliament fails to perform the other functions satisfactorily. There are many structural, legal and procedural impediments in the way of its independence and efficacy. The years 2020-2021 exposed some of these impediments dramatically.

LESSONS FROM 2020-2021

If Parliament is to perform any of the above constitutional functions, it must be allowed to assemble frequently enough! It must have some say over whether it can convene, and when. It must decide or at least be consulted over issues of adjournment and prorogation.[20] It must have the power to determine its agenda, to debate and discuss matters of national and public importance and to introduce motions. The Speaker[21] and the Secretary of Parliament[22] must not be subordinate to the political executive. Regrettably, the last two years have taught Malaysians that the political executive has near-total control over all aspects of the Parliament’s life.[23]

Constitutional principles and PM’s discretion over parliamentary calendar: The summoning, adjournment and prorogation[24] of Parliament, are not a royal discretion but a prime ministerial power.[25] The number of parliamentary sittings per year is quite low.[26] The Dewan Rakyat meets 50-80 days a year. In 2020 it met for only 55 days; in 2021, (till 26 Sept) for only nine days. Due to the emergency in 2021, Parliament was convened for the first time only on July 26 but prorogued two days later. Our parliamentary calendar compares unfavourably with the UK where Parliament meets for about 170-180 days per year on average.[27] 

On 1 March 2020, when Tan Sri Muhyiddin Yassin was sworn in as PM, he postponed the scheduled parliamentary sitting from 9 March to 18 May in order to consolidate his position ahead of an anticipated vote of no-confidence. In subsequent weeks when the Palace advised PM Muhyiddin to summon Parliament as soon as may be, the Palace’s press releases were largely ignored by the PM’s office on the ground that the decision to summon Parliament rests with the Cabinet and not the King.[28]

There is also the problem of the distinction between a ‘Session’ and a ‘Meeting’.[29] Article 55(1) forbids no more than “six months to elapse between the last sitting in one session and the date appointed for (the) first meeting in the next session”. The Constitution is silent about the interval between one meeting and the next meeting in the same session![30]

Increasing the number of sittings will assist Parliament to perform its roles more thoroughly. Reformers suggest that given the very lengthy periods when Parliament does not sit, parliamentary committees should be allowed to function both during an adjournment and a prorogation. It is in committee work that Parliament blossoms into “the grand inquest of the nation”.

Parliamentary agenda: Though Parliament is supposed to be a separate pillar of our Constitution, it has no independence to determine its agenda!  Under the Standing Orders of the House, the executive, and not the Speaker, determines or dominates the parliamentary agenda.[31] Government business takes precedence over private members’ business.[32] The Standing Orders have a constitutional basis[33] and are probably unchallengeable in a court due to Article 63(1).[34]

The dominance of the executive over Parliament was dramatically illustrated in several recent events.

In March 2020, after Tan Sri Muhyiddin was appointed Prime Minister, he postponed Parliament from 9 March to 18 May. But come 18 May, the Dewan Rakyat was allowed to sit for a mere half day to listen to the King’s speech at the beginning of the new session. No debates or motions were allowed!

On 13 July 2020, the Speaker, Tan Sri Dato’ Mohamad Ariff Md Yusof, a retired and respected former Court of Appeal judge, known for his independence and integrity, was summarily removed from his post in mid-term because, according to the PM “there is a new candidate for the post”.[35] The Deputy Speaker only allowed two individuals from each side to debate for 10 minutes each.

In July 2021, the Dewan Rakyat met for the first time on 26 July 2021 for two days only and was then adjourned due to the Covid threat. During the two days, a motion of no-confidence was not allowed by the Speaker! The Emergency Ordinances required to be laid before the Houses under Article 150(3) were not allowed to be debated on the unconstitutional claim that the Cabinet had already annulled them.

Again in 2021, when Parliament returned to session on 13 September under the new PM Ismail Sabri, neither a motion of confidence in favour of the PM nor a motion against the Speaker were allowed on the Daily Order Paper.[36]

Motion of no-confidence: It is a fundamental principle of parliamentary democracy that the PM and Cabinet are subject to votes of confidence in the elected House. Articles 43(3) and 43(4) indirectly recognise this principle.[37] A House of Commons Briefing Paper refers to the “core convention” that the government must be able to command the confidence of the House of Commons.[38]

Despite this core convention, the Standing Orders of the Dewan Rakyat, framed during the days of Barisan Nasional’s monolithic power, do not have any specific provision for a motion of no-confidence. Since 2015, scores of such motions have been denied admission or placed at the bottom of the Order of Business. Most incredulously, several Dewan Rakyat Speakers have ruled that to give a Motion of no-confidence priority will require the Motion to be moved by a Minister under S.O. 14(1)(n) to alter the Order of Business![39]

The legality and propriety of a vote of confidence on the floor is under serious questioning in Malaysia. The feeling of some is that the judgment about who commands confidence is the exclusive function of the Yang di-Pertuan Agong under Article 43(2)(a) without recourse to Parliament. It is noteworthy that after the “Sheraton move”, when Tun Mahathir, the “Interim Prime Minister”, sought to convene the House to prove his majority, his request was turned down by the Speaker on the ground that “the appointing authority resides in the Head of State, not in the legislature”.[40] In the appointment of Muhyiddin Yassin in 2020 and Ismail Sabri in 2021, the King chose to interview MPs in person and consult his brother Rulers rather than convene the House to test the claimant’s majority on the floor.

To question the claim that Parliament is the best forum for testing the PM’s majority, the Attorney-General issued a Press Release on 4 September 2021 that as PM Ismail Sabri had been duly appointed by the Yang di-Pertuan Agong, a vote of confidence was unnecessary and would undermine the King’s powers.[41] The AG went on to say that the power of the King to appoint a PM was absolute and could not be questioned. The AG’s views are out of sync with Articles 43(2)(a) and 43(4). Article 43(2)(a) links the Monarch’s discretion to the likelihood of someone commanding the confidence of the majority of the members of the House. Article 43(4) foresees the possibility that someone duly appointed by the King may cease to command this confidence. The AG’s views also contradict the explicit royal direction from the King when PM Ismail Sabri was appointed that the new PM must seek a vote of confidence in Parliament.[42] The AG also sidesteps clear precedents of votes of confidence when Tun Hussein Onn and Tun Abdullah Badawi assumed the premiership.[43] At the State level, there are eleven examples of successful votes of no-confidence between 1962-2020, the most recent being December 2020 in Perak.[44] 

Role of Malay Rulers: Since the Sultan of Pahang ascended to the federal throne on 31 January 2019, he has for many critical decisions sought the advice of his brother Rulers. Some of these occasions were the appointment of the PM in 2020 and again in 2021. This spirit of consultation is entirely commendable and is in line with the Conference’s power under Article 38(2) to deliberate on “any other matter that it thinks fit”. However, what is constitutionally significant is that only the Malay Rulers and not the Governors were invited for the consultation.[45]

Number of cabinet ministers: Unlike all State Constitutions which prescribe the maximum number of Executive Council members, the Federal Constitution imposes no limit on how large the Cabinet can be. If a PM has unlimited power to choose the size of his Cabinet under Article 43(2)(b), that, along with his extensive power of patronage, makes it almost impossible for a vote of no-confidence to ever be successful. Also, the economic implications of a 70-strong Cabinet are staggering.  

Covid-19 and hybrid sittings: Under Article 62(5), “members absent from a House shall not be allowed to vote”. This law was cited as a hindrance to “hybrid sittings”. Actually, all that is needed is an amendment to the Standing Orders to redefine “a House” to include any place permitted or required by the Speaker in or outside the main block of Parliament.

Control over emergency powers: Despite the command in Article 150(3) that a proclamation of Emergency and all Emergency Ordinances shall be laid before the Houses, no time frame has been provided for such laying.[46] If Parliament is not summoned before the emergency ends or if the government controls the agenda in such a way as to disallow any debate or motion on emergency laws (as was the case on 26 July 2021), then the constitutional requirement of Article 150(3) is frustrated.    

Power to delay enforcement of Bills passed by Parliament: The last few years have brought to light a most undemocratic reality. Bills including constitutional amendments duly passed by the Houses and signed by the King are often left hanging because the executive had inserted a clause empowering it to choose the date of enforcement. If the executive fails to act, the will of Parliament remains unenforced. The Undi-18 Act passed and gazetted in September 2019 has suffered this ignominy.

MPs convicted of crimes: Under Article 48(4) MPs convicted of crimes are not disqualified from membership till their appeal is dismissed in the courts and their application for Royal Pardon is rejected.[47] Article 48(4) brings a bad name to Parliament. Additionally, MPs under the stigma of conviction may resort to pressures on the government to drop or modify the charges. In a situation of a hung Parliament or a slim majority, these pressures may destabilise a government. 

Party-hopping: Malaysia needs an anti-hopping law to regulate the nefarious activity of defections.[48] Defections have caused the fall of many elected governments at the State level. At the federal level since 2020, two PMs have had to resign. However, one must be mindful that an anti-hopping law may be unhelpful in some circumstances.[49] For this reason, instead of an anti-hopping law, Malaysia could legislate a “recall law”, whereby any MP who crosses the floor could be required, if there is a Petition by 20 percent of the electorate, to return to the electorate in his constituency at a by-election for renewal of his electoral mandate.

CONCLUSION

The last 18 months have not been good for the Malaysian Parliament. One is reminded of the British Queen’s 1992 annus horribilis speech of 1992. Only once in earlier history has the Malaysian Parliament been so marginalized. That was during the dark days of the racial riots of May 1969 when Parliament was suspended for about 21 months.   

One can think of some silver linings, though. An important constitutional development in early 2021 was that the emergency proclamation on 12 January carried a first-ever “sunset clause” to end the emergency on August 1, 2021. This could be a precedent for future Emergency Proclamations.   

There is broad outrage at the way the political executive pulverized the nation’s legislative organ in 2020-21. An elected institution, meant to oversee the executive, is under the total control of those it is supposed to scrutinize!

During the Muhyiddin Yassin tenure, the Conference of Rulers and the King spoke repeatedly but in vain of the need to bring Parliament back to session to perform its constitutional functions. The monarchy earned praise for its role.

The new Law Minister, Wan Junaidi Tuanku Jaafar, has promised parliamentary transformation through wide ranging reforms.[50] On 13 September 2021, PM Ismail Sabri’s government signed a historic bipartisan deal with the opposition.[51] One has to wait and see how things work out but in the area of parliamentary reform it appears that there will be many concessions to the parliamentary opposition. A balance of representation between opposition and government MPs in parliamentary Select Committees is proposed. Opposition members will have a place on the National Recovery Council. Opposition members will be permitted to contribute to the contents of Budget 2022. There will be equal allocations for constituency development funds.[52] The PM’s term will be limited to 10 years. Undi-18 and automatic voter registration will be implemented. The Parliamentary Services Act will be reintroduced.

While the above piecemeal reforms are welcome, one notes with concern that nothing is said about reform of Standing Orders and other laws that deal with the parliamentary calendar, parliamentary agenda, question time, motions, and private members’ business. These enable the executive to dominate the legislature and silence dissent. There are other structural, legal and administrative reforms that are needed to restore Parliament’s dignity and efficacy.   Foremost should be the putting in place of a system of legislation committees and departmental committees, better scrutiny of the law-making process, a Law Reform Commission reporting to Parliament, better scrutiny of national finance, reform of the Senate, improvement of the electoral process, better representation for Sabah and Sarawak in Parliament, an Institute of Parliamentary Affairs, a law on Fixed Term Parliaments, regulation of party hopping, and rules about caretaker governments. 

One hopes that the ripples being created will go far. Perhaps the marginalization suffered in 2020-2021 will inspire thorough reform.

ISEAS Perspective 2021/132, 7 October 2021


ENDNOTES

[1] In the UK, Lord Hewart of Bury’s book The New Despotism (1929) and G W Keeton’s The Passing of Parliament (1952) recorded their alarm over the increasing ascendency of the executive over Parliament and the courts.

[2] Shad Saleem Faruqi, “The Malaysian Parliament: Problems, Prospects and Proposals for Reform” in Mohamad Ariff Md Yusof, Roosme Hamzah and Shad Saleem Faruqi (editors), Law, Principles and Practice in the Dewan Rakyat, Sweet & Maxwell, 2020, pp. 495-524. 

[3] In 2020, the Dewan Rakyat met for a total of 55 days. In 2021 (till 26 September) it met for a mere 9 days.

[4] Articles 40(2)(a), 43(2)(a).

[5] There are two ways in which the loss of confidence can be measured: first by a vote on the floor of the House of Representatives. Second, by the King taking note of relevant facts outside the House: Dato’ Dr Zambry Abd Kadir v Dato’ Seri Mohammad Nizar [2009] 5 MLJ  464.    

[6] Article 43(4). In 2020 Tun Mahathir and in 2021 Tan Sri Muhyiddin Yassin resigned from the PM’s post due to the loss of support of several defectors from their coalition. The British convention that with the fall of the PM, the doctrine of collective responsibility requires that the entire cabinet must resign, is explicitly incorporated into the Malaysian Constitution by Article 43(4). In Datuk (Datu) Amir Kahar Tun bin Datu Haji Mustapha v Tun Mohd Said Keruak [1995] 4 CLJ 184 the then Chief Minister of Sabah, Datuk Seri Joseph Pairin Kitingan of the ruling Parti Bersatu Sabah lost his majority to the Barisan Nasional due to defections. Pairin tendered his resignation. Amir Kahar, a member of Pairin’s Cabinet brought an action that he was still a minister because only the Chief Minister had resigned. The Court held that when the Chief Minister resigns, the Cabinet resigns with it; whether or not there was a letter of resignation.

[7] Articles 66, 73-79.

[8] Article 150(5), (6) and (6A).                                                                                

[9] Articles 2(b), 159 and 161E. 

[10] In Malaysia, delegated legislation is referred to as ‘subsidiary legislation’. Under the Interpretation Acts 1948/1967 “Subsidiary legislation means any proclamation, rule, regulation, order, notification, by-law or other instrument made under any Act, Enactment, Ordinance or other lawful authority and having legislative effect”. Subsidiary legislation outnumbers parliamentary legislation by a ratio of 1:20. The stark reality is that in the legislative sphere, the executive is more important than Parliament. With the centre of gravity of the legislative process having shifted from Parliament to Putra Jaya, the Dewan Rakyat and Dewan Negara could in order to combat this situation by setting up a Joint Select Committee on Subsidiary Legislation in line with the British Joint Committee on Statutory Instruments. The UK committee has seven members from each House and alerts Parliament to any exceptional use or misuse of delegated power. See M P Jain, Administrative Law of Malaysia, 2020, pp. 131-150, esp. 145-150.          

