[PREMIUM] Country Updates (7 July)

Indonesia

• Inflation soars higher than expected to a 5-year high in June
• Indonesia raises palm oil export quota
• Booster vaccination and public mobility restrictions to be enforced

Indonesia’s consumer price index increased by 4.35% year-on-year in June, accelerating from last month’s 3.55% and exceeding Bank Indonesia’s target range of 2% to 4% this year. Inflation was mainly driven by food – food prices have risen 8.3% – and transportation, particularly airline passenger fees. Authorities believe that while imported inflation has yet to manifest onshore, pressure on the IDR in recent weeks will still likely fuel additional inflation pressure. Although Bank Indonesia has yet to hike interest rates, many economists expect the rates to be raised as early as in the third quarter to tame inflation.

Following the palm oil export ban, Indonesia’s palm oil inventories have soared, causing prices of palm fruit to fall. In a bid to reduce domestic stocks, companies are now allowed to export seven times the amount of their domestic sales, an increase from the previous five times. No time limit has been placed on the latest export ratio. Other efforts to clear excess domestic inventory include a plan to boost local demand by raising the mandatory content of palm oil in biodiesel from 30% to 35% or 40%, depending on the crude palm oil supply and price.

Concerns about low booster vaccination coverage have risen amidst the emergence of Omicron subvariants BA.4 and BA.5. To prevent a spike in cases in the future, the government intends to make booster vaccination compulsory for entry to public places and travel in approximately two weeks’ time. The government has also extended the enforcement of level 1 public activities restrictions, known as the PPKM locally, outside Java-Bali to 1 August 2022. However, Jakarta, its satellite cities, and Sorong District, West Papua see tightened curbs, with restrictions at level 2. In Java-Bali, level 1 restrictions will also continue to be enforced, with the period of enforcement yet to be determined.

Sources: Reuters, Nikkei Asia, Antara News(1), Antara News(2), Straits Times

Malaysia

• Palm oil mills urged to resume processing despite unprofitable prices
• Malaysia considers sourcing wheat from Turkey
• New initiatives to boost digital capabilities

The drop in prices of crude palm oil, following Indonesia’s lifting of its palm oil export ban, have caused some palm oil mills in Malaysia to halt processing. Prices have tumbled 22% from RM6632 to RM4922 in June, the biggest one-month decline in more than 13 years. In addition to the unprofitable pricing, palm oil mills are already facing labour shortages and high input costs. They are at risk of losing at least RM150 000 for every 100 tonnes of crude palm oil produced. However, authorities have recently urged these companies to resume production, threatening to revoke their licences if they refuse to do so.

On the first day of his four-day official visit to Turkey, Prime Minister Datuk Seri Ismail Sabri Yaakob remarked that he would like to leverage on the opportunity to attract investments from Turkey and diversify food sources, such as for wheat flour. In 2020, Malaysia was the 38th largest importer of wheat in the world, importing RM1.46 billion worth of wheat. With one-third of the world’s wheat production concentrated in Ukraine and Russia, the United Nations World Food Programme has warned that the war in Ukraine created an agricultural crisis not seen since the second World War.

In a bid to boost the country’s digital capabilities and grow its digital economy, the Malaysia Digital (MD) initiative was launched on 4 July. Succeeding the 25-year-old Multimedia Super Corridor (MSD) Malaysia, the initiative aims to help drive digital adoption among aspiring young entrepreneurs, companies, and citizens; support local tech companies, and attract high-value digital investments. Malaysia also recently launched the RM300 million Highway Digital Network Project which, when fully completed in 2025, will make the country a strategic big data hub in the region. Through the construction and operation of fibre optic cables along highways, it aims to provide users with seamless access to broadband traffic.

Sources: Straits Times(1), Malay Mail, Straits Times(2), The Star, Bernama

Thailand

• Bracing for a new wave of COVID-19
• Positive economic outlook for H2 amid high inflation
• No-confidence debate to be held on 19-22 July

Thai health authorities insist that the latest COVID-19 wave is “small and controllable” and should be termed a “mini wave” instead. This comes after the publishing of an urgent and secret document by the Rural Doctor Society on Facebook. In it, the Permanent Secretary of the Thai Public Health Ministry (MOPH) warned provincial public health officers about a new wave of COVID-19 and to remain vigilant. The Center for COVID-19 Situation Administration (CCSA) has yet to address the claims in the document, although official reports of daily infection rates indicate that cases are currently hovering around 2,000-3,000 each day over the past few weeks. However, both doctors and hospitals alike have cautioned that cases and hospital admissions are rising rapidly due to the spread of the BA.4 and BA.5 Omicron sub-variants.

