Emerging Markets

What To Expect In Southeast Asia In 2016

By Global Risk Insights

Southeast Asia Map2016 will be an interesting year for Southeast Asia, as the region braces for changes in government (or none at all), implements the ASEAN economy community, and prepares for volatility with the rising tension of the South China Sea and the increasing risk of terrorist attacks.  

Myanmar NLD needs to balance the interests of old elites and live up to public expectation.

It is well known that Myanmar’s historic election has secured Aung San Suu Kyi as the NLD popular mandate and she is expected to lead the next administration. The military remains the most powerful actor in the country and holds key posts of the security ministries and still exercises significant control over the economy.

The public voted the NLD into office with the high hope that NLD would bring changes to their lives. But the NLD has not had any administration experience and the new government is left with a series of issues such as ethnic tensions, the Rohingya refugee crisis, and macroeconomic issues. Challenges face the NLD and stability in Myanmar will depend on how well the new government is able to balance the interests of the old elites and the military.

Risk of election-related violence ahead of the Philippines general election and uncertainty of the new administration’s economic policies will persist until the poll date.

The Philippines presidential election is set for May 2016. As Filipinos prepare for the next general election, political violence remains a possibility leading up to the poll date. The Gun ban will start on 10 January 2016 to reduce election-related violence, but political violence remains a risk.

What happens after the election is also crucial. Whether the new government will continue with the existing economic agenda and anti-corruption efforts remains uncertain. Jejomar Binay, the vice president and a member of the opposition party, Senator Grace Poe, and presidential-pick Manuel “Mar” Roxas are leading the opinion poll.

Roxas and Poe, who have been part of the president’s senate team, are likely to continue with the existing reforms agenda. But Roxas has never topped any presidential polls conducted for the 2016 election. Although Poe has led opinion polls from several surveys, she is fighting against the Commission on Elections’ disqualification decision due to her citizenship issues.

Changes of economic agenda is most likely to come from an administration lead by Binay, who is mired in corruption allegations, but nonetheless has topped the latest opinion poll revealed on 22 December.

Expect more political turbulence in Thailand.

It is unlikely to see the Junta making any real progress of returning Thailand to a democracy in 2016. Lack of elections in Thailand will continue to test voters’ patience, massive violent demonstrations in 2016 remain a low possibility, but small protests are likely to occur in the short and medium term.

The National Council for Peace and Order is likely to continue with political reforms that will allow the ruling Junta to remain a dominant player in Thai politics. This is going to reduce political space for opposition and dissents.

In addition, the world’s longest serving monarch, King Bhumibol Adulyadej’s deteriorating health is a public concern as he is seen as a major unifying force of the fractured country. The crown prince does not enjoy the level of respect his father commands, and tensions within the military-royalist establishment over who should succeed the throne adds further complication to Thailand’s stability.

Laos to lead ASEAN at a crucial time, but its leadership is limited.

Laos is to chair the ASEAN throughout 2016, a crucial year for ASEAN as it continues to implement the agreement to build an economic community. As a landlocked country, Laos has been an active supporter of regional economic integration. But its ability to lead the regional bloc is undermined by lack of political weight.

Laos is tasked to oversee the negotiations of some of the most controversial goods and services, which were not reached even under the former ASEAN chair, Malaysia, who is considered to have much stronger leadership. Laos has limited political tools to resolve disputed issues during its chairmanship.

Furthermore, with its close political ties to China underpinned by Chinese infrastructure investment, it may limits Laos’ ASEAN leadership amid rising tensions over competing sovereign claim of the South China Sea and slowdown ASEAN’s progress towards achieving a community. A joint ASEAN stance on the territorial issue is unlikely to happen under Laos’ lead.

Implementation of the AEC would be slow in 2016 but would boost intra-ASEAN trade opportunities.

The ASEAN Economic Community (AEC) will be officially launched on 31 December this year. But AEC is still a work-in-progress. Domestic issues of member states, such as power transition in Myanmar and corruption scandals in Malaysia, and the Thai government being tied up with political crackdowns, still dominates their political agenda.

Infrastructure that is needed to support intra-regional trade is underdeveloped and varying degrees of development between member states will prevent an equal distribution of gains from economic integration. Furthermore, Laos’ ASEAN leadership, as mentioned above, may lead to a more divided regional block than a united one.

Nonetheless, ASEAN in total constitutes the third highest population at 634 million. The AEC offers an opportunity for intra-ASEAN trade and allows the member states to refocus their trade efforts with one another. It is already the 4th highest importer of goods and could become the 4th highest exporter, making it one of the largest markets globally.

Rising tension of the South China Sea will make it increasingly difficult for Southeast Asian countries to strike a balance between China and the US.

While Southeast Asian countries welcome trade and investment from China, they also value the military presence of the US for security reassurance amid the rising strength of their northern neighbour.

The US and the Southeast Asian countries have fostered closer military and security ties, especially the ones that involved the South China Sea’s sovereign claims. China is many Southeast Asian countries’  largest trading partner and they depend on China’s investment. Hague tribunal is expected to rule the South China Sea by mid-2016; a case file by the Philippines against China over competing territorial claims.

Naturally, China has refused to accept the jurisdiction of the Netherland-based tribunal on the case, and has stated it would not accept its arbitration. The outcome and how China reacts to the final judgements will affect the troubled sea and the Southeast Asian countries’ options to react.

Rise of Islamic State continues to threaten the region but risk of massive-scale attack is low.

Over the past 12 months, the region has seen growing support of the Islamic State. Citizens from Indonesia, Malaysia and the Philippines are thought to have joined ISIS. There is an increasing fear that these citizens could either return to their own countries and plan similar actions or could develop cells to help organise terrorist-related activities.

Risk of attacks on a Southeast Asian countries is on the rise, but the region is unlikely to be a “hotbed for terrorism” because “Southeast Asia lacks the military and logistical connections that Europe enjoys with the Middle East as a result of geographical proximity”, an expert explains.

Individual countries have strengthened their anti-terrorism efforts by introducing heavier legal prosecution on those who support the Islamic State or passing an anti-terrorism bill. The region has also boosted their cooperation on counter-terrorism, but further partnership is needed.

Domestic and foreign infrastructure investment will continue to expand

Thailand has recently increased infrastructure investment to build railways, roads, airports, and ports, including two railway agreements worth $933.2 million. Indonesia’s sea toll road project coupled with its fast railway will improve the country’s economy and connectivity.

China and Japan have been keen to get involved in Southeast Asia’s infrastructure upgrade as they seek to reinvigorate their own slow growth and battle for their influence in the region. So far, China is leading the railway diplomacy race. China is to build a $6 billion high speed railway with Laos. It is also building a fast train program for Indonesia.

But the underdeveloped infrastructure of the region offers many opportunities for foreign investment. The two countries are bidding for the Kuala Lumpur-Singapore High Speed Rail (HSR) project.

Furthermore, the Asian Infrastructure Investment Bank (AIIB), which is expected to be officially launched in January 2016, will bring more infrastructure projects to the region.


Courtesy of Global Risk Insights, © 2016 Global Risk Insights
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Global Risk Insights (GRI) provides expert analysis on political events impacting business, investment, and economic climates worldwide.

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