[11] The last two functions are not mentioned in the Constitution.  

[12] Articles 96-112D.

[13] Standing Orders of the Dewan Rakyat, S.O. 77.

[14] How representative the Dewan Rakyat (House of Representatives) is will requires a separate study of the constituency delineation process, the rules of electoral financing, the presence or absence of multi-member constituencies, the presence or absence of reserved seats, and how far the system allows minorities, women, the youth, orang asli, the professions and sectoral groups to eke out an electoral triumph. Under-represented groups may also acquire a voice by being nominated to the Senate (Dewan Negara) under Article 45(1)(2). 

[15] Article 150(3). However, the annulment by the Houses of a Proclamation does not exclude the possibility of (i) a new Proclamation by the King under Article 150(1) and (ii) the prorogation (the formal ending of a session until the next session is summoned by the King) under Article 55(2). A prorogation will give to the executive a free hand to handle the emergency without parliamentary oversight.  

[16] Article 150(3).

[17] Articles 150(5), 150(6) but subject to 150(6A).

[18] Thirteenth Schedule Part II. 

[19] Article 89(1)(b).

[20] There is a difference between ‘adjournment’ and ‘prorogation’. The former is a temporary break with or without a date fixed for the next sitting. A prorogation is a royal notification to end a ‘session’. A session normally lasts one year. Once it is prorogued, only a royal summon can bring it back. Between one session and the next, Article 55(1) mandates that no more than 6 months may elapse.

[21] The tradition of an impartial, non-partisan Speaker has not taken hold in Malaysia. This contrasts with the UK where the impartiality of the Speaker is a key feature of the office. See footnote 36 below.

[22] The Clerk of the Senate and the House of Representatives are members of the general public service and are transferrable to another office in the general public service: Article 65(2).

[23] This was not the intention of the Constitution. The spirit of the Constitution is that the elected Parliament should not be kept in abeyance for too long. No more than six months may elapse between one session and the next [Article 55(1)]. The King has a discretion to grant or refuse the PM’s request for a premature dissolution [Article 40(2)(b)]. If Parliament is dissolved, an election shall be held within 60 days and the new Parliament shall be summoned to meet within 120 days of the dissolution [Article 55(4)].

[24] Prorogation refers to the formal end of the session as opposed to the temporary adjournment. 

[25] Under S.O. 11(2), the Leader of the House the Prime Minister) shall determine at least 28 days before the commencement of each Session, the dates on which the House shall meet in the Session. Though under Article 55(1) and S.O. 11(1), the power to summon Parliament belongs to the King, this must be read in the light of Article 40(1) which requires the King to act on advice. 

[26] Whether this reflects lack of reverence for Parliament in our system of democracy, or the need to make quick decisions unencumbered by lengthy debates and filibusters in Parliament is a matter of opinion. “Discussion before decision” may be the sine qua non of a democratic set up. However, in many Asian governments the practice is to “decide first, discuss and rectify afterwards”. A number of other factors have contributed to the marginalization of Parliament, among them: the continuous state of emergency from 1948-1960; 1964-2011; and 11 January to 1 August 2021. The Alliance/Barisan Nasional enjoyed a massive, 2/3 majority from 1955 to 2008 and this made it possible to treat Parliament as a legitimating and not as a check and balance institution.

[27] House of Commons Library, Number of Sitting Days by Session Since 1945. Briefing paper 04653, 23 May 2016.  

[28]Malaysia in Transition. “Malaysian King Presses Muhyiddin to Reopen Parliament Immediately”, asia.nikkei.com, June 16, 2021. 

[29] The parliamentary calendar is divided into ‘sessions’ (which last approximately one year), ‘meetings’ (which are 3 to 4 per session) and ‘sittings’ within each meeting.

[30] This flaw in the law means that the government of the day can keep Parliament in abeyance for as long as it likes between two meetings of the same session by not proroguing but adjourning sine die (without a fixed date for the next meeting). 

[31] Standing Orders of the Dewan Rakyat; O.14(1)(n), O. 14(2). However, the Speaker does have latitude over such matters as Question and Answer sessions, Debates, Motions, ‘Adjournment on a Definite Matter of Urgent Public Importance’, order and discipline within the House and matters of privilege. See Mohammad Ariff Md Yusof, “The Speaker’s Position and Functions”, in Ariff Md Yusof, Roosme Hamzah and Shad Saleem Faruqi in Law, Principles and Practice in the Dewan Rakyat, pp. 151-236.

[32] Standing Orders, O. 15.

[33] Under Article 62(1), “Subject to the provisions of this Constitution and of federal law, each House shall regulate its own procedure”.  The position is similar in other developed democracies like the UK and Australia. However, there the moderating influence of constitutional conventions is very strong. This is lacking in Malaysia and one indication is that the Standing Orders show no deference to the needs of private MPs who may wish to introduce Private Bills. Constituency allocations are withheld, in disregard of Article 8(1), from opposition MPs. Membership or Chairmanship of Committees was till 2018 generally monopolized by the ruling party members. However, PM Ismail Sabri’s recent MoU promises some positive transformation in this area.

[34] Article 63(1) ordains that proceedings in Parliament shall not be questioned in any court. The courts may refuse to intervene even if the Standing Orders disregard the spirit of the Constitution as in relation to a vote of no-confidence. Such a vote is implicit in Art 43(4) but is not provided for in the Standing Orders.

[35] theedgemarkets.com, July 13, 2020; The New Straits Times, July 13, 2020.

[36] The Constitution, in Article 57(1A) sought to promote the tradition of a non-partisan Speaker by providing that the Speaker may either be a member of the House or from outside the House. In either case, he/she must be elected or may be removed by the House. However, the tradition of an impartial Speaker has not taken hold in Malaysia. Subject to some honourable exceptions, the position of the Speaker in Malaysia is a little bit akin to the USA where the Speaker is a partisan figure and openly sides with his/her party.  This contrasts with the UK and Ireland where the impartiality of the Speaker is a key feature of the office since the middle of the 19th century. The Speaker in the UK severs all ties with his/her party once elected. He/she answers to no monarch or party leader. If at the next general election, the Speaker wishes to contest, his seat is not contested by the main parties.   

[37] Art 43(3) ordains that the Cabinet shall be collectively responsible to Parliament. Art 43(4) requires that if the PM loses the confidence of the majority in the House, he must either advise dissolution or submit the resignation of the Cabinet.

[38] R Kelly, “Confidence Motions”, Briefing Paper No 02873, March 14, 2019 (House of Commons Library), p. 3. In the UK’s House of Commons, there have been 4 confidence defeats since 1895: in 1895, Jan 1924, Oct 1924 and 1979. Since 1945 there have been 33 confidence motions that were debated. All but one (in 1979) were defeated.

[39] The UK tradition is that if there is a motion of no-confidence, the Speaker allows it to be debated as soon as is practicable.

[40] Mohamad Ariff Md Yusof, Roosme Hamzah and Shad Saleem Faruqi (editors), Law, Principles and Practice in the Dewan Rakyat, Sweet & Maxwell, 2020, pp. 533-535. 

[41] https://www.malaysiakini.com, 4 Sept 2021.

[42] https://www.thesundaily.my 18 August 2021.

[43] Philip Koh, “Confidence Motion on PM will not erode King’s authority”, www.freemalaysia today.com, Sept 5, 2021. “Does the Agong’s appointment of PM preclude the appointment from being questioned or be subject to a vote of confidence in Dewan Rakyat?” https://ceomorning brief.the edgemalaysia.com/article/2021/0244/Home/15/584022.

[44] “Perak MB Loses Confidence Vote”, Daily Express, Dec 5, 2020.

[45] Except for matters enumerated in Section 7 of the Fifth Schedule, (election of the King and Deputy King), the Conference includes the four Governors of States not having a Ruler. Perhaps the Yang di-Pertuan Agong was mindful of Article 40(2)(c) under which his discretion to requisition the Conference is confined to matters relating to the privileges, honours and dignities of the Rulers. The appointment of the PM is, however, not covered by Article 40(2)(c). 

[46] Such a time frame existed prior to the constitutional amendment in 1960. A Proclamation expired two months after issuance and an Ordinance came to an end 15 days after the first sitting of both Houses unless approved by both Houses.  

[47] A learned survey of several countries is found in the European Commission for Democracy Through Law (Venice Commission). Report on Exclusion of Offenders From Parliament, Strasbourg, 23 Nov 2018, Opinion No. 807/2015.

In Canada, Section 750 of the Criminal Code, which applies to both members of the Senate and the House, provides:

(1) Where a person is convicted of an indictable offence for which the person is sentenced to imprisonment for two years or more and holds, at the time that person is convicted, an office under the Crown or other public employment, the office or employment forthwith becomes vacant.

(2) A person to whom subsection (1) applies is, until undergoing the punishment imposed on the person or the punishment substituted therefore by competent authority or receives a free pardon from Her Majesty, incapable of holding any office under the Crown or other public employment, or of being elected or sitting or voting as a member of Parliament or of a legislature or of exercising any right of suffrage. See James R Robertson, Parliamentary Research Branch, “Criminal Charges & Parliamentarians”, 21 July 1994, Publications, gc.ca.

[48] In the past, defections caused the fall of governments in Terengganu (1962), Sarawak (1966), Kelantan (1977), Sabah (1994, 2018, 2020), Perak (2009, 2020), Johor, Malacca, Kedah (2020). At the federal level, party-hopping caused the downfall of the Mahathir government in 2020 and the Muhyiddin government in 2021. For a world survey of anti-defection laws, see Kenneth Janda, “Law Against Party-Switching, Defecting, or Floor-Crossing in National Parliaments”, The Legal Regulation of Political Parties, Working Paper 2, August 2009, Northwestern University. K-janda@northwestern.edu.  The learned author finds that out of 193 countries, 41 (or 21.2%) had anti-defection laws. According to his analysis, 14 per cent of 36 older democracies, 24 per cent of 54 newer democracies, 33 per cent of 58 semi-democracies and nine per cent of 45 non-democratic countries had anti-defection laws. See also, Csaba Nikolenyi & Shaul R Shenhav, The Constitutionalisation of Party Unity: The Origins of Anti-Defection Laws in India and Israel”, The Journal of Legislative Studies, vol 21, 2015 – Issue 3, pp. 390-407.  

[49] First, if after an election, there is a hung Parliament and a political stalemate, a government cannot be formed if MPs from the opposition are forbidden from crossing the aisle to enable the formation of a government. Second, if due to the death, resignation or disqualification of a member, the government in power loses its majority, it needs a few cross-overs to remain in the saddle. Third, if an MP who falls out of favour with his party boss is expelled by the party on personal or malicious grounds, then in countries like India, this will trigger the penalties of the Anti-Defection Law. It is submitted that such expulsion should not amount to hopping. The MP should retain his seat as an Independent.  Fourth, there is another evil tradition that is widespread in Malaysia’s electoral politics. Most parties have a practice that any candidate who is nominated to contest an election in the name of the party must sign an undated resignation letter at the time of nomination. Courts have condemned this practice as not binding (Datuk Ong Kee Hui v Sinyium anak Mutit (1982)) but it remains widespread. Fifth,an MP may cross the floor for reasons of moral and conscientious objections to his party’s direction or policies. Therefore, an anti-hopping law, if ever passed, has to be crafted with care and with necessary exceptions. Sixth, in the Nordin Salleh (1992) decision, the Federal Court held that under Article 10(1)(c) the freedom to associate includes the freedom to disassociate. This means that an anti-hopping law in Malaysia will require a constitutional amendment to Article 10(2). Seventh, though Article 10(2)(c) imposes three restrictions on the right to associate – national security, public order and morality – the judges in Nordin Salleh held – most amazingly – that the term ‘morality’ refers merely to ‘sexual morality’ and not to ‘political morality’. This decision needs to be overturned by a constitutional amendment. Eighth, those who suggest that an anti-hopping law should be passed to (i) mandate a forced resignation; (ii) require a by-election, and (iii) permit the previous holder to go back to the voters to renew his mandate, fail to note Article 48(6) which prevents an MP who resigns from re-contesting for 5 years! If an MP hops and is required to resign by an anti-defection law, he cannot go back to the electorate to renew his mandate because of Article 48(6). This Article has to be repealed if an anti-hopping law or a “recall” law is to be passed.

[50] The Star, 03 Sept 2021.

[51] Commentators are describing it as “Memorandum of Understanding on Transformation and Political Stability between Government and Opposition” and as “Malaysia’s first federal-level Confidence and Supply Agreement”. See ideas.org.my, Sept 14, 2021; Wong Chin Huat, “M’sia’s First Federal Level CSA – 8 Questions to Answer”, Malaysiakini, Sept 13, 2021, https://m.malaysiakini.com/columns/591119; “Malaysian govt, PH opposition sign historic bipartisan deal; polls not expected before Aug 2022”, The Straits Times, Sept 14, 2021; ideas

[52] This will end the unconstitutional discrimination and violation of the Constitution’s Article 8 on equality before the law.

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2021/131 “Getting On Board with Climate Change: A New Challenge for Company Directors in Southeast Asia” by Michael T Schaper

 

Singapore is amongst the most active countries in the region addressing climate issues, with strategies that include a sophisticated whole-of-government approach to the issue, as well as an existing carbon tax. This photograph taken on 22 January 2021 shows a worker checking a floating solar power farm at sea, off Singapore’s northern coast, just across the Malaysian state of Johor. Picture: Roslan RAHMAN, AFP.

EXECUTIVE SUMMARY

  • Legal, regulatory, strategic and external pressure is growing on company directors and boards to address climate change, reduce emissions and adapt to a warmer world.
  • However, the level of activity and focus in Southeast Asia on this matter is lower than in many other jurisdictions.
  • Only one country in ASEAN – Malaysia – is currently a member of the Climate Governance Initiative, which works with the World Economic Forum to upskill directors on climate abatement and adjustment. A Singapore chapter and an ASEAN hub are currently being considered.
  • Governance scrutiny and board independence in the region are often held back by high levels of ownership concentration, family-based business control and stock holdings by government-linked entities. Professional director associations are often new and small.
  • More ASEAN member states should consider forming a Climate Governance Initiative (CGI) chapter; assisting national director bodies to upskill their climate knowledge; broaden the pool of qualified independent director candidates; and encourage consideration of climate issues by the boards of non-profit, SME and statutory organisations. 

