Around the region

Around the region1

The long simmering territorial dispute over the Senkaku/Diaoyu islands has led to increasingly nationalistic and aggressive stances in both China and Japan. While the situation may not escalate into open conflict, tensions may spill over into and be played out in the two countries’ engagement with countries in South-East Asia.

The US’s continued preoccupation with the Middle East and its own internal challenges will feed perceptions of a power vacuum in the region – which both China and Japan will seek to fill – but it will continue to play a delicate role in regional geopolitics, as it has consistently emphasised freedom of navigation and maritime security in the South China Sea and is a treaty partner of Japan and the Philippines.

The first Asean summit of the year is scheduled for May in Naypyitaw, while the Philippines will formally present its submission for international arbitration on China’s “nine-dash-line” claim on the South China Sea on March 30. Although China has dissociated itself from the arbitration process, the decision on the submission will affect the progress, or lack thereof, of discussions on a Code of Conduct (COC) for the South China Sea.

Economic overview

Growth will show an upward trend for the EU in 2014, with recession giving way to recovery. Growth in the US, the Euro zone and Japan will all be positive in 2014, and this will boost demand and bode well for South-East Asia.

In China, minor fiscal stimulus measures, including tax breaks for small businesses and accelerated construction spending, will slow Chinese credit growth and raise the cost of capital, reining in growth.

Chinese marine surveillance ships cruising in the East China Sea.

Indonesia posted its third straight monthly surplus in December, amounting to US$1.52bil, but growth in 2013 was the slowest in four years and prospects will be further tempered as nationalist measures increasingly characterise its industrial policies, discouraging foreign investment.

The ongoing political turbulence in Thailand has caused a shift in factory orders for electronics to Singapore, which is facing higher labour costs, but measures to increase productivity are expected to stave off future declines in growth rates.

Myanmar continues to attract foreign interest and investment, while the Philippines’ track record of narrowing its fiscal deficits and reducing its debt burden is working in its favour.

For the rest of South-East Asia, growth in the months ahead is expected to be led by domestic demand and investment, as well as external demand generated by a stronger global economy. However, it will be tempered by the US Federal Reserve’s tapering of its expansive quantitative easing policy.


The Cambodian People’s Party government will continue to violently disperse opposition gatherings at the cost of further loss of legitimacy, while opposition Cambodia National Rescue Party is beginning to face political backlash for the instability and economic losses that its protests have caused.

The ferocity of the government’s recent actions against demonstrators has garnered critical reactions from both China and the US. The former has expressed concern over the use of violence against civilians, while US President Barack Obama has signed a bill that would suspend certain funding to Cambodia.


Indonesian voters are more affected by negative publicity concerning political parties rather than by those parties’ campaign efforts, challenging parties such as Golkar (several of its officials are being investigated for high-profile corruption), while some parties may resort to desperate moves to catch up with the immensely popular Jakarta Governor Joko Widodo, the candidate of the Indonesian Democratic Party – Struggle (PDIP). Government spending is likely to increase in 2014 because of disbursements of campaign funds, and domestic demand will increase economic growth slightly. However, the rupiah is expected to weaken, while inflation may grow worse. The Central Bank may therefore tighten monetary policy, not least by raising interest rates. Rapid growth in domestic energy demand and poor export performance will continue, and Indonesia will continue to suffer from a current account deficit.


Public frustration has intensified over the rise in cost of living triggered by the removal of various subsidies, an increase in electricity tariffs and other price hikes. To assuage public anger, the administration retracted its decision to raise road toll rates, but this will entail compensating road toll operators with up to RM400mil from public coffers, thus increasing concern over Prime Minister Datuk Seri Najib Tun Razak’s resolve to reduce the fiscal deficit and the possibility that his failure to address that deficit will lead to a further downgrading of the country’s debt rating.


Myanmar’s role as Asean chair will allow it to engage with regional and international affairs, but sectarian violence between the country’s Buddhists and Muslims will remain a risk, and the process of constitutional amendment will continue.

At the macroeconomic level, the IMF stated at the end of January that, while Myanmar’s economy was likely to grow between seven and eight per cent annually over the next three years, the current six per cent inflation rate would likely persist.

The Philippines

Post-Typhoon Haiyan rebuilding efforts are now underway in the Philippines – the government has allocated some US$3.3bil for reconstruction and disaster preparedness in 2014. If handled correctly, this will help President Aquino recover some of the political capital lost in the wake of the typhoon.

Relations with China have reached a new low over the Spratly Islands dispute. In early February, Aquino compared China’s South China Sea policy to Hitler’s annexation of Czechoslovakia’s Sudetenland prior to the Second World War.


In January, Prime Minister Lee Hsien Loong met with the Malay-Muslim community to discuss the hijab issue, which sees the adoption of a more conservative Islamic way of life in much of the country’s Malay- Muslim population.

The aftermath of the Race Course Road Riot of December 8 resulted in the restriction of sales of alcohol and enhanced police powers, which might inadvertently exacerbate the racial profiling of South Asian migrant workers in Singapore. What sparked the December violence will be revealed in May, when the commission of inquiry is due to hand in its report.


Prime Minister Yingluck Shinawatra faces investigations over alleged corruption in her government’s scheme to support rice farmers, as do members of parliament from her Phuea Thai Party. Efforts to advance “political reform” in Thailand will increase tensions, as widely differing agendas for reform are put forward. During the next two months, the Bangkok government will be unable to undertake new initiatives on the economy. Its ability to execute existing policies, let alone reform them, will remain in jeopardy.

Thai Prime Minister Yingluck Shinawatra.


Activists will pressure the government to clarify Prime Minister Nguyen Tan Dung’s declaration that electoral democracy at all levels must be enhanced. When the National Assembly meets, there will be opportunities to realise Dung’s vision of a state bounded by a robust legal framework.

Indications should appear on whether the pace of “equitisation” of large state enterprises will accelerate as the government has pledged; Hanoi seeks to sell shares from state-owned enterprises such as Vietnam Airlines and PetroVietnam. The upcoming trial of Asia Commercial Bank founder Nguyen Duc Kien on fraud charges will show the government’s willingness to punish bank owners.

Vietnamese Prime Minister Nguyen Tan Dung (second from left).

1 This is a summary of Issue 2014 No. 2 of the bimonthly ISEAS Monitor, published by the Institute of Southeast Asian Studies,

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