“Young Hearts and Minds: Understanding Malaysian Gen Z’s Political Perspectives and Allegiances” by James Chai
2023/25 “Vietnam’s Social Insurance Dilemma and Workers’ Precarious Conditions” by Tu Phuong Nguyen
EXECUTIVE SUMMARY
- The growing trend of young employees choosing to withdraw their social insurance premiums early has been a major challenge to Vietnam’s social insurance system. Those who choose to do so give up their pensions and the accompanying free public health insurance when they retire in the future.
- Factors such as employees’ livelihood, job prospects, perception of social insurance benefits, and lack of trust in the state’s management of the social insurance fund all have an impact on their decision to withdraw their social insurance premiums.
- The COVID-19 pandemic has revealed the precarious living and working conditions of many factory workers in the export sectors, evidenced by the surging number of claims for social insurance withdrawals. With their low and unstable incomes, many of these workers view their social insurance premiums as a form of savings, and have no choice but to seek early access to this money during times of financial hardship.
- The government is revising the social insurance law to keep people in the social insurance system for longer; however, the potential effects of the revision remain unclear. Changes to the social insurance system should go hand in hand with labour relations reforms and improved social policies that empower workers and support their livelihood.
* Tu Phuong Nguyen is a member of the Stretton Institute, The University of Adelaide, Australia.
ISEAS Perspective 2023/25, 11 April 2023
EARLY WITHDRAWAL OF SOCIAL INSURANCE PREMIUMS
Article 3.1 of Vietnam’s 2014 Law on Social Insurance defines social insurance as “the guarantee to fully or partially offset an employee’s income that is reduced or lost due to their sickness, maternity, workplace accident, occupational disease, retirement or death”.[1] All employees with labour contracts are entitled to the compulsory social insurance scheme, whereby employers and employees must contribute a certain amount to employees’ insurance premiums. Social insurance, which is the largest component of these premiums, mainly covers pensions and maternity benefits. Employees are also entitled to unemployment and health insurance. The contribution is calculated based on the individual employee’s basic wage and other forms of regular monthly payments. All participants’ social insurance premiums are centrally managed through the state’s social insurance fund.
To be eligible for the pension, an employee must contribute to the social insurance fund for at least 20 years. People who have contributed to the scheme for less than 20 years do not qualify for the pension, but are entitled to access their social insurance benefits as a lump sum. The law stipulates certain conditions in which employees can withdraw their social insurance premiums early, including when they (1) move overseas, (2) are diagnosed with a life-threatening illness, and (3) resign and cease contributions to the social insurance fund for a period of one year. According to official statistics, the third condition has been cited in more than 98 per cent of all social insurance withdrawal requests.[2]
In 2014, the Vietnamese government attempted to implement an amendment to the social insurance law which would have required employees to wait until retirement (at age 55 for women and 60 for men) to receive their pension. This change, intended to provide welfare protection for employees in the long run, was met with protests from thousands of workers in industrial regions in southern Vietnam.[3] Following dialogues with workers and legislative debates, the government reversed the amendment and allowed employees to withdraw their social insurance premiums one year after they quit their jobs, as before.
Subsequent to this, the number of people choosing to withdraw their social insurance premiums has been steadily increasing. From 2016 to 2021, the system welcomed an additional 4.23 million participants, but it also had 4.06 million people leaving.[4] On average, the number of lodgements for social insurance withdrawal increased by about 9 per cent each year.[5] In 2021, a record number of more than 960,000 people lodged their claims for social insurance withdrawals. Those who claimed such money were mostly aged below 40 and work in non-state sectors.[6] Fifty-five per cent of the claims were made by women.
As pension is a key pillar of social insurance benefits, the growing opt-out rate from social insurance potentially puts a greater burden on the state to provide care and support for people who have no source of income in their old age. This growing trend poses a key challenge to Vietnam’s social insurance system.
EXPLAINING THE TREND
Several factors, such as employees’ livelihood, job prospects, perception of social insurance benefits, and lack of trust in the state’s management of the social insurance fund, have contributed to this trend.
Although official statistics are unavailable, media reports and previous research suggest that many who apply for social insurance withdrawals are factory workers employed in key export sectors such as garment, footwear, and other processing industries.[7] These workers, especially those with low incomes, need the money from the social insurance fund to help them overcome their financial hardship. A survey by Vietnam’s Institute of Workers and Trade Unions showed that 30 per cent of workers have no savings and often need to borrow money to pay for household expenses.[8] As a result, many low-income workers have come to view their social insurance premiums as a form of savings, and are more likely to seek early access to it when their income is reduced or when extra household expenses arise.[9] In most of the cases, the withdrawn funds are used to settle household debts and pay for children’s care and education, medical bills, and housing. Some workers, who are either exhausted from years of factory work or have lost their jobs, may use the money to help them start anew, switch to informal work, or invest in a family business or small-scale trading activities.[10]
Besides the individual living circumstances of workers, weak government regulation and lack of transparency in the management of the social insurance fund also explain why people choose to leave the social insurance system.[11] Reports of persistent legal evasion and violations of workers’ social insurance rights are common, with the most serious issue being employers failing to submit their and their employees’ contributions to the state’s social insurance fund, despite deducting employees’ contributions from their monthly wages.[12] For many years, the state-managed social insurance fund has had a deficit, reaching a record high of more than VND13 trillion (US$554 million) in 2016.[13] Sceptical of the state’s capacity to manage their social insurance money and to provide insurance and pension payments in the long run, workers who face financial difficulties prefer to withdraw their social insurance premiums and forgo their pension.
