CARI Captures Issue 497: Thai Baht worse performing major currency in Southeast Asia in Q1 2021, depreciating 4% against US Dollar

Announcement: CARI Chairman calls for green recovery for ASEAN at the 7th ASEAN Finance Ministers and Central Bank Governors Meeting (AFMGM)’s interface session with ASEAN-, EU-, US-Business Councils.

In his capacity as ASEAN BAC Malaysia Chair, CARI Chairman Tan Sri Dr. Munir Majid proposed climate change initiatives in national budgets for 2021, and for beyond that, tax relief that promotes transitions to low carbon economies, environmental taxes, the adoption of carbon tax system by ASEAN Member States, development of an ASEAN Regional Carbon Market, and movement towards a common minimum in tax standards, particularly for corporate income taxes (CIT). These recommendations were in line with the ASEAN Comprehensive Recovery Framework (ACRF), and was highlighted in CARI’s Policy Brief: Greening ASEAN. Access to all four (4) Greening ASEAN papers can be found here.

Thai Baht worse performing major currency in Southeast Asia in Q1 2021, depreciating 4% against US Dollar
(01 April 2021) The Thai Baht was the worse performing major currency in Southeast during Q1 2021, having depreciated 4% against the US Dollar to 31.24. This was largely attributed to a drop in tourist receipts, which plunged to US$742 million due to border closures (only 5% of the same period in 2020). Thailand’s current account turned to a deficit of US$1.4 billion in Q1 2020 from a surplus of US$6.6 billion in the Q3 2020 and $11.5 billion in the same period in 2019. It was the first time Thailand has recorded a deficit since the third quarter of 2014. Starting in April 2021, Thailand intends to shorten its mandatory quarantine to 10 days to revive tourist inflow and spending. Among other regional currencies, the Indonesian rupiah and Malaysian ringgit fell 3.4% and 3.1% respectively in the first quarter of 2021. The Singaporean dollar and Philippine peso for their part fell over 1%, while the Vietnamese dong remained virtually flat.

Southeast Asia seeking to establish framework for green investments in the region
(30 March 2021) ASEAN is seeking to establish a framework for green investments in the region. The bloc set up the Asean Taxonomy board this week, which is tasked with developing and maintaining a set of categories and definitions to guide its Member States on establishing clarity and common definitions on what constitutes ‘green’ investing. It is believed that green financing opportunities in the region could be worth US$3 trillion between 2016 and 2030, according to a report by Asean Working Committee on Capital Markets Development. The board comprises eight members including representatives from Monetary Authority of Singapore, Bank Negara Malaysia and Bank of Thailand.

Malaysia’s central bank projects economy to grow by between 6% and 7.5% in 2021
(31 March 2021) Bank Negara Malaysia stated in their Economic and Monetary Review 2020 released on 31 March 2021 that Malaysia’s economy is projected to grow by between 6% and 7.5% in 2021. The factors supporting Malaysia’s recovery in 2021 included improving external demand, less stringent containment measures and the vaccine roll out, a gradual improvement in labor market conditions, and a pickup in manufacturing facilities. The central bank also pointed to policy measures which aided Malaysia’s recovery, including fiscal injections to ease cash constraints, support labor market conditions, and reinvigorate spending and economic activities. In terms of monetary stimulus, measures which were put into place in 2020 included a 125-basis point (bps) reduction in the overnight policy rate (OPR) to 1.75% and a reduction in the statutory reserve requirement (SRR) ratio of 100bps to 2%.

Indonesia expands tax breaks on car sales to include larger cars in bid to accelerate economic recovery
(02 April 2021) The Indonesian government has expanded its tax breaks on car sales to include larger vehicles, in a bid to accelerate economic recovery and to aid its manufacturing industry. The government noted that Indonesia’s upper-middle class had so far held back from big purchases during the COVID pandemic, and preferred to focus on their savings. Indonesia had already introduced a tax incentive scheme for sedans and two-wheel drive cars with engine power below 1,500 cc in February 2021, and this has been expanded to include the sales of four-wheel drives and cars with up to 2,500 cc that are manufactured with at least 60% domestically-sourced components. The tax incentive for the new range of vehicles will be between 12.5% to 50% discounts for luxury tax payments, taking effect from April until end-2021. Car sales in Indonesia are yet to return to pre-pandemic levels.