* Michael T Schaper is Visiting Senior Fellow with the ISEAS – Yusof Ishak Institute, an Adjunct Professor at the John Curtin Institute of Public Policy, Curtin University, and a Fellow of the Australian Institute of Company Directors. Email: michael.schaper@gmail.com. These are his personal views.

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INTRODUCTION: A SHIFTING GLOBAL CLIMATE – AND ECONOMY

An increasing range of scientists, governments, multilateral agencies, large corporations, investment bodies, public interest bodies and advocacy groups have acknowledged the need to limit global warming to no more than 1.5℃ to 2℃ by 2030, and ultimately move to a zero-net-emission economy. To do so, substantial changes will be needed which can have an impact on all firms in Southeast Asia.

This transformation will affect many different aspects of how companies operate, including production processes, finance, management, supply chains, transportation, energy consumption, stakeholder relationships, marketing and human resources. 

Ultimate responsibility for this activity will rest with the boards of corporations, as they – and the individual directors who constitute them – are accountable in law for the oversight and control of the business entities they direct.

These governance changes are already well underway in many other parts of the world, but have been markedly slow in Southeast Asia to date.

CLIMATE CHANGE AS A CORPORATE RISK

Company boards around the world are increasingly being asked how they are addressing a range of issues related to climate change. Dealing with this problem is not simply a matter of emissions reduction. Risks which are increasingly becoming important to companies, shareholders and senior management now include:

  • Extreme weather events. The United Nations’ Intergovernmental Panel on Climate Change in July this year noted that temperatures have already begun to increase, and are being accompanied by noticeable changes in weather patterns around the world. These are increasing the number and severity of business disruptions, hampering transportation and supply systems, increasing insurance premiums for firms, and creating more damage to people and property (IPCC 2021).
  • Regulatory and legal risk. Whilst businesses have usually been encouraged to reduce emissions on a voluntary basis, there is an increasing risk of more formal regulation, mandatory emissions trading systems and limits on output being imposed by governments.  At the same time, an increasing number of corporations are being sued by external groups for allegedly breaching their duties of care by failing to adequately deal with emissions reductions: by May 2020, more than 1,500 cases of climate change litigation had been filed globally against various companies (Yap, Seow & Tan 2021)[1].
  • Financial impacts. An increasing number of financial institutions (including banks, venture capital funds, managed investment funds, and retirement/annuity funds) are critically examining where they place their money, and disinvesting from companies with poor environmental, sustainability and emissions records. This can curtail a firm’s ability to borrow capital, and lead to the withdrawal of investor funds. The growth and mainstreaming of sustainability principles across pension funds, mutual funds and lending requirements represent a very powerful reason for directors to assiduously manage climate risks.
  • Consumer and stakeholder expectations. Firms are increasingly subject to pressure from shareholders, consumers, suppliers, NGOs, advocacy groups, labour unions and other external stakeholders in regards to climate change. These bodies are seeking more commitment by public corporations to promptly move to net-zero (or, in some cases, negative) emissions outputs. In many cases, advocacy bodies and consumer groups are increasingly willing to support boycott campaigns against firms seen as high carbon emitters.
  • There has also been increased shareholder activism at company general meetings and in voting for director elections.
  • Supply chain risks. Many Southeast Asian firms are closely integrated into various international supply chains, and so are also indirectly vulnerable to global warming impacts on other firms they trade with. For example, they may experience adverse ripple effects if another corporation in the same system is damaged by extreme weather events. As ASEAN seeks to build a stronger cross-border regional economy, more firms will be exposed to an increasingly complex suite of environmental impacts on supply chains.

CHALLENGES FOR DIRECTORS

Given that many directors have had no prior experience in managing climate-related matters, it can often be quite difficult for individual directors, and boards collectively, to decide how they should rise to the challenge. Whilst companies in high-emitting industries (such as aviation, transportation, chemicals, energy and manufacturing) are relatively familiar with the phenomena, the risks posed by climate change can often be hard to identify in other commercial sectors. Nevertheless, as many professional company director associations have noted (MinterEllison/AICD 2021), there are questions that directors in all companies need to consider:

Initial assessment. The first issue is to understand the company’s current exposure to climate-related issues. This can include its current “carbon footprint” (emissions impact); the legal obligations imposed by governments; understanding the sentiments of the firm’s major stakeholders; and the level of preparation for future extreme weather events. What risks does the company face, and what is the overall fiduciary, legal and practical responsibility of the firm with regards to climate change?

What emissions target should the firm aim for? There are several different targets currently being bandied around in public debate, with many leading firms now moving to a net-zero emission goals by 2030 or 2050. Other corporations have committed themselves to becoming negative emitters.

How should the company operationalise and oversee the governance of climate risks? Having identified the firm’s risks and the changes that need to be made, implementation and oversight becomes important. Who is operationally responsible? What metrics should be reported to the board? Should it become part of the purview of the board’s audit and risk committee?

Cost. What will the overall expenses of carbon abatement be in the next few years, and of longer-term adjustment to a warmer world? These figures can often be substantial, and difficult for firms to accurately forecast in advance. In addition to new operating and capital costs, there is an increasing risk of stranded assets if plant and equipment can only operate when producing a high level of emissions. Insurance premiums are also likely to increase for firms exposed to extreme weather vulnerabilities, and it may be difficult to obtain suitable policies going forward. Finally, directors will also need to determine if their firm is likely to face a carbon tax, which already exists in jurisdictions such as the European Union and in Singapore, and is likely to become more common and more expensive over time.

What is the likely future regulatory and reporting environment? The clear trend over time has been for various governments to demand increasingly higher levels of environmental performance. Does the firm have a clear understanding of what these might be? New sustainability reporting and climate-related disclosures may also be required for some particular firms, such as those listed on a stock exchange or operating under an industry code of practice.

Corporate skills base. What skills and knowledge do the firm’s employees have in order to deal with this issue? Is additional training and development needed? Do specialist staff need to be recruited?

Personal knowledge. Many directors do not know a great deal about global warming, emissions and associated issues, making it difficult to exercise due diligence and consideration when dealing with these issues across the board table. Although directors are not generally expected to be a subject matter expert in every area they oversee, a general baseline level of knowledge is still needed.

Controversy. Whilst the need to deal with climate change is a given in many communities, in other jurisdictions it can remain a highly contested area with a significant body of sceptics and critics. For large corporations with a significant market or international presence, this can lead to high profile – and sometimes very negative – publicity and criticism. Board directors need to develop a clear sense of their risk appetite with regards to this issue.

AN EMERGING GLOBAL TREND

A director-specific focus on climate change is a relatively new phenomenon, and perhaps indicative of the speed with which global warming is increasingly becoming a core issue for much of the business community.

Much of it has been generated by the work of the World Economic Forum and a number of other initiatives, such as the International Corporate Governance Network’s (ICGN) Global Governance Principles. Boards have also been spurred on by the accounting and reporting requirements of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD), and enhanced disclosure regimes on many bourses.

Many CEOs and directors have now recognised the need for more attention on the issue. Between 2014 and 2019, for example, respondents to the WEF’s annual Global Risks Report consistently cited climate change and extreme weather events as the leading future macro-economic risk they were likely to face. In response, that year the WEF and PwC jointly set out a series of guiding principles for company boards on the issue, the major elements of which are shown in Table 1 below.

Table 1: WEF Principles for Effective Climate Governance

1Climate accountabilityBoards should be accountable for the company’s long-term resilience relating to climate change.
2Command of the (climate) subjectBoards should include directors with knowledge, skills, and background in climate-related issues.
3Board structureClimate considerations should be integrated into the board structure and committees.
4Material risk and opportunity assessmentRegularly assess short-, medium- and long-term materiality of climate-related risks and opportunities.
5Strategic and organisational integrationClimate issues should be part of strategic investment planning, decision-making processes and risk management.
6IncentivisationConsider including climate-related targets and indicators in executive incentive schemes.
7Reporting and disclosureEnsure material climate-related risks, opportunities and strategic decisions are consistently and transparently disclosed to stakeholders.
8ExchangeStay informed about latest climate-relevant risks and regulations; regularly exchange ideas with peers, policy makers, investors and other stakeholders.

Source: WEF/PwC (2019: 11-17)

One of the leading global forums for climate change and company directors today is the Climate Governance Initiative, a network of director organisations across more than 20 different countries. The CGI exists to promote the WEF’s Principles for boards, focusing on non-executive directors. It aims to raise climate awareness within director communities and their professional bodies; embed climate issues into board responsibilities and decision-making; provide practical suggestions to directors; and help them develop the skills needed to deal with a changing climate (Climate Governance Initiative 2021).

CGI chapters now exist in over twenty countries, including Canada, Brazil, Chile, France, Russia, Iceland, the USA and the UK, with the greatest concentration being in Europe. In and around Southeast Asia, however, only four jurisdictions are members, or in the process of joining: Malaysia, Singapore, Hong Kong and Australia.

The emergence of CGI comes at a time when there is also a growing number of other international business networks, organisations and coalitions that are working to raise awareness and generate meaningful action on climate change. These include the International Chamber of Commerce, the We Mean Business Coalition, Business Ambition for 1.5℃, SME Climate Hub, and the UNFCCC’s Race to Zero. What makes the CGI unique, however, is its singular focus on the role of company directors.

THE DIRECTOR LANDSCAPE IN SOUTHEAST ASIA

As much as it is anywhere else, climate change is an emerging challenge for companies and their directors across Southeast Asia. The IPCC has forecast that, under current trends, climatic patterns in Southeast Asia will see temperatures in the region continuing to rise. Rainfall trends will not be consistent, but are likely to increase in some parts of the region and decrease in other areas. There will be fewer but more extreme tropical cyclones, especially affecting countries around the Pacific Ocean. The combined impact of climate change, land subsidence, and local human activities will lead to more extensive flooding in the Mekong Delta. Finally, sea level rises are also “virtually certain” (IPCC 2021).

These changes will have a major impact on the commerce and consumer populations of ASEAN member states, a region which has more than 70 million trading businesses (Schaper 2020). For example, higher sea levels will threaten the viability of major metropolitan regions such as Manila, Bangkok and Jakarta. There may be greater flooding in littoral zones, where much of the region’s population lives. Greater cyclonic activity may cause more losses of infrastructure, buildings, agricultural crops and human lives. Weather variation could also lead to potential substantial declines in rice yields. Other parts of the agricultural sector, which is still a major part of many Southeast Asian economies, are also likely to be adversely affected (ASEAN 2021).

To date, however, the amount of director activity in climate governance appears to be quite limited. Only one country – Malaysia – is a full signatory to the Climate Governance Initiative. It was an early starter in work on this topic: Climate Governance Malaysia was launched in May 2019, and claims to have been only the second country in the world – and the first in Asia – to advocate for the CGI. Overseen by a group of non-executive directors, it is largely run on a voluntary basis (Climate Governance Malaysia 2021).

A second chapter, that of CGI Singapore, is in the process of being formed, and an ASEAN hub is being launched in the near future.

Several hundred firms in SE Asia are also signatories to the Global Reporting Initiative, which allows firms to report on their sustainability performance using a common set of international metrics, including carbon emissions. An ASEAN office has been based in Singapore since 2019 (GRI 2021).

In April 2021, company directors in SE Asia’s most sophisticated and valuable bourse – the Singapore Stock Exchange – were effectively put on notice by the publication of a legal opinion commissioned by the Commonwealth Climate and Law Institute. It concluded that directors of corporations were obliged to consider climate change risks as part of their commitment to the best interests of the company, and (building upon the 2016 sustainability reporting requirements imposed by the SGX) had a clear duty to disclose any material impacts of climate change risks. It also pointed out the personal liabilities of directors who breach these requirements (Yap, Seowl & Tan 2021). Singapore is amongst the most active countries in the region addressing climate issues, with strategies that include a sophisticated whole-of-government approach to the issue, as well as an existing carbon tax.

Malaysian regulators have also recently stepped up their activities in this area, with both Bank Negara and Bursa Malaysia issuing corporate and director guidance this year (Commonwealth Climate and Law Initiative 2021).

However, overall the level of director activity in climate change issues appears to be low.

Many ASEAN businesses seem to be generally aware of climate change, and some have developed strategies relating to energy efficiency and greenhouse gas emissions reduction. But few of them have looked more strategically at, and integrated climate change into their overall business planning (Amran, Ooi, Wong & Hashim 2016).

There are a number of reasons for this.

As the OECD has noted, a fundamental issue across the region is the high level of ownership concentration, and the predominant role of family ownership in many businesses. Both of these factors tend to lead to a “business as usual” approach to governance due to the lack of new, external board members with different ideas. Its recent examination of board structures and processes across Asia found that many corporations are effectively controlled by a small number of families, especially in The Philippines, Indonesia and Malaysia. In addition, government-linked entities also hold considerable stock in firms in Malaysia, Singapore and Vietnam (OECD 2017).

The role of independent directors[2] and independent board chairs is often weak in many Asian jurisdictions. For example, only Indonesia requires the chair of a board to be separate to that of the CEO, whereas in many cases firms in The Philippines, Malaysia, Singapore and Thailand can permit the same person to hold both positions. The number of independent, professional directors on most corporate boards is also limited to a minority position, typically sitting at only a third of all positions (OECD 2017). These structures can make it difficult to successfully bring new ideas and change to board deliberations.

Professional director associations are still somewhat nascent. As Table 2 below shows, not all countries in ASEAN have a national professional body representing directors (Laos and Brunei do not appear to have any publicly-visible association). Moreover, many of those that exist are relatively new: whilst a handful date back to the 1990s (Singapore, Thailand), several others (Cambodia, Myanmar, Vietnam) are only one or two years old. In some cases, membership numbers are also quite low (for example, the Philippines’ Institute of Corporate Directors states on its website that it has about 300 members, a very small figure for a country with more than a million businesses in existence).

