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ASEAN-5 ECONOMIC BRIEF


March 10, 2008 Source:  www.AsiaEcon.org ASEAN is a political and economic organization of 10 countries in South East Asia formed originally by Indonesia, Malaysia, Singapore and Thailand.


 

ASEAN-5 Economic Brief

March 10,  2008   

Source:  www.AsiaEcon.org

ASEAN is a political and economic organization of 10 countries in South East Asia formed originally by Indonesia, Malaysia, the Philippines, Singapore and Thailand. In 2006, ASEAN GDP reached well over USD 1 trillion dollars and received over USD 52 billion in foreign direct investment, up from 41 billion in 2005. The ASEAN-5 economies (Indonesia, Thailand, Malaysia, Philippines, and Vietnam) are predicted to grow at a steady rate of 6 percent in 2007, up .4 percent from 2006.
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Indonesia

2006

2007*

 

Thailand

2006

2007*

 

GDP   Growth Rate (%)

5.5

6.2

 

GDP   Growth Rate (%)

5.1

4.6

 

Inflation   Rate (%)

13.7

6.7

 

Inflation   Rate (%)

5

4.2

 

 

 

 

 

 

 

 

 

Malaysia

2006

2007*

 

The   Philippines

2006

2007*

 

GDP   Growth Rate (%)

5.9

5.7

 

GDP   Growth Rate (%)

5.5

6.7

 

Inflation   Rate (%)

4.6

2.2

 

Inflation   Rate (%)

5.2

2.9

 

 

 

 

 

 

 

 

 

Vietnam

2006

2007

 

 

 

 

 

GDP   Growth Rate (%)

8.2

8.4

 

 

 

 

 

Inflation   Rate (%)

7.3

8.6

 

 

 

 

 

*Predictions based on January-October 2007 data, according to the Macroeconomic Analysis Group, Institute of Developing Economies, Japan.

Indonesia is faring worse in the area of transportation infrastructure according to survey published by the World Economic Forum. It has fallen to 91st this year out of 131 countries examined, from 89th last year. Most of the problems are located on Java’s northern costal highway where bottlenecking and poor traffic are constantly affecting business logistics. The 2005 budget for infrastructure allocated IDR 20.9 trillion with IDR 8.9 trillion directed toward transportation. Expectations are a bit higher for the current proposed budget, which totals IDR 61.9 trillion with IDR 33.8 trillion set aside for transportation. Given the current rise in FDI at 15.3 percent during the first half of 2007, and the high performing stock market, foreign firms can look at this as a lucrative investment opportunity. Infrastructure investment can involve large, long lasting contracts and bring more stability and investment opportunities to Indonesia.

Malaysia’s Ringgit has hit its highest level since October 2007. It reached 3.2011 per dollar during trading February 28th in Kuala Lumpur. Although Malaysia is facing a slowing export market as a result of the sluggish semiconductor industry, this rise in currency can invite further foreign direct investment and create more consumer confidence. Although this just can be seen as the dollar falling against the Ringgit, there has been greater investor sentiment. The Islamic Development Bank has already taken initiative by creating a MYR 500 million bond to develop infrastructure projects, which will be on the market in 2 to 3 months.

The Philippines are facing another hurdle in implementing its fiscal policies. In an effort to satisfy the rising demand of the peso due to its large gains against the dollar, tax reforms have been initiated to collect previous defaults. Government policies passed to alleviate the problems of tax collection such as the Tax Amnesty Act of 2007 have not been hitting targets. With only a week left to go, the Tax Amnesty program has only collected half of the USD 3 billion that the government set out to collect. The act gives delinquent companies a chance to pay their previous unpaid taxes, which have remained unpaid as of Dec 31, 2005, without the threat of a lawsuit. Although there is incentive to join this program and repay taxes, this program requires amending balance sheets and is exempting any companies who currently are involved in a lawsuit. To further this goal of collecting taxes, the government can impose stricter tax laws instead of providing amnesty for companies who have not paid. These tax collections can go further to help the economy if they are invested correctly; possibly creating new jobs and diminishing reliance on remittances to push demand.

The Government Savings Bank of Thailand is proposing micro credit lines to start up rural development. THB 60 billion has been put on the table to fund various programs to develop an economy in the poorest regions and to increase the volume of loans to the region. The People’s Bank, created to provide start-up capital for rural entrepreneurs, and the village funds, a separate fund for each village to help build resources, are being offered THB 20 billion under the plan. But with the return of the former Prime Minister after his self-imposed exile, stability has become an issue and the GSB should act quickly. Domestic demand has been declining due to political instability; directly reflected in poor private consumption, registering a low 1.9 percent in the third quarter of 2007, and in slow private investment, decreasing .7 percent in the first three quarters of 2007 year on year. Implementation of the GSB’s project could potentially help Thailand’s demand side by providing the tools to help create new consumers and producers.

In the first two months of this year, Vietnam has attracted significant foreign investment. The United States leads all other countries with USD 1.3 billion invested already, over 51 percent of total FDI since January. With FDI up 36.4 percent in the January-October period of 2007 year on year, more investment is surely on its way.  In addition to the investments already made, investment companies such as Franklink Templeton and Morgan Stanley have made commitments to invest in fund management and securities respectively. If the financial services pick up and produce, there will be more investment opportunities overall and maybe some groundwork for domestic investment. This can pave the way the service sector, which accounts for 38% of the GDP, to produce better than last year; which posted an 8.5 percent growth in the first three quarters of 2007 year on year.

Source:  www.AsiaEcon.org

 

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