Philippines expresses interest to joining Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
(02 April 2021) (02 April 2021) The Philippines’ has formally expressed interest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in order to expand its trading relations with countries outside of its existing bilateral free trade agreements. The Philippines’ secretary of trade and industry sent a signed letter of intent to New Zealand, the depositary nation of the CPTPP trade bloc. The Philippines government stated it is crucial for the country to engage the CPTPP members that are currently not part or not a partner of the Philippines in free trade agreements, including new markets such as Canada, Mexico, Peru and Chile. As well, other countries are expected to join, including the UK, US, and China. As well, the Philippines is also interested in cultivating its domestic manufacturing capacities. By joining the CPTPP, the cost of procuring components would decrease, allowing Philippine manufacturers to gain easier market access.

Sabah’s government is working on a travel bubble plan to allow Singaporean tourists into the state
(01 April 2021) The government of Malaysia’s state of Sabah is working on an exclusive travel bubble plan to allow Singaporean tourists into the state after the Eid holidays. The State Tourism, Culture and Environment Ministry stated they were awaiting the state Cabinet’s green light for the plan while discussions were ongoing with various stakeholders. The latter included Malaysia Airports Holdings, in which discussions are currently being held with about tightening SOPs. In regards to calls for Sabah to prepare a road map and timeline on the reopening of borders for international travel, the ministry stated that safety must be prioritized at the moment, and that the travel bubble approach has been recommended for now.

United States Trade Representative raises concerns over Viet Nam’s currency practises
(02 April 2021) The United States’ Trade Representative raised concerns about Viet Nam’s currency practises during a virtual meeting with the latter’s trade minister. The US also raised concerns on illegal timber practices, digital trade and agriculture. The US trade ministry stated in a statement released after the meeting that both countries would continue to actively cooperate to comprehensively address the concerns raised in order to maintain trade relations. Both officials plan to hold a meeting later in 2021 under the Trade and Investment Framework Agreement to work on ‘resolving bilateral issues’. Under the previous Trump administration, the US Treasury designated the Hanoi government as a currency manipulator and the U.S. Trade Representative in January 2021 labeled Vietnam’s currency actions ‘unreasonable and restrictive to American businesses’.

RCEP Monitor

Australia’s resources and energy exports earnings expected to reach record high in fiscal 2021
Australia’s resources and energy export earnings are expected to reach a record high in fiscal 2021, driven by the export of iron ores. Australia’s resources and energy exports are expected to reach US$255 billion in the year ending June 30 2021. Iron ore giants such as BHP Group, Rio Tinto Group and Fortescue Metals Group Ltd. have recorded strong profits as prices surged on the back of strong demand from Chinese steelmakers and supply disruptions in number two iron ore producer Brazil. Although commodity prices are expected to moderate in fiscal 2022, this is expected to be balanced by the growth up to 2026 in demand for the materials vital to the clean energy transition, such as lithium, copper, and nickel.

South Korean exports rise the most in two years amid continued global economic recovery
(01 April 2021) South Korean exports rose by 16.6% year-on-year in March 2021, its highest rise in more than two years. These gains came amidst continued robust gains in manufacturing activity, increasing strength in global demand, and improved confidence in the global outlook as more countries start their vaccination programs. Korean exports to the United States and Europe saw significant gains, with values reaching some of the highest levels on record. A separate report by IHS Markit showed purchasing managers’ index for Korean manufacturing in March 2021 holding at 55.3, unchanged from February 2021, which was its strongest reading since 2010. Chips and automobiles have been leading the export rally as overseas consumer demand returns and investment improves.

New Zealand to use its chairmanship of the APEC Forum in 2021 to promote joint agreement on medical supply chains
(31 March 2021) New Zealand will use its chairmanship of the APEC Forum in 2021 to press the 21 leaders of APEC to agree to the free movement of essential medical supplies in order to combat rising vaccine nationalism. The country would use its APEC chairmanship to promote a joint agreement covering the movement of goods, including personal protective equipment, across borders. The joint agreement would focus on the elimination of tariffs, non-tariff barriers, and any import restrictions, as well as to improve trade facilitation. New Zealand’s foreign minister stated that the COVID-19 pandemic highlighted the importance of international collaboration.

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