Table 2: Director Institutes/Associations in Southeast Asia

BruneiNo apparent organisation.
CambodiaInstitute of Directors, Cambodia Formed 2020
IndonesiaIndonesian Institute for Corporate Directorship Formation date not stated
LaosNo apparent organisation.
MalaysiaInstitute of Corporate Directors Formed 2018   Malaysian Alliance of Corporate Directors Formation date not stated
MyanmarMyanmar Institute of Directors Formed 2018
PhilippinesInstitute of Corporate Directors Formation date not stated
SingaporeSingapore Institute of Directors Formed 1998
ThailandThai Institute of Directors Formed 1999
VietnamVietnam Institute of Directors Formed 2018

WHAT NEXT?

Clearly, there is more that can be done in the region to facilitate greater director focus on climate change adaptation. Change in this field is coming for company directors in Southeast Asia – along with a range of new responsibilities and expectations.

A first step for many ASEAN jurisdictions may be to form a local CGI chapter, or some other similar director-focused climate initiative. This will allow local directors to access some of the global networks of other firms who have already begun the decarbonisation journey. Understanding a firm’s risks, examining case studies showing how other companies have made the adjustment, and building relationships with other directors is a useful way to expedite the change process. Given that so few firms in Southeast Asia have become involved in the CGI, there is plenty of scope to encourage much greater participation.

Increasing the direct involvement of director organisations is another step forward. Institutes and director professional bodies can play a leadership role in proactively putting a focus on emissions abatement and developing client resilience. Just like the CGI at the cross-border level, there is a need for national associations to provide governance guidance, ideas and information directly to their members.

Moreover, education and information about this issue should be offered to all directors, not just those on stock exchange-listed corporations. Unlisted private sector firms, small businesses, non-profit organisations and statutory corporations also face a climate challenge, and their boards need to understand how they can deal with this issue.

Finally, boards in the region should look carefully at their recruitment of new directors. Non-executive director positions, especially, are ideal points in which to secure candidates with a knowledge of climate issues, and can potentially help firms not only to develop resilience, but also to identify some of the many new business opportunities emerging as nations decarbonise. To do so, though, firms will increasingly need to rely on more formal, open and genuinely competitive recruitment processes for NEDs, rather than the traditional “old boys network.”

ISEAS Perspective 2021/131, 6 October 2021

REFERENCES

Amran, Azlan; Ooi, Say Keat; Wong, Cheng Yew & Hashim, Fathyah (2016) “Business Strategy for Climate Change: An ASEAN Perspective” Corporate Social Responsibility and Environmental Management, Vol.23 No.4, pp.213-227.

Climate Governance Initiative (2021) Charter of the Climate Governance Initiative (CGI) [online] – Climate Governance (climate-governance.org) (accessed 26 August 2021).

Climate Governance Malaysia (2021) About [online] https://www.cgmalaysia.com/founding-members (accessed 30 August 2021).

Commonwealth Climate and Law Initiative (2021) Primer on Climate Change: Directors’ Duties and Disclosure Obligations In Support Of The Principles for Effective Climate Governance, June, Oxford: University of Oxford.

Global Reporting Initiative (2021) GRI in ASEAN [online] GRI – GRI in ASEAN (globalreporting.org) (accessed 31 August 2021).

Intergovernmental Panel on Climate Change, United Nations (2021) Regional Factsheet – Asia: Sixth Assessment Report. Geneva: IPCC.

MinterEllison/AICD (2021) Climate Risk Governance Guide: An Introductory Resource For Directors, August, Sydney: Australian Institute of Company Directors.

OECD (2017) OECD Survey of Corporate Governance Frameworks in Asia, Paris: OECD.

Schaper, Michael T. (2020) “The Missing (Small) Businesses of Southeast Asia” ISEAS Perspective, No.79, 22nd July, Singapore: Institute of South East Asian Studies-Yusof Ishak Institute.

World Economic Forum/PwC (2019) How to Set Up Effective Climate Governance on Corporate Boards: Guiding Principles and Questions, Geneva: WEF.

Yap, Wai Ming; Seow, Joel & Tan, Claudi (2021) “Company Directors in Singapore Urged to Consider Climate Change Risks,” Lawflash – Morgan Lewis, 22 April, Singapore: Morgan Lewis [online] Company Directors in Singapore Urged to Consider Climate Change Risks – Publications | Morgan Lewis (accessed 30 August 2021).


[1] The most noticeable is the May 2021 Shell case, where the District Court in The Hague, The Netherlands found that Shell must reduce its global net carbon emissions by 45% by 2030 compared to 2019 levels.

[2] Directors who are not also full-time employees of a company are generally referred to here as “non-executive directors,” although numerous other broadly synonymous terms are also used in different countries in Southeast Asia, such as “supervisory board members”, “outside directors”, “independent directors”, or “corporate directors,” amongst others.

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2021/130 “‘Global Britain’ and Southeast Asia: Progress and Prospects” by Ian Storey and Hoang Thi Ha

 

Foreign Secretary Dominic Raab attends the UK-ASEAN Foreign Ministers meeting at the International Convention Centre in Bandar Seri Begawan, Brunei. Picture by Simon Dawson, No 10 Downing Street.

EXECUTIVE SUMMARY

  • Southeast Asia is crucial to the United Kingdom’s (UK) ‘tilt’ to the Indo-Pacific. By mid-2021 it had achieved notable progress in strengthening its diplomatic, economic and security engagement with the region.
  • Becoming an ASEAN Dialogue Partner provides an anchor for the UK to deepen its engagement with the region, but does not automatically lead to British membership of ASEAN-led mechanisms such as the ASEAN Defence Ministers’ Meeting-Plus (ADMM-Plus) and the East Asian Summit (EAS).
  • Rather than pursuing a regional free trade agreement (FTA) with ASEAN or joining the Regional Comprehensive Economic Partnership (RCEP), the UK prioritises bilateral trade deals with key Southeast Asian partners, and focuses on facilitation and standard harmonisation with ASEAN in a number of core sectors.
  • A Royal Navy (RN) aircraft carrier strike group is currently in Asian waters and, together with announcements of future naval deployments, sends a strong signal that the UK intends to establish a permanent military presence in the Indo-Pacific.
  • The UK’s positive agenda for its engagement with the region should include, among others, emergency COVID-19 vaccine support for Southeast Asian countries in need.

*Ian Storey is Senior Fellow and Co-editor of Contemporary Southeast Asia, and Hoang Thi Ha is Fellow and Co-coordinator of the Regional Strategic and Political Studies Programme at ISEAS – Yusof Ishak Institute.

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INTRODUCTION

In March 2021 – nearly five years after the Brexit referendum, and 15 months after the UK formally left the European Union (EU) – the British government published a landmark policy paper aimed at resetting the country’s foreign and defence posture: Global Britain in a Competitive Age: The Integrated Review (IR) of Security, Defence, Development and Foreign Policy.[1]

While the IR acknowledged the continued primacy of the Euro-Atlantic region for the UK – and its alliance with the United States and NATO – it emphasised that the country’s future prosperity and security increasingly depended on developments in the Indo-Pacific. Accordingly, the IR announced a ‘tilt’ to the region with the ambitious goal of establishing a “greater and more persistent presence than any other European country” by 2030.[2]

Southeast Asia plays a critical role in realising Britain’s ambitions. The region is at the confluence of the salient trends identified in the IR: the shift in the world’s economic centre of gravity to the Indo-Pacific; the rise of China and the opportunities and “systemic challenges” it poses; the escalation of Great Power competition, especially between the United States and China; the fragmentation of the rules-based international order; rising maritime insecurity; rapid technological change; and the existential threat posed by climate change.

By mid-2021, the UK had made good progress towards achieving some of the goals outlined in the IR: it became ASEAN’s 11th Dialogue Partner in August; its application to join the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP) was successful; and in July a British aircraft carrier strike group transited through the South China Sea and conducted maneouvers with several Southeast Asian navies. The announcement on 15 September of the Australia-UK-US (AUKUS) security arrangement in which Washington and London will help Canberra acquire nuclear-powered submarines also strengthens Britain’s defence credentials in the Indo-Pacific.

This Perspective reviews the progress the UK has made in deepening its engagement with Southeast Asia and assesses the prospects for its participation in the region’s multilateral forums and future trading arrangements, and of it establishing a more permanent military presence.

ASEAN-UK DIALOGUE RELATIONS: WHAT LIES AHEAD?

A formal relationship with ASEAN is seen as key to the UK’s ambitions in Southeast Asia. London applied for ASEAN Dialogue Partner status in June 2020, and ASEAN-UK dialogue relations were formalised at the 54th ASEAN Foreign Ministers Meeting (AMM) in August 2021.[3] Becoming the 11th ASEAN Dialogue Partner despite the grouping’s 25-year moratorium on new dialogue partnership is arguably one of the UK’s most important post-Brexit diplomatic achievements. It provides multiple avenues of regional cooperation for the UK to anchor its presence and deepen its engagement with Southeast Asia and beyond. 

The UK’s current priority is to give form and content to dialogue relations.[4] This will entail: (i) setting up ASEAN-UK regular consultations at the ambassadorial, senior officials and ministerial levels, first in the diplomatic and economic-trade sectors to later be expanded to other select sectors across the three ASEAN community pillars; (ii) developing a comprehensive framework/plan of action with a focus on several priority areas of mutual interests; and (iii) implementing concrete projects, preferably with commitment of UK funding support.

As a Dialogue Partner, Britain can engage ASEAN leaders at the summit level, although the frequency of ASEAN-UK summits will be decided by mutual agreement. Among the current ASEAN Dialogue Partners, only China, Japan, South Korea, India, the United States and most recently Australia, have annual summit meetings with ASEAN. The leaders of Russia, New Zealand, Canada and the EU meet their ASEAN counterparts only on an ad hoc basis at special or commemorative summits.

Moreover, ASEAN Dialogue Partner status does not automatically guarantee UK membership of ASEAN-led mechanisms, including the ASEAN Regional Forum (ARF), ADMM-Plus and EAS. Being a Dialogue Partner is merely one criterion for admission to the ADMM-Plus and EAS, and membership applications will be subject to approval by all ASEAN member states (see Table 1). Moreover, these mechanisms continue their long-held moratorium on new members as ASEAN’s focus remains on their consolidation instead of expansion. The organisation learned the hard way from the ARF’s rapid enlargement in the 1990s and early 2000s, well beyond its original geographical footprint-East Asia and Oceania-which then diluted its focus and effectiveness. 

Table 1: Criteria for Membership at ASEAN-led Mechanisms

In 2018, well before becoming an ASEAN Dialogue Partner, the UK had applied for observer status to several of the ADMM-Plus Experts Working Groups (EWGs). Its application, together with those of Canada, France and the EU, was met with opposition from Russia and China, who exercised the veto power bestowed on them by the concept paper on observership at the ADMM-Plus EWGs’ activities.[9] Acknowledging that this situation had undermined the principle of ASEAN Centrality, in June 2021 the ADMM adopted a comprehensive concept paper in which ASEAN exercises control over the ADMM’s external engagements.[10] The prerogative to decide on new ADMM-Plus members or observers to the ADMM-Plus EWGs now rests solely with the ADMM. As such, the obstruction by some Plus countries no longer stands in the way of the UK’s pursuit of formal defence relations with ASEAN.

The question going forward is whether London will upgrade its application from observership at ADMM-Plus EWGs’ activities to ADMM-Plus membership. Having a front seat at the table is much more attractive than just observing from the sidelines, especially given that defence cooperation has been a key pillar of the UK’s Indo-Pacific ‘tilt’ and its outreach to ASEAN following the Brexit referendum. Now that it has become a Dialogue Partner, the UK holds clear advantages compared to the EU and Canada’s pending applications in terms of having “significant interactions and relations with ASEAN defence establishments” and “being able to work with the ADMM to build capacity to enhance regional security” – the two other criteria of ADMM-Plus membership. The EU is not considered a full-fledged security actor and does not possess military personnel and assets within its jurisdiction to participate in many of the ADMM-Plus’ practical activities. Meanwhile, Canada’s defence engagement with Southeast Asian countries is very limited compared to the UK.

However, ASEAN’s consideration of the UK’s potential applications for admission into the ADMM-Plus—and the EAS—will not be guided only by the UK’s own merits. Another key consideration is how to position the UK in the overall context of ASEAN’s relations with other powers. First, ASEAN tries to maintain pretensions of balanced and equal treatment of all of its Dialogue Partners. Some member states who are reluctant to see the UK engage too far and too fast in ASEAN-led mechanisms may use this as an excuse to link the UK with the pending applications by the more longstanding Dialogue Partners, Canada and the EU. Second, as the US-China contest increasingly manifests itself in ASEAN-led platforms, the admission of the UK is seen as tipping the balance in favour of the US and its allies and partners within these mechanisms. At this, the establishment of AUKUS will further complicate ASEAN member states’ consideration. Given their different concerns and perspectives on AUKUS, reaching consensus on admitting the UK to ASEAN-led mechanisms would not be easy or straightforward.

So far, the UK has not expressed its intention to apply for membership of any ASEAN-led mechanisms. It has exercised caution, saying that it would like to focus on building up the foundations of the relationship first.[11] London, however, needs to start strategising its future participation in the ASEAN-led multilateral architecture, and laying the groundwork towards achieving its goals.

EXPANDING BILATERAL AND MULTILATERAL TRADE LINKS

Strengthening the UK’s “prosperity links” with countries around the world through bilateral and regional FTAs is central to Britain’s post-Brexit ambitions.[12] Progress in this respect with various Indo-Pacific partners has been encouraging (see Table 2). FTAs with the US and China, however, are not forthcoming as the Biden administration is wary about trade deals and because Sino-British relations have deteriorated sharply over human rights issues in Hong Kong and Xinjiang.

