CARI Viewpoint: ASEAN responded to the COVID-19 pandemic with varying degrees of fiscal and non fiscal measures, but it must move beyond rhetorics and remap its supply chains network as the world embraces regionalisation post pandemic

ASEAN Roundtable Series on ASEAN’s Response to COVID-19: Medium-term Outlook and Urgent Stimulus Measures for the Business Sector

Published on 30 April 2020

The CIMB ASEAN Research Institute (CARI) organised its first online ASEAN Roundtable Series (ARS) on 21 April 2020, which brought together business leaders from Malaysia, the Philippines, Singapore, Thailand, and Indonesia. Titled “ASEAN’s Response to COVID-19: Medium-term Outlook and Urgent Stimulus Measures for the Business Sector”, the roundtable discussed the series of stimulus measures announced by their respective countries in response to the COVID-19 pandemic.

To bring clarity to such issues, the online roundtable gathered eminent speakers such as Chua Soon Ghee, Partner of Kearney Singapore; Shinta Widjaja Kamdani, CEO of Sintesa Group Indonesia; Arin Jira, Chairman of the Map Ta Phut Industrial Gasses Co Ltd Thailand and Jose Ma Concepcion III, President and CEO of RFM Corporation Philippines.

A few key themes have emerged from the discussion.

1. Varying degrees of government relief have been provided for business sector in Malaysia, Indonesia, Thailand, and Philippines

Tan Sri Munir described MSME’s as the ‘backbone’ of ASEAN; pointing out how if they break, then ASEAN breaks. He noted that the liquidity crisis is being disproportionately felt by MSMEs, and that most government fiscal measures announced are specifically designed to keep demand and employment up.

Tan Sri Munir also called for a master list of grants and assistance schemes for MSMEs both on a country-by-country basis, and regionally. This would provide a ‘user guide’ to help MSME’s navigate country-specific paperwork, and enable the sharing of best practises.

Tan Sri Munir also called for a masterlist of grants and assistance schemes for MSMEs both on a country-by-country basis, and regionally. This would provide a ‘user guide’ to help MSME’s navigate country-specific paperwork, and enable the sharing of best practises.

a) Malaysia managed to keep fiscal deficit low despite the fiscal measures

While discussing Malaysia’s fiscal relief measures, Tan Sri Dr. Munir noted that Malaysia has managed to keep its fiscal deficit as a percentage of its budget at a relatively low of 4%. He attributed this to strategies including the reallocation of funds from other departments and programs. He also pointed to the proactive role played by Malaysia’s central bank in ensuring that there is enough liquidity in the banking system.
b) Indonesia’s COVID-19 fiscal measures focus on healthcare, social services, and industrial support

Indonesia unemployment rate doubled: Shinta Kamdani, discussing the economic impact of the pandemic in Indonesia, noted that of particular concern for Indonesia was the closures of businesses and its implications on the job market. She noted that unemployment on a weekly basis has doubled, with some three million Indonesian unemployed or furloughed as of April 21, 2020.

Indonesia’s COVID-19 fiscal stimulus package at 2.5% of GDP: She noted that Indonesia’s series of stimulus packages are broken down into three main categories; healthcare, the social safety net, and industrial support. She noted that the total fiscal measures are still relatively low with spending at 2.5% of the Indonesian GDP, as compared to other countries' stimulus packages which stand at a minimum of around 10%. As a result, she stated that the Indonesian private sector is requesting that the government increase its emergency expenditures.

Indonesian social safety nets in informal sectors: She noted that Indonesia’s social safety measures, in particular, are focused on the informal sector, wherein 55% of Indonesia’s workforce is currently employed in. These measures include subsidies on basic necessities, housing incentives for low-income people, and pre-employment training provided to informal sector workers.

Industrial support included tax and import duty waivers for certain industries, as well as financing for national economic recovery.
c) Thailand: 10 million people may risk losing jobs

Arin Jira stated that Thailand will see about 7-10 million people (about a quarter of the workforce) out of work due to the pandemic. He believed that governments right now are focused on bigger companies when MSMEs form the majority of businesses in ASEAN.

