The View From Asia

Shake-up in regional economies

Gloom in the stock markets, plunging oil prices and economic slowdown in China are impacting regional economies, rattling observers and raising questions about their governments' policies. Here are excerpts this week from commentaries in Asia News Network newspapers.

Are Jokowi and Cabinet ready?

Winarno Zain
The Jakarta Post, Indonesia

The signs are familiar and are reminiscent of the financial meltdowns Indonesia went through in 1998 during the Asian financial crisis and in 2008 during the US sub-prime loan crisis.

President Joko "Jokowi" Widodo and his Cabinet should be fully on guard regarding three major storms threatening the Indonesian economy: The free fall of the rupiah and stock prices; plunging oil prices; and the deepening of China's economic slowdown.

The memory of the 1998 crisis came alive as the rupiah nosedived for several days. Last week, its value against the US dollar neared 14,000 rupiah (S$1.40) on Aug 21, the lowest level since February 1998.

Bank Indonesia (BI), the central bank, has been trying hard to stem the rupiah's fall, but so far to no avail. BI's ability to execute major policy decisions has been restricted. This is because domestically it faces three conflicting objectives - stimulating growth, containing inflation and arresting the rupiah's slide - that cannot be achieved simultaneously.

It is as if BI is handcuffed, and external forces now control the fate of the rupiah.

The fall in oil prices has not found the bottom yet. After rising slightly in previous months, oil prices slumped to US$40 (S$56) per barrel last week, the same level as in April 2009.

Only 15 months ago, oil prices still hovered around US$100 per barrel.

The massive oil glut is far from over as Saudi Arabia, the biggest producer, and American shale oil producers are still pumping aggressively from their oil wells.

This puts into question the government's assumption in the 2016 budget of oil prices at US$60 per barrel that is expected to raise 85 trillion rupiah in oil and gas non-tax revenue.

The financial market has been gripped by investor fears over what is really happening in China.

Until the US Federal Reserve gives a clear indication on the timing of its rate rise, currencies all over the world - including the rupiah - will fluctuate wildly. Those developments portend another sort of crisis for the Indonesian economy.

To face the impending economic crisis, Indonesia needs a solid, well-functioning bureaucracy that can generate creative and bold policies. Unfortunately, the President's Cabinet is not the kind that he envisioned. His ministers' actions do not reflect a harmonious orchestra under a strong conductor.

The recent spat between the newly appointed Coordinating Maritime Affairs Minister Rizal Ramli and Vice-President Jusuf Kalla has poisoned the environment within the Cabinet, ruining any prospect of harmonious relations among ministers and preventing the creation of solid teamwork that is needed in the face of the impending crisis.

Malaysia seeks lifeline in storm

Wong Chun Wai
The Star, Malaysia

The amount of time Malaysians are spending glued to their political drama is remarkable. One wonders if our politicians have anything else to do besides issuing daily statements and calling press conferences.

The 1Malaysia Development Berhad (1MDB) scandal, without doubt, needs clear answers and a conclusion.

The Public Accounts Committee, meanwhile, has put its own probe into the issue on hold after key members were promoted to deputy ministers, making them ineligible to sit on the committee.

But even as this national drama continues to draw public scrutiny, we must not lose sight of another important front - our economy.

Malaysia is being hurt by the collapse of crude oil prices, the flow of funds, the plunge in the stock market, devaluation of the yuan, strengthening of the US dollar and the shrinking ringgit. And it doesn't help that investors now see Malaysia as politically unstable.

At meetings with foreigners overseas, Malaysian businessmen can tell you that they are asked point-blank about the 1MDB issue and, most of the time, they can't really tell much beyond what's reported in the media.

And because we want to keep the Malaysian flag flying, we have to speak well of this country. But we must remember that investors have plenty of other options as to where to put their money. We need to end this political controversy soon and move on.

Yes, we maintained the 2015 economic growth target of 4.5 per cent to 5.5 per cent despite potential external shocks.

Bank Negara governor Zeti Akhtar Aziz has pointed out that economic growth will be anchored by domestic demand and continued expansion across all economic sectors, while the external sector is expected to remain resilient.

Domestic demand, which is projected to maintain 6 per cent growth, will continue to drive economic growth, supported by robust private investment and spending.

On the trade side, she said an expected narrowed current account surplus of 2 to 3 per cent of gross national income is in line with global rebalancing and structural transformation in the local economy.

But she also spoke of a lower projected current account balance of RM21.4 billion (S$7.2 billion) due to low oil prices.

It is obvious now that we have to look at other sources of revenue as crude oil prices continue to drop.

The tourism sector is crucial.

The weaker ringgit will help make Malaysia a cheaper tourist destination.

Tourism brings in almost RM70 billion annually, making it Malaysia's second-largest foreign exchange earner. Some 27.4 million people visited Malaysia last year, but the numbers are already dropping.

While neighbours such as Thailand saw a steady flow of visitors from China, Malaysia recorded a shocking drop of 500,000 Chinese tourists in the first quarter this year, which amounts to a loss in revenue of RM1.7 billion.

Yet, unlike our neighbours, we still don't offer online visa application for the increasingly wealthy and wandering Chinese.

We need to identify key sectors that can drive the economy and bring a desperately needed boost to national revenue. Meanwhile, the government can help ordinary Malaysians cope with the cost of living by reducing transport charges, including the price of train tickets. Electricity tariffs should also be cut, in line with the fall in oil prices.

We need our leaders to focus on the economy. Their daily political charade isn't helping Malaysians put food on the table.

Philippines has less to fear

Philippine Daily Inquirer,
The Philippines

Fears of currency wars are intensifying.

The recent move by Vietnam to devalue the dong after China allowed the yuan to weaken early this month has fuelled global anxiety.

Countries that rely heavily on exports - be they emerging markets such as Vietnam, Thailand, Indonesia and Malaysia or developed economies like Japan and South Korea - maintain a close watch on their currencies to keep them competitive against those of other export-dependent countries.

The Philippines used to rely on exports of commodities such as metals, sugar and coconut oil to fuel its economy.

Today, although its economy has become less dependent on commodity exports, the Bangko Sentral ng Pilipinas (BSP) still ensures that the value of the peso remains inexpensive relative to the currencies of the Philippines' regional competitors.

With the Philippines no longer so dependent on exports, it would be impractical for the country to join the currency wars and force the peso down against the dollar.

As BSP deputy governor Diwa C. Guinigundo has warned, directly devaluing the currency or reducing interest rates to induce its weakening would not make much sense, and there could be unintended and unwelcome consequences.

True, a weaker currency can help exporters. However, it also makes imported goods more expensive for the local population.

Also, the cost of servicing foreign debt rises with a weaker currency.

Philippine exporters might lose competitiveness in other countries where currencies have weakened substantially but those who are complaining should listen to Mr Guinigundo.

•The View From Asia is a weekly compilation of articles from The Straits Times' media partner Asia News Network, a grouping of 22 newspapers. For more, see

A version of this article appeared in the print edition of The Straits Times on August 29, 2015, with the headline 'Shake-up in regional economies'. Print Edition | Subscribe