Table 2: The UK’s FTA Negotiations/Conclusion with Indo-Pacific Partners

In February 2021, the UK applied for membership of the CPTPP and, in June, its 11 members agreed to induct Britain. Negotiations are currently underway with each of the CPTPP parties and the UK is likely to formally join the CPTPP in the first half of 2022.[15] The trade pact accounts for 13 per cent of global GDP and the UK’s trade with CPTPP members accounts for 9 per cent of its total trade, far lower than trade with the EU at 43 per cent. However, Britain’s trade with CPTPP members is growing more quickly than with the EU.[16] Beyond trade numbers, joining the CPTPP would enable the UK’s participation in shaping the region’s economic architecture based on high-standard, rules-based, free and fair trade.[17]

Four Southeast Asian countries—Brunei, Malaysia, Singapore and Vietnam—are members of the CPTPP, and Indonesia, Thailand and the Philippines have expressed an interest in joining. Although these latter countries may currently be reluctant to enact significant economic reforms to qualify for CPTPP membership, their accession to the trade pact in the future cannot be ruled out. It is also assessed that the UK’s prospective CPTPP membership, as well as its FTAs with Japan and Australia and the forthcoming one with India, will drive further Southeast Asia-UK trade integration since these economies are closely networked with Southeast Asian countries.[18]

In contrast, there is little to suggest the UK’s interest in joining the RCEP agreement which was concluded last year between ten ASEAN countries, Australia, China, South Korea, Japan and New Zealand. London’s disinterest is mainly attributed to the RCEP’s limited scope and low ambition in labour and environmental standards, state-owned enterprise reforms and government procurement. The RCEP is also considered “too regional and not deep enough to accommodate the UK’s strength in the services sector”.[19] Furthermore, London’s condemnation of the February 2021 coup in Myanmar and criticism of the junta’s human rights abuses make it politically challenging for the UK to be in trade talks with any grouping that includes Myanmar.  

The UK will likely follow in the EU’s footsteps by prioritising bilateral FTAs with key Southeast Asian partners. After concluding FTAs with Singapore and Vietnam, a trade deal with  Indonesia – the region’s largest economy – was high on the agenda during UK Foreign Secretary Dominic Raab’s visit to Jakarta in April 2021.[20] Instead of pursuing a wide-ranging FTA with ASEAN as a group, the UK is taking a pragmatic, building-block approach, focusing on facilitation and standard harmonisation in its core sectors such as digital economy, financial services, green technologies, regulatory excellence, skills and education. These priority areas are reflected in the Joint Declaration on Future Economic Cooperation adopted at the first ASEAN Economic Ministers (AEM)-UK Consultations on 15 September 2021.[21] The UK’s development assistance to Southeast Asia has also centred around these target sectors, including the ASEAN Economic Reform Programme, ASEAN-UK Digital Innovation Partnership, ASEAN-UK Cooperation on COP26, and UK support for the ASEAN Low Carbon Energy Programme.[22]

TOWARDS A PERSISTENT UK MILITARY PRESENCE IN THE INDO-PACIFIC

According to the IR—and the defence command plan published a few weeks later[23]—Britain’s armed forces are being modernised and restructured to allow for deployment overseas more often and for longer periods of time. Britain’s refocused military strategy brings to a close its two-decade involvement in land wars in the Middle East and Central Asia, and places a strong emphasis on it playing a more proactive role in the maritime domain, including maintaining freedom of navigation, upholding the United Nations Convention on the Law of the Sea (UNCLOS) and protecting shipping lanes. 

In Southeast Asia, the UK plans to enhance its security ties with regional states. This includes increased participation in military exercises undertaken by the Five Powers Defence Arrangements (FPDA)-a defence grouping linking Britain with Singapore, Malaysia, Australia and New Zealand-as well as upgrading its defence garrison in Brunei and a naval logistics facility in Singapore that the UK maintains in support of the FPDA. However, the UK is conscious of the sensitivities surrounding its colonial legacy, and the need to avoid giving the appearance of inflaming regional tensions. Accordingly, its presence will be mainly focused on helping regional armed forces improve their ability to counter non-state threats at sea.

Carrier Strike Group-21

The deployment of Carrier Strike Group-21 (CSG-21) to Asia has sent a strong message to the region that the UK is serious about increasing its defence diplomacy engagements in the Indo-Pacific. CSG-21 is the UK’s largest operational naval deployment since the 1982 Falklands War and its biggest to Asia since the 1997 handover of Hong Kong. The strike group comprises ten warships (including a US destroyer and Dutch frigate) led by the 65,000-tonne aircraft carrier HMS Queen Elizabeth (embarking both UK and US F-35B joint strike fighters). During its 28-week deployment, CSG-21 will sail 26,000 nautical miles (nm), visit 40 countries and take part in over 70 defence diplomacy activities including training exercises and port visits.

Having departed the UK in early May, the strike group arrived in Asia in late July. It held separate exercises with warships from India and Japan in the Indian Ocean before entering Southeast Asia through the Straits of Malacca. In Southeast Asian waters, ships belonging to CSG-21 conducted maneouvers with naval vessels from Thailand, Malaysia, Singapore and Brunei.

In recent years, the UK has taken a stronger stand on the South China Sea dispute. Five Royal Navy (RN) warships conducted presence missions in the South China Sea between 2018 and 2020, and in August 2018 one of them conducted a US-style freedom of navigation operation (FONOP) by sailing within 12 nm of the disputed Paracel Islands. In 2020, the UK endorsed the 2016 arbitral tribunal award which ruled that China’s nine-dash line claims in the South China Sea are incompatible with UNCLOS.[24]

Prior to CSG-21’s arrival in the region, there was speculation – as well as warnings in China’s state-controlled media[25] – over whether any of its warships would conduct a FONOP in the disputed Spratly Islands, as one of the fleet’s warships had done in the Black Sea en route to Asia.[26] However, prior to CSG-21’s departure from Britain, Defence Secretary Wallace stressed that “We are not going to go to the other side of the world to be provocative. We will be confident, but not confrontational.”[27] Accordingly, no CSG-21 warships conducted a FONOP in the South China Sea, traversed through the Taiwan Straits en route to Japan, or participated in the Malabar naval exercises undertaken by the Quad (America, Japan, India and Australia) off Guam in late August. However, on 27 September, the frigate HMS Richmond passed through the Taiwan Straits on its way to Vietnam, resulting in condemnation from China.[28] Moreover, a  FONOP by one of the other CSG-21 warships cannot be ruled out as the strike group re-enters the South China Sea in October on its way back to the UK.

Forthcoming and Future Naval Deployments

The UK is likely to deploy a CSG—led either by HMS Queen Elizabeth or her sister ship HMS Prince of Wales—to the Indo-Pacific periodically, perhaps every few years. To establish a more permanent presence, the RN plans to deploy a variety of other vessels to the region out to the end of decade. This mix of vessels will enable the UK to increase its defence engagement with regional states across a spectrum of activities: from training and capacity-building exercises, to constabulary duties such as fishery protection to Humanitarian and Disaster Relief (HADR) operations and, if need be, power projection.

First to be deployed will be two 2,000-tonne River-class Offshore Patrol Vessels (OPVs), HMS Tamar and HMS Spey. The two OPVs are expected to arrive in the region in October, and will be deployed for at least five years in an area stretching from the Indian Ocean to the west coast of the United States.[29] Relatively small and lightly armed, the OPVs will be less controversial than larger warships and can assist regional states to improve their capacity to address persistent non-state maritime security threats, including people, drugs and arms smuggling, piracy and illegal fishing. The OPVs are also better suited for working with the navies of Southeast Asia which mostly operate similar-sized vessels or frigates. Their small size will enable them to visit a larger number of regional ports. Crucially, Tamar and Spey will be forward-deployed but not forward-based: they will undergo maintenance, resupply and crew rotations at various ports around the region (a model the RN currently uses in the Caribbean and Mediterranean).[30] In an era of great power competition, this arrangement avoids the political sensitivities associated with permanently hosting foreign warships.

In 2023, the RN plans to deploy one of two Littoral Response Groups (LRGs) to the Indo-Pacific, probably based at Duqm, Oman. LRGs consist of an amphibious landing ship, a supply vessel and a destroyer or frigate. The LRGs can undertake a range of maritime tasks including HADR operations, training exercises and other defence diplomacy activities.[31] Future plans call for the permanent deployment of a RN frigate to the Indo-Pacific by 2030. Whether this vessel will replace the OPVs, and operate without a nominated base or be home-ported in the region, has yet to be decided.

OUTLOOK

2021 has been a high-water mark for ‘Global Britain’ in Southeast Asia. London has made efforts to integrate diplomacy, development and defence in its outreach to the region. On their part, ASEAN and its member countries have been generally welcoming of the UK’s overtures and initiatives.

The UK’s ‘tilt’ to the region, however, cannot escape the geopolitics of US-China competition and may even compound it further. This has and will deepen the existing internal incoherence among Southeast Asian countries, as demonstrated in their very different reactions to AUKUS. While some of them welcome the UK’s forward-deployed presence in the Indo-Pacific, others may look at it warily, which is not helped by the narrative that invokes the region’s colonial past with the UK’s increased presence. Going forward, the region will watch carefully the nexus between the UK, US, EU and Australia in dealing with China’s “systemic challenge”, and how it will play out in Southeast Asia and ASEAN. ISEAS’ State of Southeast Asia 2021 survey findings[32] suggest that Southeast Asians’ trust in the UK to champion the global free trade agenda, to maintain the rules-based order, and to hedge against US-China rivalry, trails far behind key Dialogue Partners such as Japan, the EU, China and the US.

The UK nevertheless holds strong appeal as a destination for tertiary education, ranking second after the US. Another area where the UK’s “soft power” can immediately make positive impact is COVID-19 vaccine support. The UK is the third largest donor to the COVID-19 Vaccines Global Access (COVAX) in terms of doses (80 million) and financing (US$733 million), after the US and Team Europe.[33] With the UK government’s support, the Oxford-AstraZeneca vaccine has also been supplied to the world on a not-for-profit basis.[34] However, outside of the COVAX facility, the UK’s bilateral vaccine donations have been underwhelming,[35] and no priority is given to Southeast Asia compared to other parts of the world. In June, Foreign Secretary Raab criticised China and Russia for using vaccines as a geopolitical tool.[36] Geopolitics, however, is not the overriding concern of most Southeast Asian countries at this moment as they are scrambling for vaccine supplies to cope with the spread of the deadlier Delta variant. Vaccine support as part of the UK’s positive agenda for the region would go a long way towards winning hearts and minds in Southeast Asia.

ISEAS Perspective 2021/130, 1 October 2021


ENDNOTES

[1] Global Britain in a competitive age: The Integrated Review (IR) of Security, Defence, Development and Foreign Policy (London: HM Government, March 2021), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/975077/Global_Britain_in_a_Competitive_Age-_the_Integrated_Review_of_Security__Defence__Development_and_Foreign_Policy.pdf.

[2] Ibid, p. 62.

[3] Joint Communiqué of the 54th ASEAN Foreign Ministers’ Meeting, 2 August 2021, https://asean.org/joint-communique-54-th-asean-foreign-ministers-meeting/.

[4] Dian Septiari, “Discourse: UK seeks to deepen cooperation with ASEAN following dialogue partner status: Envoy”, Jakarta Post, 24 August 2021, https://www.thejakartapost.com/seasia/2021/08/24/discourse-uk-seeks-to-deepen-cooperation-with-asean-following-dialogue-partner-status-envoy.html.

[5] Criteria for participation in the ASEAN Regional Forum, adopted in July 1996, ASEAN Regional Forum website, https://aseanregionalforum.asean.org/about-arf/.

[6] Concept Paper on ASEAN Defence Ministers Meeting (ADMM) External Engagements, June 2021, https://admm.asean.org/index.php/2012-12-05-19-05-19/admm1/concept-papers.html.

[7] Although no formal decision on moratorium has been made, the ADMM is technically imposing moratorium on admission of ADMM-Plus new members since it has agreed to focus on consolidating the ADMM-Plus first and hold in abeyance any application for membership.

[8] Report 68 Treaties tabled on 7 December 2004 (5) and 9 August 2005, on Chapter 3 of the Treaty of Amity and Cooperation in Southeast Asia, website of the Parliament of Australia, https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Completed_Inquiries/jsct/9august2005/chapter3.

[9] Hoang Thi Ha, “Repositioning the ADMM-Plus in a Contested Region”, ISEAS Perspective 2021/13, /articles-commentaries/iseas-perspective/iseas-2021-13-repositioning-the-admm-plus-in-a-contested-region-hoang-by-thi-ha/.

[10] Concept Paper on ASEAN Defence Ministers Meeting (ADMM) External Engagements.

[11] Dian Septiari, “Discourse”.

[12] Global Britain in a competitive age, p. 5.

[13] Department of International Trade, UK-Australia FTA negotiations: agreement in principle, GOV.UK, 17 June 2021, https://www.gov.uk/government/publications/uk-australia-free-trade-agreement-negotiations-agreement-in-principle/uk-australia-fta-negotiations-agreement-in-principle.

[14] Kanishka Singh, “UK aims to start trade talks with India this year”, Reuters, 18 August 2021, https://www.reuters.com/world/uk/uk-aims-start-trade-talks-with-india-this-year-2021-08-17/.

[15] Stefan Boscia, “Liz Truss aims for UK to join CPTPP trading bloc in the next 12 months”, City A.M., 25 April 2021, https://www.cityam.com/liz-truss-aims-for-uk-to-join-cptpp-trading-bloc-in-the-next-12-months/.

[16] Vikram Khanna, “Britain’s entry into the CPTPP spells win-win all around”, Straits Times, 9 June 2021, https://www.straitstimes.com/opinion/britains-entry-into-the-cptpp-spells-win-win-all-around.

[17] Department for International Trade, “UK Accession to CPTPP: The UK’s Strategic Approach”, June 2021, https://www.gov.uk/government/publications/uk-approach-to-joining-the-comprehensive-and-progressive-agreement-for-trans-pacific-partnership-cptpp.

[18] Anita Prakash, Alicia Garcia Herrero and David Martínez Turégano, “UK–ASEAN Trade: Strengthening the Supply Chain Linkages”, ERIA, July 2021, https://www.eria.org/publications/uk-asean-trade-strengthening-the-supply-chain-linkages/.

[19] Prakash, Herrero and Turégano, “UK–ASEAN Trade”.

[20] Resty Woro Yuniar, “Indonesia, Britain agree to deepen security, trade partnership ahead of warship’s visit to Indo-Pacific”, South China Morning Post, 7 April 2021, https://www.scmp.com/week-asia/politics/article/3128662/indonesia-britain-agree-deepen-security-trade-partnership-ahead.

[21] Joint Declaration on Future Economic Cooperation between the Association of Southeast Asian Nations (ASEAN) and the United Kingdom of Great Britain and Northern Ireland (UK), 15 September 2021.