He believed that Malaysia’s stimulus measures are more generous than Thailand’s, pointing to Malaysia's discounts on electricity bills and free e-discount and internet broadband. Included amongst the proposals he made for the Thai government are wages subsidies for employees (at about 50% of the total wage), relief from corporate taxes for MSMEs for the full year, and help for domestic producers (such as the agriculture sector) by trying to sell their goods to the domestic market to meet regional shortages.

d) The Philippines: Structured lockdown of infected communities may save the economy

Jose Conception III likewise revealed that some 99.6% of MSMEs in the Philippines have been impacted by the pandemic. Jose proposed non-financial measures to help the economy, such as ‘structured lockdowns’ which would shift away from locking down entire urban areas to specific infected communities, in tandem with mass testing. More and more of the economy would be gradually opened depending on the importance of the industry, which he stated will be crucial as thousands of Filipino overseas workers return home.

2. COVID-19 aid channels must be de-bottlenecked and reliable data is crucial to the successful delivery of relief

Besides discussing the emergency measures in the macro-context, the panellists also discussed the inherent issues within the measures which hindered distribution. Chua noted that one issue has been the bottlenecks in the flow of support to smaller businesses and employees. In one example, he observes that wage assistance to companies has not been coming as smoothly as expected. In terms of cash handout policies, SMEs still complain of cash flow problems due to banks still requiring cumbersome background checks (even with government assistance).

Shinta Kamdani identified several issues with Indonesia’s economic stimulus measures, including limited funds to help the private sector, problems with verifiable data needed to deliver social safety benefits (especially with regards to the informal sector), delays in stimulus distribution due to bureaucratic inefficiency, and the bottleneck of credit stimulus delivery (e.g. many banks being wary of undergoing debt restructuring due to their own liquidity problems).

3. Digital Adoption Hampered by Digital Illiteracy

a) Digital solutions allow business continuity in the new business environment

Tan Sri Dr. Munir reiterated that the MSME’s in ASEAN have been hit by a demand shock caused by the pandemic, which prevents many from accessing their markets. Digital solutions such as e-commerce and online marketplaces may allow many MSMEs to survive in this new business environment, although he warned that many businesses may not necessarily be digitally literate and that adopting e-commerce would be a learning experience.

While Tan Sri Munir also acknowledged the importance of app-based contact tracing in helping contain the spread of the virus in certain Asian countries, he warned that our adoption of data-driven solutions must not come at the expense of personal freedoms and its exploitation by authoritarian governments.

b) Digital literacy Inequality in Thailand

Thailand’s distribution is also facing issues as a result of pandemic emergency measures. Arin Jira observed that there have been issues about determining the eligibility of recipients, even with an AI system being adopted to measure cash handout qualifications. Likewise, Jira shares Tan Sri Munir’s concerns and warned that our enthusiasm for digital solutions to the crisis must be tampered by issues of digital illiteracy among a large part of ASEAN’s populace. For instance, although registration for Thailand’s stimulus measures can be conducted online, Arin Jira warned that a large part of the populace may be shut out of much-needed financial support due to digital illiteracy.

In his observations on which industries could benefit from long-term demand shifts, Chua identified digital industries as a potential new winner. He noted that e-commerce has now become a necessity instead of a luxury, while other online businesses such as e-learning may also benefit.

4. Regionalisation of trade as supply chains are remoulded

a) ASEAN suffers from supply chain disruptions with China

Tan Sri Dr. Munir observed that global manufacturing and supply chains had been severely impacted by the pandemic, with ASEAN in particular having suffered due to its heavy interlinkages with China. He stated that there have been concerns over the disruptions of supply chains due to the pandemic, pointing to the example of Singaporean concerns over the flow of food and cargo from Malaysia during the latter’s announcement of its Movement Control Order (MCO).