Thailand’s economic outlook for H2 is looking up and is currently projected to reach pre-pandemic levels in the fourth quarter of 2022, supported by a weak Baht and the boom in tourism since the country relaxed its COVID-19 restrictions. International arrivals are set to reach 9.3 million by the end of the year, fifty-five per cent more than estimates by the Bank of Thailand (BOT) and the National Economic and Social Development Board. The World Bank expects that Thailand’s economy will grow 2.9 per cent this year amid global headwinds of high inflation and rising interest rates. This bodes well considering Thailand’s inflation recently hit a 14-year high in June, with the Consumer Price Index (CPI) rising 7.66% from a year ago, prompting the BOT to start raising interest rates from a record 0.50% at the next Monetary Policy Committee meeting.

The cabinet has determined the dates for the no-confidence debate against Prime Minister Prayut Chan-o-cha and ten other ministers. It is set to begin on July 19 and stretch over the course of three days. This is the fourth censure debate against Prayut’s government since the 2019 general election, which the party has survived so far due to the support from their coalition partners.

Sources: Thaiger(1), Thaiger(2), The Straits Times, ChannelNewsAsia, Nikkei Asian Review, Bangkok Post, Thaiger(3)

Vietnam

• 2022 GDP growth targets raised to 7%
• National Assembly approves further cut in environment tax on fuel
• Vietnam hosts Russian foreign minister

Vietnam’s minister of planning and investment announced that the country is aiming for GDP growth of 7% this year. This is, higher than the previous official target of 6-6.5%. Minister Nguyen Chi Dung said Vietnam’s budget was in surplus and there was scope for fiscal policy to support the domestic economy. This comes after the country reported Q2 GDP growth of 7.72% year on year, its best performance since 2011. The boost was mostly attributed to a big rebound in exports and the lifting of COVID-19 restrictions.

Challenges for the rest of the year remain due to geo-political uncertainty and rising inflation. In dealing with inflation, Vietnam’s national assembly approved a plan to cut environment tax on fuel by half for the second time in three months to tame soaring energy prices. The extended cut will apply from July 11 to the end of the year.

Russian Foreign Minister Sergei Lavrov paid a visit to Vietnam ahead of a G-20 meeting in Indonesia. His visit was at the invitation of Vietnamese foreign minister Bui Thanh Son with Russia and Vietnam marking their 10th anniversary of a comprehensive strategic partnership. During the visit, Lavrov called for efforts to protect international laws and emphasised the close ties between Russia and Vietnam. Russia is a key source of defence equipment for Vietnam. Vietnam was one of the two ASEAN nations that abstained from the UNGA vote on 2 March to condemn Russia’s actions and call for a withdrawal from Ukraine.

Sources: Nikkei Asian Review, Viet Nam News, Reuters, Reuters 2

Myanmar

• Lancang-Mekong Cooperation group meeting held in Myanmar
• ASEAN Special Envoy embarks on second official mission to Myanmar
• Myanmar extends import bans to cars and luxury imports

Myanmar’s military government hosted its first high-level regional meeting since the army took power last year, with Chinese Foreign Minister Wang Yi and counterparts from Mekong Delta nations attending. The Chinese-led Lancang-Mekong Cooperation group includes Myanmar, Laos, Thailand, Cambodia, and Vietnam. The initiative aims to smoothen regional tensions associated with the building of ten dams along the upper stretch of the Mekong which has since raised concerns on altering the river’s flow and ecological damage. During Wang Yi’s visit, he pledged to “build a closer relationship” with the Myanmar junta government, reiterating China’s support for Myanmar regardless of how the situation changes as per their last meeting in April.

Cambodian Foreign Minister Prak Sokhonn, ASEAN’s special envoy to Myanmar, visited the country on June 30 as part of his second official mission to mediate the intensifying conflict between the country’s military junta and its opponents. The visit was aimed at pushing for the adoption of ASEAN’s Five-Point Consensus peace plan, which calls for an immediate cessation of violence, inclusive and comprehensive political dialogue aimed at ending the country’s conflict and includes the distribution of humanitarian aid under the bloc’s auspices. The effectiveness of this approach has yet to be seen, especially since the military government has limited access to the parties involved, particularly its main opponents.

Myanmar has increased import restrictions by banning imports of cars and other nonessential goods. This follows the country’s continued struggle with a severe foreign-currency shortage caused by declines in investment and overseas assistance. Greater regulation surrounding import licenses, along with tightened trade controls limiting foreign currency use to imports of essential goods have contributed to the trade deficit that Myanmar has been facing since April. This has left foreign firms relying on domestic demand facing uncertain prospects.

Sources: ABC News, The Diplomat(1), The Diplomat(2), Nikkei Asia