[22] Policy paper: ASEAN Economic Reform Programme, GOV.UK,21 June 2019, https://www.gov.uk/government/publications/asean-economic-reform-programme; Official Launch: ASEAN-UK Digital Innovation Partnership, Website of the UK-ASEAN Business Council, 01 September 2021, https://ukabc.org.uk/event/official-launch-asean-uk-digital-innovation-partnership/; “UK convenes ASEAN-COP26 Climate Dialogue”, GOV.UK, 01 October 2020, https://www.gov.uk/government/news/uk-convenes-asean-cop26-climate-dialogue.

[23] Defence in a competitive age (London: Ministry of Defence, March 2021), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/974661/CP411_-Defence_Command_Plan.pdf.

[24] “South China Sea: Freedom of Navigation, UK Parliament”, House of Commons Hansard, 3 September 2020, Vol. 679, https://hansard.parliament.uk/commons/2020-09-03/debates/99D50BD9-8C8A-4835-9C70-6E9A38585BC4/SouthChinaSeaFreedomOfNavigation

[25] See, for example, “UK shouldn’t tempt own fate in South China Sea: Global Times editorial”, Global Times, 29 July 2021, https://www.globaltimes.cn/page/202107/1230053.shtml.

[26] Ian Storey, “Royal Navy Freedom of Navigation Operation in South China Sea: After Events in the Black Sea it’s Quite Possible”, Fulcrum, 2 July 2021, https://fulcrum.sg/after-black-sea-encounter-british-fonop-in-the-south-china-sea-quite-possible/.

[27] David Sabbagh and Helen Davidson, “UK says it has no plans for South China Sea confrontation after Beijing warning”, The Guardian, 30 July 2021, https://www.theguardian.com/world/2021/jul/30/china-royal-navy-south-china-sea-warning-beijing.

[28] “China condemns Britain for Taiwan Strait warship mission”, Reuters, 27 September 2021, https://www.reuters.com/world/asia-pacific/british-frigate-sails-through-taiwan-strait-2021-09-27/.

[29] “U.K. navy to station new vessels in Indo-Pacific for 5 years”, Nikkei Asia, 16 September 2021, https://asia.nikkei.com/Editor-s-Picks/Interview/U.K.-navy-to-station-new-vessels-in-Indo-Pacific-for-5-years#.

[30] “Royal Navy warships sail for permanent basing in the Indo-Pacific region”, Navy Outlook, 6 September 2021, https://www.navylookout.com/royal-navy-warships-sail-for-permanent-basing-in-the-indo-pacific-region/.

[31] Nick Childs, “UK Littoral Response Group: the shape of things to come”, International Institute for Strategic Studies, Military Balance Blog, 25 June 2021, https://www.iiss.org/blogs/military-balance/2021/06/uk-littoral-response-group.

[32] Seah, S. et al., The State of Southeast Asia: 2021 (Singapore: ISEAS-Yusof Ishak Institute, 2021), /wp-content/uploads/2021/01/The-State-of-SEA-2021-v2.pdf.

[33] Dose Donations to COVAX, Announced for 2021-2022, as of 10 September 2021; Assured Resources for the Gavi COVAX AMC, as of 06 August 2021, https://www.gavi.org/covax-facility.

[34] “UK to donate 100 million coronavirus vaccine doses”, GOV.UK, 11 June 2021, https://www.gov.uk/government/news/uk-to-donate-100-million-coronavirus-vaccine-doses.

[35] Clint Witchalls, “COVID-19: why it’s time for the UK to start sharing its vaccine doses”, The Conversation, 1 September 2021, https://theconversation.com/covid-19-why-its-time-for-the-uk-to-start-sharing-its-vaccine-doses-164303.

[36] William James, “EXCLUSIVE UK’s Raab: Some countries are using vaccines as a geopolitical tool”, Reuters, 11 June 2021, https://www.reuters.com/world/uk/exclusive-uks-raab-we-dont-condone-vaccine-diplomacy-no-doubt-some-are-using-it-2021-06-11/.  

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2021/129 “Who is the Winner? Comprehending Thailand’s 1 October 2021 Military Reshuffle” by Paul Chambers

 

Royal Thai Navy soldiers take part in a training exercise at Chulaporn camp in Thailand’s southern Narathiwat province on 31 March 2021. Photo: Madaree TOHLALA, AFP.

EXECUTIVE SUMMARY

  • Thailand’s recent annual military reshuffle was heavily influenced by military-academy class ties and other forms of factionalism.
  • Prime Minister Prayut Chan-ocha and Deputy Prime Minister Prawit Wongsuwan appointed most of their favourites to senior posts in the Army.
  • The crown appointed its own favourites to command the Air Force and Navy while ensuring that its trusted Army Commander remained in place.
  • The reshuffle indicates that control over the Thai military is becoming increasingly bifurcated between these two powerful groups: the crown on one side and officers of the Army’s “Burapha Phayak” faction who seized power in the May 2014 coup on the other.

* Guest writer, Paul Chambers, is Lecturer and Special Advisor for International Affairs, Center of ASEAN Community Studies, Naresuan University, Thailand. In March-May 2021, he was Visiting Fellow in the Thailand Studies Programme of the ISEAS – Yusof Ishak Institute.

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INTRODUCTION

In 2021, the winds of both continuity and change in the distribution of power among Thai military personalities were once again evident in the annual 1 October armed forces reshuffles. There were 771 promotions, involving 21 female officers, and 563 promotions in rank, including 38 females. There were appointments involving 587 generals, while 314 colonels or colonel-equivalent officers were promoted to the rank of major general or its equivalent.[1] It was thus another year of top-heavy promotions to flag rank for the Thai military.[2]

CLASS TIES AND FACTIONS

As usual, the appointments and promotions reflect both performance and pre-cadet academy linkages, as well as factional ties and favouritism. The class ties in question are based not only on shared educational experiences in the academies of the Army, Navy, Air Force, police and beyond but also, and even more importantly, on ties forged in Thailand’s pre-cadet school, the Armed Forces Academies Preparatory School. Factional linkages involve shared group interests or objectives characterized, for example, by service in a given military unit. The most influential Army faction has traditionally been the Wongthewan or “Divine Progeny” faction, rooted in the King’s Guard unit. It is Thailand’s oldest military faction, lording over the Army from 1870 until 1978. The current king himself is a member of this faction. The second most powerful has been the Burapha Phayak or “Eastern Tigers”, representing the Second Infantry (and Cavalry) Division. This faction’s core of power has been in a sub-faction, grounded in the 21st Infantry Regiment, known as the Thahan Suea Ratchinee or Queen’s Tiger Guards. The Eastern Tigers were the dominant Thai Army faction from 2007 until 2016. They are the faction of Prime Minister and Defence Minister General Prayut Chan-ocha, Deputy Prime Minister General Prawit Wongsuwan and Interior Minister General Anupong Paochinda. Among its members, Prawit is especially powerful. Other Army factions include the Cavalry, Special Forces (Muak Daeng or Red Berets), and the 9th Infantry Division (Suea Dam or Black Panthers). In 2018, King Vajiralongkorn also created the Kho Daeng or Red Rim group, whose members attend special short-term military training under palace auspices. Only Red Rim officers can now ascend to Army or Supreme Command positions, and the group has become a means for the palace to influence the military.[3]

THE MILITARY AND POLICE RESHUFFLE

In 2021, members of pre-cadet Class 20 are Thailand’s eldest active-duty officers. This factor makes that class quite important. That it is also the class of retired General Apirat Kongsompong, the senior-most official with his foot in the doors of both the palace and the Army only adds to that importance. Apirat, also a member of the Wongthewan faction, served as Army Commander in 2018-2020. Immediately after his retirement, the king named him Deputy Secretary of the Royal Household. Though Apirat works formally under Air Chief Marshal Sathitpong Sukvimol, the Secretary of the Royal Household, the Air Force is a smaller security force than the Army. Its officers’ clout cannot compare to those in the latter service.

Only a few Wongthewan members of pre-cadet Class 20 remain on active duty. These include Apirat’s man General Worakiat Ratanond, whom this year’s reshuffle moves from Army Chief of Staff to the post of Permanent Secretary of the Ministry of Defense. He retires in 2022. Another active-duty member of pre-cadet Class 20 is incoming Navy Commander Admiral Somprasong Nilmasai, who also retires in 2022. Like his predecessor Admiral Chatchai Sriworakan, Somprasong is part of a Navy faction influenced by former Navy Commander Admiral Luechai Ruddit (2018-2020). Luechai’s personalistic clout emanates from his older brother General Kamnat Ruddit, a Wongthewan Army officer who has sat on the Privy Council since 2016. Ruddit’s influence has allowed the Navy to enhance its political clout within the military to a level greater than at any time since the early 1950s. Nevertheless, many in the Navy are furious at Somprasong’s appointment because he was seen as having obtained the command post externally; he moved from the position of Deputy Permanent Secretary of the Ministry of Defense with the support of outgoing Permanent Secretary, Burapha Phayak faction member, Prawit loyalist, and fellow pre-cadet Class 20 member General Nat Intracharoen. Even Navy Commander Admiral Chatchai tried to fill the command post with an alternative officer: his chum Admiral Teerawat Kanchana, who is a member of pre-cadet Class 21 and currently serves as Navy Chief of Staff. However, Chatchai has instead been promoted to the post of Navy Deputy Commander.[4] Yet another member of pre-cadet Class 20 is Police Commissioner Police General Suwat Jaengyodsuk. Suwat, who retires in 2022; he is close to fellow pre-cadet Class 20 and police academy Class 36 graduate, former Police Commissioner ret. Police General Chakthip Chaijinda. The latter is now a Bangkok gubernatorial candidate. Suwat, like Chakthip and Apirat, is closely connected to the palace; he was an aide to the current king and is a former commander of the Special Service Division, a unit renamed in 2019 as the Rachawallop Police Retainers, King’s Guard 904. Suwat also maintains a deep connection to the Navy since his younger brother Admiral Suwin Jaengyodsuk, a member of (pre-cadet Class 25), is the Chief of the Naval Staff and was promoted this year to become Commander in Chief of the Naval Fleet. Suwin could eventually become Navy Commander, as he is not due to retire until 2025. 

Given Suwat’s impending 2022 mandatory retirement, the most significant police appointments in the 2021 reshuffle are the promotion of Police General Torsak Sukvimol from Commander of the Central Investigative Bureau to the post of Assistant Police Commissioner and the promotion of Jirapop Puridej from Deputy Commander to Commander in that same bureau. Jirapop is following in the footsteps of Torsak, and the two officers’ promotions are noteworthy because their families are very close to the palace. Torsak’s elder brother is Air Chief Marshal Sathitpong Sukvimol (See above.), while Jirapop’s elder brother is Jakrapop Puridej. (See below.).  Torsak, who retires in 2024, could succeed Suwat as Police Chief next year, while Jirapop will have a much longer career. As a member of pre-cadet Class 34, he retires only in 2036.

With the 2021 reshuffle, the five “tigers” of the security services (See Table 1.) are all highly trusted by the palace. Despite holding a relatively ceremonial post, the Commander of the Armed Forces continues to be General Chalermpol Srisawasdi, a member of pre-cadet Class 21, while the commander of the all-powerful Army remains General Narongphan Jitkaewthae, a member of pre-cadet Class 22. Both are Red Rim officers who have two more years before retirement in October 2023 — at most months after the next general election, if the current Prayut government finishes its four-year term. This is important because if, by chance, a new government comes to office, Prayut and Prawit will no longer have influence over the appointments of Chalermpol’s and Narongphan’s successors. The three remaining “tigers” also have close palace links. The Navy and Air Force Commanders are newly appointed, but they must retire next year. Newly appointed Air Force Commander Air Chief Marshal Napadej Dhupatemiya, an F-5 and F-16 pilot, is the son of an officer who was not only close to General Apirat’s father but also a favourite of Thailand’s then-crown prince and now king. Prapan Tupatamee served as Air Force Commander in 1983-1987.[5]

Table 2 highlights appointments in the headquarters of the Armed Forces itself resulting from the 2021 reshuffle. General Chalermpol Srisawasdi has obtained cushy postings for his close pre-cadet classmates from Class 21, and for fellow members of the Army’s Burapha Phayak Cavalry faction. First, General Supachok Thawatchapirachai, a member of pre-cadet Class21), was promoted from the post of Deputy Director of the Office of Missions for Security Maintenance in the Army to become Deputy Commander of the Armed Forces. Second, General Naren Siripuban, also of pre-cadet Class 21, was promoted from the post of Commander of the Army Development Command to be another Deputy Commander of the Armed Forces. Third, General Nattapol Boon-ngam, a third pre-cadet 21 classmate and friend of General Chalermpol, was promoted from Special Advisor to the Office of the Defence Permanent Secretary to become Chief of the Armed Forces Joint Staff. Fourth, General Thanet Wongcha-um, pre-cadet Class 21 chum of General Chalermpol, and the outgoing Commander of the 2nd Army Region, was promoted to Deputy Chief of Staff of the Armed Forces. Like General Chalermpol, Thanet is in the Cavalry faction of the Army.

Chalermpol did make some bargains. Admiral Songwit Boon-intorn, a member of pre-cadet Class 22 and a chum of Army Commander General Narongphan Jitkaewthae was promoted from the post of Assistant Navy Commander to become yet another Armed Forces Deputy Commander.

These five well-connected senior recruits join Air Chief Marshal Sutipan Thaitong, still another pre-cadet school classmate of General Chalermpol who is already serving as an Armed Forces Deputy Commander, to round out the five senior-most officers in the Armed Forces headquarters.[6] Meanwhile, General Suwit Ketsiri, Commander of the International Counter-Terrorism Operations Center, was promoted to become the director of the Royal Coordination Center for Competence and Security. Suwit, a member of pre-cadet Class 23, is a Burapha Phayak cavalryman close to Armed Forces Commander General Chalermpol. He retires in 2025, and Chalermpol is rumored to be pushing to promote Suwit as his successor as Supreme Commander.