Shinta Kamdani, for her part, argued that projections on the potential winners and losers from the pandemic ignore that supply chain issues may cancel out any benefits accrued. These include the increase in the price of input production caused by supply chain shortages, limitations in transferring increased production costs to end users during an economic crisis, and supply chain disruptions.

Tan Sri Dr. Munir suggested that one solution would be for businesses to push for supply chain mapping on a single platform, which would allow manufacturers to identify alternative suppliers in the event of future disruptions.

b) From global trade to regional trade

Tan Sri Dr. Munir argued that the pandemic overall will lead to greater regionalization of world trade, which had already started due to the US-China trade war. He observed that for the majority of The Regional Comprehensive Economic Partnership (RCEP) members, the majority of trade is conducted with fellow RCEP partners, creating a structure similar to internal trade within the European Union and North America. However, he warned that the regionalization of world trade cannot take place when one economy dominates (i.e. China).

Chua Soon Ghee stated that the relocation of manufacturing from China to ASEAN had already been taking place prior to the pandemic, and will now be accelerated. However, he warned that supply chains in China are very tightly integrated, which will make the transference of manufacturing plants very difficult. Chua believes that while technology companies may prefer to continue operating in China, lower-value industries such as mobile phones and textiles will relocate to other countries. Given the size of China’s manufacturing heft, even the relocation of a small portion of it to ASEAN will be a huge bonus.

5. Intra-ASEAN Cooperation: Too Much Rhetoric

a) ASEAN cooperation on MSMEs must go beyond scripted statements

Shinta Kamdani discussed how ASEAN could cooperate to help MSMEs. Among her proposals are initiatives to push for an ASEAN marketplace, as well as allowing the sharing of best practises with other ASEAN MSMEs. She also stated that business matching initiatives should be pushed for smaller businesses and not just big corporations. She laments that ASEAN governments are too focused on helping themselves instead of intensifying regional cooperation.

Tan Sri Dr. Munir added that the lines of communication between the private sector and ASEAN governments through the ASEAN business advisory councils are limited by stilted and scripted discussions. Tan Sri Dr. Munir believed that the private sector should use this crisis to aggressively insist for joint private-government approaches to the problems. For instance, he believes that government stimulus measures could be partly funded through greater intra-regional trade to promote greater regional prosperity (such as by focusing on non-tariff measures).

b) Don’t bet on ASEAN financial cooperation

When the panel was asked if they had any confidence in ASEAN’s ability to collaborate together, Arin Jira gave a firm negative response’. He said that notions of ASEAN collaboration have been floated for years with no significant progress seen. He sees the ASEAN Response Fund proposed during the ASEAN Summit in April 2020 as just ‘rhetoric’, as he does not think any ASEAN country would be willing to actually put money into it.

Shinta concurred, stating that financially no ASEAN country will be in a position to provide money to a regional fund. Shinta believes that we should focus instead on non-financial measures as a ‘low-hanging fruit’. One example she used was an ongoing private sector-driven initiative to help ASEAN startups receive investment from other ASEAN partners.

c) Lessons from the Asian Financial Crisis

Using a historical example of a successful ASEAN-led initiative, Tan Sri Dr. Munir referred to the 1998 Asian Financial Crisis when ASEAN+3 was able to hammer out the US$240 billion Chiang Mai Multilateral Initiative to resolve short term currency problems. Arin Jira however warned that comparisons with the Asian Financial Crisis are problematic due to the differing circumstances now. While cash flow problems only affected the upper layer of businesses and financial leaders during the Financial Crisis, COVID19 has caused wider cash flow problems for the world at large.

6. Time to reboot ASEAN

Lastly, Shinta Kamdani observes that the crisis presents an opportunity for ASEAN to ‘reboot’ by creating new norms, and that ultimately any crisis can be a cause for optimism through the new opportunities they present. Tan Sri Dr. Munir underlined that current realities are often tougher than what ASEAN has envisioned, and followed by concurring with Shinta’s statement that ‘future prospects are not current realities,’.

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