Thailand’s 2021 reshuffle suggests that the Wongthewan and Red Rim factions of the Army remain powerful, not least because of General Narongphan’s continuing posting as Army Commander. Nevertheless, the year has seen push-back from the Prawit’s and Prayut’s Burapha Phayak. Two members of that faction have moved into top Army posts. (See Table 3). These officers are incoming Army Chief of Staff General Santipong Tampiya and General Jaroenchai Hintao. The latter officer is a member of pre-cadet Class 23 who moves from the strategic post of Commander of the First Army Region to become Assistant Army Commander. But the former officer is, like incoming Army Deputy Commander and Wongthewan faction member General Apinan Khampeo, a member of pre-cadet Class 22. Santipong and Apinan are Class 22 chums of Army Commander Narongphan, and both will retire in 2022. Apinan is especially important because the Deputy Army Commander exercises effective control over Thailand’s Center for the COVID-19 Situation Administration. General Bhumipat Jansawang, a member of pre-cadet Class 24 who previously served as Special Forces Commander and is a member of the Muak Daeng faction, will become an Assistant Army Commander. General Bhumipat is a protégé of former Army Commanders and current Privy Councilors General Surayud Chulanond and General Chalermchai Sitisard. He is due to retire in 2023. Barring unexpected promotions in 2022, General Jaroenchai is on track to succeed General Narongphan as Army Commander upon the latter’s retirement in 2023; he himself is due to retire the following year).[8] This is relevant because it would mean that Burapha Phayak once again hold the post of Army Commander for the first time since 2016. This development would effectively tilt power in the Army power back toward Prawit and Prayut.

The Thai Army’s First Region is crucial for its role in protecting the capital. Its officers have traditionally been tasked to guard Bangkok and Central Thailand. At the same time, it is important to choose officers to serve in that command who are loyal to the palace, and to Thailand’s revolving governments, to prevent coups by these supposed guardians. The incoming First Army Region Commander is General Jaroenchai’s pre-cadet classmate and fellow Burapha Phayak faction friend General Suksan Nongbualuang. In his new post, General Suksan will work with Police Commissioner Suwat to lead in implementing security measures taken to check demonstrators in Bangkok. He has followed in the footsteps of Jaroenchai, becoming First Army Region Cohort Commander last year, the Number 2 position in a Thai Army region, and, as he is due to return only in 2025, General Suksan could also succeed Jaroenchai at the very top of the Thai military if Jaroenchai served as Army Commander during 2023-2024. The incoming Cohort Commander General Tarapong Malakam, of pre-cadet Class 24, moves up from being a Deputy Commander of the First Army Region. He is also a Burapha Phayak faction member and were he to follow in the promotion footsteps of Jaroenchai and Suksan to become Army Commander, he could keep that post in the faction’s hands. General Tarapong is due to return in 2026.[9] Another Deputy Army Commander, General Kantapot Setarasamee, hails from the Burapha Phayak Cavalry. He is in line to eventually succeed General Suwit Ketsiri, General Chalermpol’s probable successor, as Armed Forces Commander. The same is true for Kantapot’s successor as 2nd Cavalry Division Commander, General Udom Gaewmaha. The common thread among all four of these is that they have held General Udom’s current posting. The only Wongthewan officer holding a top post in the First Army Region is incoming General Pana Klaewblaudtuk, an incoming First Army Deputy Commander. But, as a member of pre-cadet Class 26, he is still rather junior. General Pana was previously the commander of the 11th Infantry Regiment, tasked with handling the US-supplied Stryker armoured vehicles.[10] The third First Army Deputy Commander, General Takat Laudsiri, is not from a currently significant faction.

The 2021 reshuffle has also seen another chapter in the continuing saga of royal favourite General Songwit Noonpakdee, a Wongthewan officer and member of pre-cadet Class 24. Once a Commander of the 1st Infantry Division and a Deputy Commander of the First Army Region, he seemed destined because of his training, experience, royal favour and famous surname as the son of former Army Commander General Issarapong Noonpakdee to sail toward the post of Army Commander. But in 2020 Songwit was promoted to be a mere Deputy Chief of Staff of the Army. In the 2021 reshuffle, he has been demoted to a regular command staff officer post in the Army; his new position is Head, Army Corps Office of Chief of Staff Supervision. Songwit’s setback may be in keeping with the tradition in the Thai military that officers who obtain their educations abroad do not become service commanders; he is a graduate of the Virginia Military Institute in the United States rather than of Thailand’s Chulachomklao Military Academy. Nevertheless, his family’s close connections with the palace may in the end offset common practice. Songwit retires in 2025. If the king and the Wongthewan faction apply enough pressure, he could find himself moving up next year. He might also have a chance to become Armed Forces Commander after Chalermpol’s retirement.[11]

Table 5 lists a number of other recent appointments of significance. The cabinet promoted General Supot Malaneeyom, a member of pre-cadet Class 22), from his post as Chief of Staff of the Armed Forces to become the Secretary-General of the National Security Council. Supot is from the Cavalry faction and is a confidant of General Chalermpol. He is also close to Army Commander General Narongphan Jitkaewthae, his fellow member of pre-cadet Class 22. Supot retires in 2023. Meanwhile, General Nattawut Nakanakorn becomes the new Special Forces Commander. Like his predecessor, General Bhumipat Jansawong, he belongs to pre-cadet Class 24, but he is due to retire only in 2025. Further, and like Bhumipat, Nattawut is close to Privy Councilors General Surayud and General Chalermchai. If he follows in Bhumipat’s footsteps in being promoted to Assistant Army Commander or Army Chief of Staff in 2022, Nattawut could challenge General Jaroenchai Hintao in the race to succeed General Narongphan as Army Commander in 2023.[12] Though the commanders of the Second, Third and Fourth Army Regions are extremely powerful figures in the provincial settings for which they are responsible, they only rarely ascend to become Army or Armed Forces commanders. The current officers in those posts will be no exception. Incoming Second Army Region Commander General Sawarat Saengpol is a member of the Surasak Montree Taskforce faction.[13] Third Army Chief General Apichet Suasa-ad is close to former Army Commander General Apirat Kongsompong. And Fourth Army Region Commander General Kriangkrai Srirak, a Wongthewan faction member, has reportedly made Bangkok proud in leading counter-insurgency efforts in Thailand’s Deep South counterinsurgency; he may have a bright future. General Amrit Boonsuya, commander of the 2nd Infantry Division, has a good chance of eventually ascending to become Army chief since his current posting puts him at the centre of the Burapha Phayak faction’s power base.

Thailand’s 1st Infantry Division, the core of the Wongthewan faction’s power base, is ostensibly under the command of the 1st Army Region. However, in October 2019, its 1st and 11th regiments were placed directly under palace control. The 1st division was basically hollowed out to help create the new Royal Security Command (RSC) established in 2017 as a regal mechanism. The amalgamation of these regiments under the personal control of the king occurred while other units stationed outside of Bangkok were not placed under direct palace control; the remaining regiment of the 1st Infantry Division regiment, the 31st Regiment, is stationed in Lopburi. Then, on 28 August 2021, General Songpol Sadsaongern, a member of pre-cadet Class 27, was promoted from being the commander of the 1st Division, First Army Region, to become the Head of General Operations, Office of the Deputy Commander, Royal Security Command.[14] General Songpol and other RSC officials work under RSC Deputy Commander General (and Air Chief Marshal) Jakrapop Puridej, a member of pre-cadet Class 28 who retires in 2029). General Songpol’s replacement as 1st Division Commander is Colonel Worayot Luangsuwan, a member of pre-cadet Class 28. That officer was previously the Deputy Commander of the 1st Division. General Songpol’s appointment tells us that the monarch is taking regular Army officers to create a parallel and palace-controlled command structure.

CONCLUSION

The results of Thailand’s 2021 military reshuffle suggest that supremacy over the country’s armed forces will in future become increasingly bifurcated between the crown on the one hand and Generals Prawit and Prayut, on the other, even though the monarch formally holds sway over his kingdom. The palace is likely eventually to assume direct control over all forces belonging to the 1st Infantry Division and perhaps even other units. The Prawit-influenced 2nd Infantry Division, the Burapha Phayak Infantry and Cavalry, is likely to remain the influential centre from which powerful Army and Armed Forces leaders emerge. However, the position of Army Commander will increasingly become a point of conflict between the two power centres. Until October 2023, the Wongthewan faction will continue to hold that post, thanks to the tenure of General Narongphan. If Prayut is still prime minister at that point, he and Prawit will probably see their military appointment powers enhanced with a continuation of Burapha Phayak’s promotion line. If Prayuth is no long prime minister, more direct monarchical power may extend across Thailand’s armed forces.

ISEAS Perspective 2021/129, 30 September 2021


ENDNOTES

[1] The abundance of generals is especially noteworthy in that the rank of brigadier general no longer exists in Thailand. There are instead two grades of full colonel.

[2] “โปรดเกล้าฯแต่งตั้งทหาร 771 ราย ‘พล.ร.อ.สมประสงค์’ ผบ.ทร.-‘พล.อ.อ.นภาเดช’ ผบ.ทอ.” [His Highness appoints 771 soldiers, from Navy Commander Admiral Somprasong to Air Force Commander to Air Force Commander Air Chief Marshal Napadej], Isra News Agency, 14 September 2021 (https://www.isranews.org/article/isranews-news/102473-isranew-newss.html).

[3] Paul Chambers, “‘Red Rim Soldiers’: The Changing Leadership of Thailand’s Military in 2020”, New Mandala, 21 September 2020 (https://www.newmandala.org/the-changing-leadership-of-thailands-military-in-2020/).

[4] “ไขรหัสลับ ‘บิ๊กอุ้ย’ ฝ่าคลื่นลม ดัน ‘บิ๊กโต้ง’ ผงาด ผบ.ทร.” [Decoding “Big Oui’s” Attempts to Push through the Wind “Big Tong” to become Navy Commander], Thai Rat, 26 August 2021 (https://www.thairath.co.th/news/politic/2177030)

[5] Wassana Nanuam, “และแล้ว Snowy ก็โปรยปราย ณ ทุ่งดอนเมือง” “[And Then Snow Scattered at Don Mueang Field],” Lop Luang Lang Channel, 30 August 2021 (https://www.llpch.news/2021/08/30/74323/).

[6] Wassana Nanuam, “‘บิ๊กแก้ว จัดทัพไทย เพื่อน ตท.21 พรึ่บ! 2 ทหารม้า ‘เสธ.โจ้’ นั่ง เสธ.ทหาร ‘บิ๊กแขก’ รอง ผบ.สูงสุด” [“Big Kaew” quickly organizes the Thai armed forces with pre-cadet 21 class friends, two cavalrymen, “Se.Jo” sits as Chief of Staff, “Big Khaek as Deputy Commander in Chief], Lop Luang Lang Channel, 14 September 2021 (https://www.llpch.news/2021/09/14/74516/).

[7] Note that General Supachok helped lead the 2018 rescue of a boys soccer team trapped in a cave in Chiang Rai Province.

[8] “โผทหาร คลอด 771 นาย ‘บิ๊กหน่อย-บิ๊กเฒ่า-บิ๊กป้อง’ นั่งปลัด กห. ผบ.ทร. ผบ.ทอ.” [771 Officers Endorsed: “Big Noi-Big Thaow-Big Pawng” sitting as Permanent Minister of Defense, Navy Commander, Air Force Commander], Thai Post, 14 September 2021 (https://www.thaipost.net/main/detail/116724).

[9] “‘บิ๊กบี้’ เขย่าโผ ทบ. ปรับแนวรบ 4 เสือ สายตรงคอแดง ผงาดคุมทัพภาค 1” [“Big Bee” shakes up the military officers: The Royal Thai Army Adjusts Four Tigers’ front, the Red Rims increasingly take control of Army Region 1], Thai Rat, 2 September 2021 (https://www.thairath.co.th/news/politic/2182936).

[10] Pana was succeeded as 11th Regiment Commander by General Thawatchai Tangphittakul, an Apirat “son”, who is also a Wongthewan faction member and Stryker specialist. General Thawatchai retires in 2029 and could eventually become Army Commander.

[11] “ศึกคอแดง ภาค 2 เดิมพัน ‘ทรงวิทย์’ อำลา ‘ทรงพล’ ตท. 27 ระส่ำ ฉลามเฒ่า ฮึด! คืนถิ่น กับตำนานเพื่อนรัก ณ ทุ่งดอนเมือง” [Red Rims Clash, part 2, Bet on “Songwit”, bid farewell to “Songpol”, Pre-Cadet Class 27, angry old shark fierce! Return territory with the legend of a best friend at Don Mueang Airfield report] Matichon Update (Today Line Me), 30 August 2021 ( https://today.line.me/th/v2/article/DnNJ85).

[12] “จับตาหมาก ‘หมวกแดง’ บนกระดาน ทบ. เบรกศึก ‘คอแดง-คอเขียว’ ดาวเด่นรบพิเศษเข้าไลน์ ไร้ปาฏิหาริย์ ‘บิ๊กอ๊อบ’ กับแผง ตท. 21 แห่งทัพไทย” [Keep an eye out for the “Red Rims” in the Royal Thai Army board, breaking the battle between “Red Rims-Green Rims”, a special star enters the line-up. Without a miracle, “Big Ob” will have problems before the army pre-cadet Class 21 panel], Matichon Weekly, 13 September 2021 (https://www.matichonweekly.com/column/article_462979).

[13] The Surasak Montree Taskforce, an Army unit representing the Internal Security Operations Command, commands police and other security forces in the provinces of Thailand’s Northeast. It works particularly in the areas of border security and narcotics suppression. Its officers usually move up to Second Army Region command positions.

[14] “ราชกิจจาฯ เผยแพร่ประกาศแต่งตั้ง ‘ข้าราชการในพระองค์’” [Royal Gazette Publishes an Announcement of the Appointment of “Royal Official”], Krungthep Thurakit, 27 August 2021 (https://www.bangkokbiznews.com/news/detail/957095).

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: /supportISEAS – 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  
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).

 

ASEANFocus Issue 2/2021

 

Highlights

  • ASEAN Digitalisation Beyond COVID-19
  • Myanmar & the ASEAN Way
  • Addressing the Climate & Biodiversity Nexus
  • Southeast Asia’s Forests & their Contributions
  • Hill Stations of Southeast Asia

 

2021/128 “Malaysia’s Regulatory Framework: A Catalyst for FinTech Adoption” by Nafis Alam

 

The regulatory sandbox of Bank Negara Malaysia, the Financial Technology Enabler Group (FTEG) and Malaysia Digital Economy Corporation (MDEC) FinTech Booster Programme have acted as catalysts for the FinTech growth. Much of the credit goes to Bank Negara Malaysia’s initiative to regulate and facilitate the development and adoption of FinTech solutions by introducing this regulatory sandbox framework in 2016. Photo: Mohd Rasfan, AFP.

EXECUTIVE SUMMARY

  • Measures to fight the Covid19 pandemic have accelerated Financial Technology (FinTech) adoption in Malaysia. More than 75% of Malaysia-based businesses are now using at least one FinTech-related product or service since the past year.
  • Bank Negara Malaysia’s regulatory sandbox, the Financial Technology Enabler Group  (FTEG)  and Malaysia Digital Economy Corporation (MDEC) FinTech Booster Programme, have acted as catalysts for FinTech growth.
  • FinTech Booster is further driving the digitalisation of SMEs by developing innovative products and services as well as by enhancing FinTech startups’ understanding of market, compliance and regulation requirements.
  • The issuance of the Digital Banking Framework by BNM signals an increased focus on democratising access to finance for the unserved and underserved markets.
  • The Securities Commission (SC) has allowed alternative finance platforms to operationalise secondary trading, and this is further accelerating the FinTech adoption in the country, mainly amongst the SMEs.

* Guest writer,Nafis Alam, is Head of School of Accounting and Finance at the Asia Pacific University of Technology and Innovation (APU), and Research Affiliate at the Cambridge Centre for Alternative Finance, University of Cambridge. He can be reached at nafis.alam@apu.edu.my or nafis.alam@ccaf.global.

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INTRODUCTION

Financial Technology (FinTech) refers to technology, solution or software that enhance, automate, and improve the delivery of financial products and services. FinTech comprises of five major segments, namely, payments, wealth management, insurance, alternative finance and regulation.

The Asia Pacific region has been at the forefront of FinTech growth in the world. According to data from Statista, Asia Pacific (APAC) is the third biggest region for FinTech platforms after North America and EMEA (Europe, Middle East, Africa). In 2020 alone, APAC contributed 4,765 new FinTech startups, a whopping 66 percent jump since 2018.

Apart from regional giants such as India and China, the Southeast Asian (SEA) market has shown a huge potential in FinTech growth. In 2020 alone the combined value of FinTech startups in the SEA was US$150 billion.[1] The region also witnessed a seven-fold increase in investment in FinTech startups since 2015, mainly driven by foreign investors. In 2020 total investment in the region stood at US$1.6 billion.[2] 

In Malaysia, national lockdowns due to Covid19 acted as a catalyst for the adoption of FinTech. The Malaysian government’s Movement Control Order (MCO) during the height of the pandemic helped to add 3 million new mobile banking service subscribers in 2020 as well as pushed e-wallet usage and adoption to new highs. Merchants were quick to embrace the trend, with over 400,000 new businesses registering for QR code payment acceptance, a 164% jump from the previous year. Capital raised on Equity-based Crowdfunding platforms jumped more than 457% to RM 127.7 million (USD30.4 million), while P2P/Marketplace Lending value rose over 20% to RM 503.3 million (USD119.8 million).[3]

This essay provides an outline and explains how far Malaysia has come from a humble start (in the FinTech ecosystem) and how the regulatory framework is acting as a catalyst for this leap.

FINTECH ADOPTION WITHIN GOVERNMENT INITIATIVES

Malaysia’s digital shift has been ongoing for the past decade but Covid19 has further accelerated FinTech adoption in the country. Much of the credit goes to Bank Negara Malaysia’s (BNM) initiative to regulate and facilitate the development and adoption of FinTech solutions by introducing a regulatory sandbox framework in 2016.[4] This sandbox has provided a flexible regulatory environment that allows FinTech companies to experiment in a production environment. In fostering technological innovations in financial services, it has contributed to the growth and development of Malaysia’s financial sector. Participation in the sandbox also affected the ability of FinTech to raise capital. One of the graduates of BNM’s sandbox MoneyMatch successfully closed a Series A fundraising[5] round totalling MYR 18.5 million (USD 4.4 million) over two tranches, initially led by Cradle Seed Ventures in 2019 and more recently by KAF Investment Bank, and is now eyeing a digital banking license. Before establishing the regulatory sandbox, in June 2016, BNM established a Financial Technology Enabler Group (FTEG)[6] whose responsibilities included formulating and enhancing regulatory policies to facilitate technological innovations. The FTEG also served as BNM’s dedicated contact point for FinTech-related queries including the adoption of FinTech in the financial services industry.

Apart from BNM’s initiatives, which is expected to provide regulatory guidelines and nurture new startups via regulatory sandbox, the Malaysia Digital Economy Corporation (MDEC) has also played an instrumental role in pushing FinTech adoption in the country by engaging with startups, investors and innovators from around the world. While BNM focused on regulation, MDEC provides investment opportunities, knowledge and awareness of the FinTech ecosystem, and an innovation lab for continuous development. MDEC has partnered with various stakeholders, and one of its initiative is The Orbit, a co-working space that serves local and foreign FinTech players, allowing startups to interact with industry leaders to ease solution development and encourage early market entry. To boost FinTech literacy and serve the ever-growing demand for FinTech talent, MDEC has collaborated with institutes of higher learning to deliver modules and programmes on FinTech. One such higher education provider, Asia Pacific University of Technology and Innovation (APU), became the first university in the country to offer a bachelor degree programme specialising in FinTech and a Master programme in FinTech.[7]

In partnership with the United Nations Capital Development Fund (UNCDF) and BNM, MDEC has also established the Financial Innovation Lab to accelerate innovative solutions in digital financial services that empower the daily lives of low and moderate-income people.[8] This initiative provides grant support ranging from USD10,000 to USD100,000 for new innovative FinTech startups. More recently, in August 2020, MDEC once again in collaboration with BNM, established a capacity-building programme called Fintech Booster.[9] This booster programme aims to assist FinTech startups, both local and foreign in developing their products and services via three strategically crafted modules: Legal & Compliance, Business Model, and Technology.

The Securities Commission (SC) has also been launched by the Malaysia Co-Investment Fund (MYCIF) of RM50 million (US$12.3 million) targeted at capital markets, including companies listed on the Leading Entrepreneur Accelerator Platform (LEAP) Market board (for SMEs).[10] Streamlining licensing requirements for Equity Crowdfunding (ECF), such as raising the funding limit on ECF platforms to RM10 million (US$2.4 million), and allowing ECF and Peer-to-Peer (P2P) platforms to operate secondary trading since last year, further boosted the growth of Fintech startups in the country.[11]

The SC has been spearheading its Digital Agenda for FinTech startups in Digital Investment Management (DIMs) and Digital Asset exchanges (DAX) space to increase the number of startups. In 2020, the SC approved three additional digital investment management (DIM) companies. They provide more value-added options for investors, such as spare change investing and differentiated investment strategies. By end-2020, the DIM companies had acquired 199,224 clients and RM466.20 million in total assets under management (AUM), a significant jump from 23,803 clients with RM74.7 million total AUM at end-2019.[12]

The various initiatives by different stakeholders described above have accelerated FinTech growth in the country. The number of FinTechs in the country increased from a mere 93 in 2017 to 233 in 2020, a whopping 150% jump in four years (Figure 1), while mobile banking transactions more than doubled to MYR460 billion (USD 110Billion) in 2020 from MYR200 billion (USD 48.7 billion) in 2019 (Figure 2).

Under the 2021 Budget, the Malaysian government continues to nurture the P2P lending and ECF eco-system. A RM50 million (US$12.3 million) matching grant for P2P lending and RM30 million (US$7.3 million) matching grant for ECF have been allocated. The government also proposed an extension on stamp duty exemption for Exchange Traded Funds (ETF) which expires December 2020.[13] It is heartening to know that over the last four years, the government has allocated RM 200-250 million per year (USD 48-61 million) for the development of the FinTech ecosystem.

MALAYSIA’S FINTECH REGULATORY FRAMEWORK

Currently, Malaysia does not have a specific regulatory regime applicable to FinTech participants, and the existing regulatory framework generally applicable to the traditional financial services industry applies equally to FinTech startups. The framework includes legislations such as the Financial Services Act 2013 (FSA); the Islamic Financial Services Act 2013 (IFSA);  the Money Services Business Act 2011 (MSBA);  the Capital Markets and Services Act 2009 (CMSA) as well as the various standards and guidelines issued by BNM and the Securities Commission (SC). 

In order for FinTech startups to apply for a regulatory license, an assessment of proposed FinTech activity has to be undertaken to determine whether or not the activity falls under the existing regulatory framework and, if so, what relevant legislation, standard and/or guideline then applies. 

In a recent speech[14], Suhaimi Bin Ali, the director of the Financial Development and Innovation Department at BNM indicated that all FinTech startups will be either regulated by BNM or the SC and in some limited cases by joint regulations as shown in Figure 3 and regulated by the FSA, IFSA, MSBA or CMSA. BNM administers the FSA, IFSA and MSBA :

  • The FSA sets out the regulatory framework for, among others, the conventional businesses of banking, investment banking, insurance, operating a payment system and issuance of payment instruments; 
  • The IFSA sets out the regulatory framework for, among others, the Islamic business of banking and takaful operators; and 
  • The MSBA sets out the regulatory framework for the businesses of money-changing, remittance and wholesale currency. 

The CMSA, in turn, is administered and enforced by the SC and regulates, among others, dealings in securities and derivatives, fund management, investment advice and financial planning.

For those FinTechs which fall under BNM’s supervisory scope, there are three broad categories: the License Regime, the Approval Regime and the Registration Regime, with each of these categories requiring FinTechs to follow more or less stringent regulations depending on the risks they may pose on financial and monetary stability, as well as customer protection. For example, startups that pose the highest risks to the financial system such as remittance and money exchange, are more regulated than money brokerage services or insurance adjusters. Regulators provide clear regulatory guidelines targetting customer protection and ensuring the integrity of the system. This is important especially from a customer compensation perspective (ie, how customers should be charged and the accompanying disclosures on the various new products and services). As the concept of freedom of contract is recognised in Malaysia, such compensation models are therefore a matter of contract between the FinTech provider and the customer.

Figure 3: Regulation of FinTech Services by BNM/SC or Joint Regulation

The key pillars and fundamentals behind BNM’s approach to FinTech regulation are underpinned by the three principles of parity, proportionality and neutrality.[15] On parity, the end goal is to “provide a level-playing field for people playing in the same place doing the same thing,” considering the special needs of new entrants and innovators in developing their ideas. On proportionality,  regulations must be “proportionate to the benefits provided and the risks posed by the entrants.” Finally, on neutrality, “BNM is committed to prioritizing the desirable outcomes and potential of emerging technologies within the FinTech space, rather than the technology itself.”

To further boost the FinTech scene in the country, BNM has also issued a simplified regulatory framework for digital banks.[16] This framework aims to reduce the regulatory burden for new entrants that have strong value propositions for the development of the Malaysian economy, whilst safeguarding the integrity and stability of the financial system. Key features of the simplified regulatory framework include capital adequacy requirements. This involves the use of risk categories to calculate the credit and market risk components for risk-weighted assets under the Basel II capital framework. In addition, there is also a liquidity requirement: 25% of the digital bank’s on-balance sheet liabilities must be held in high-quality liquid assets.  Digital banks will be required to comply with all equivalent regulatory requirements applicable to incumbent banks after the foundational phase.

Following a six-month application period, which ended on 30 June 2021, BNM received 29 applications for a digital bank licence under the Financial Services Act 2013 and the Islamic Financial Services Act 2013.[17] The applications included interest from diverse parties ranging from banks, industry conglomerates, technology firms, e-commerce operators, FinTech players, cooperatives as well as state governments. It is expected that up to five licences may be issued and notification of successful applications will be made in the first quarter of 2022. Digital banks are being touted as the driver of Financial Inclusion in the country and the provider of more financing opportunities for Small and Medium Enterprises (SMEs).

CONCLUSION

Malaysia has come a long way in  FinTech growth and much of the FinTech adoption in the country is owed to a well-thought strategy and encouraging regulations in support of the growth and adoption of FinTech across different verticals. Covid-19 acted as a catalyst for financial services in Southeast Asia and more specifically in Malaysia. The pamdemic drastically accelerated Malaysia’s shift to a cashless world, with unprecedented growth in the number of wallets and e-payment transaction options.

Understanding the potential of FinTech in the national economy, regulators and government development authorities brought in numerous conducive regulatory changes to help digital finance thrive. As of the beginning of the year, Malaysia has been home to 233 FinTech startups, and many more will join soon. Even though it has been a success story so far, the country has yet to produce a homegrown FinTech unicorn. Malaysia needs to attract the best tech talents and create the technical prerequisites necessary for FinTech unicorns to grow.

ISEAS Perspective 2021/128, 29 September 2021


ENDNOTES

[1] https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/2020-global-covid-19-fintech-market-rapid-assessment-study/

[2] https://dealroom.co/blog/the-future-of-fintech-in-southeast-asia

[3] Fintech Malaysia Report (2021) https://fintechnews.my/27070/malaysia/fintech-malaysia-report-2021/

[4] https://www.bnm.gov.my/-/financial-technology-regulatory-sandbox-framework

[5] https://www.dealstreetasia.com/stories/moneymatch-seriesa-250023/

[6] https://www.myfteg.com/

[7] https://www.apu.edu.my/media/news/2166

[8] https://www.businesstoday.com.my/2018/12/19/united-nations-capital-development-funds-financial-innovation-lab-applications-is-open/

[9] https://fintechbooster.com.my/

[10] https://www.sc.com.my/development/digital/mycif

[11] https://theaseanpost.com/article/digitalising-malaysias-smes-fintech

[12] https://www.theedgemarkets.com/article/sc-annual-report-2020-scs-liberalisation-ecf-p2p-financing-platforms-bolsters-funding-43-yoy

[13] https://www.treasury.gov.my

[14] https://www.bnm.gov.my/-/launch-of-the-fintech-booster-programme ; https://youtu.be/voKU1omK6Lo

[15] https://youtu.be/voKU1omK6Lo

[16] https://www.bnm.gov.my/-/regulatory-framework-for-digital-banks-update-

[17] https://www.bnm.gov.my/-/bnm-receives-29-applications-for-digital-bank-licenses

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: /supportISEAS – 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  
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).