Following its failure in 2014 to pass a legal amendment that would prevent employees from withdrawing social insurance premiums early, the government has sought to raise awareness on the disadvantages of early withdrawal and the benefits of pension. Employees who choose to take out their social insurance premiums early are portrayed by government officials as “only thinking about their short-term needs”.[14] Plenty of news articles have included the catchphrase “short-term benefits, long-term disadvantages” (lợi trước mắt, thiệt lâu dài) to refer to the consequences of early withdrawal and its threat to employees’ future welfare.[15]
The media discourse on this matter has slightly shifted following the outbreak of COVID-19, coming to recognise how many workers’ precarious conditions had pushed them to withdraw their social insurance premiums. This was especially evident in 2022 when there were long queues of workers waiting outside social insurance offices in Ho Chi Minh City since dawn to lodge their claims.[16] Many had lost their jobs during the pandemic and had to resort to informal work to make ends meet. Even though the act of early withdrawal is still viewed in a negative light, the media discourse has demonstrated sympathy towards those who have no choice but to count on their social insurance money to cope with their financial burdens.[17] A union official suggested that more than 80 per cent of those who withdrew their social insurance premiums had no emergency savings for difficult times.[18]
Indeed, employment in some of Vietnam’s key export sectors has become increasingly precarious in recent years. As the country pursues an export-oriented policy, hundreds of thousands of jobs have been created each year in the garment, footwear, and other processing industries. This has allowed many people from rural areas to move to industrialising regions and cities, earning an income that can help them and their families escape poverty. However, these sectors are exposed to global market fluctuations and disruptions, which can lead to supplier factories closing down or cutting costs and reducing their labour force. Before the COVID-19 pandemic, there were cases of foreign-owned factories suddenly closing down and their foreign bosses fleeing Vietnam, leaving their workers unpaid and without their social insurance payments.[19] With weak bargaining power,[20] workers are increasingly vulnerable to reduced workplace benefits, short-term contracts, casualisation, and redundancies.[21] Certain groups, such as pregnant workers, those caring for young children, and elderly workers, are even more susceptible to discrimination due to assumptions about their declining productivity.[22]
In terms of living conditions, numerous reports have raised concerns about workers’ economic struggles.[23] The minimum wage in high-growth regions, such as Ha Noi and Ho Chi Minh City, currently stands at approximately US$200 a month, a 6 per cent increase from the 2020 minimum wage.[24] However, a former leader of the Vietnam General Confederation of Labour, the only trade union in Vietnam, suggested that the minimum wage still falls short of the minimum living needs of workers by 15 per cent.[25] In actuality, workers usually earn more than the minimum wage, but this discrepancy mostly comes from excessive overtime. In 2021, it was estimated that the average income in Ho Chi Minh City still fell short of a liveable income by 12 per cent.[26] The living conditions of rural-to-urban migrant workers are particularly difficult as they face extra costs such as rent and higher utility bills, while facing barriers in accessing services like healthcare, childcare, and their children’s schooling in the provinces and cities they move to.[27] Disruptions and uncertainties caused by the COVID-19 pandemic have made workers’ lives even more precarious.[28]
Although the Vietnamese economy has shown positive signs of recovery after the pandemic, many jobs in the export sectors, especially garment and footwear industries, have been severely impacted by weak consumer demand in key export destinations such as the United States and Europe.[29] This has led to the closure and downsizing of numerous factories in southern Vietnam, resulting in an estimated loss of 34,000 jobs and a reduction in working hours for 600,000 workers, leading to a decrease in their income.[30] If affected workers are unable to secure employment or a stable income within a year, it is likely that many of them will consider withdrawing their social insurance premiums to alleviate their financial stress.
PROPOSED CHANGES TO SOCIAL INSURANCE LAW
Early withdrawal of social insurance premiums is currently a critical issue in the Vietnamese government’s reform agenda regarding the social insurance law. The government has proposed several measures to limit early withdrawals and encourage more employees to accumulate their contributions towards their pension. The first proposal reduces the amount of money that a person can withdraw early: only their own contribution would be available, while the employer’s contributions would remain with the state.[31] In case an individual is unable to re-join the social insurance system in the future, the employer’s contributions would be used to partially cover their pension. This proposal seeks to discourage early withdrawals and keep people in the social insurance system for longer. However, it does not take into account the precarious situation of many factory workers who have come to view social insurance money as their savings, and who may be desperate to access the money to sustain themselves and their families. Even though this proposal does not strip employees of their right to withdraw social insurance money, as was the case with the overturned legal amendment in 2014, it could still be met with resistance from workers if passed into law. The draft law,[32] circulated for public consultation in March 2023, includes this proposal while retaining the current regulation as an alternative.
The second proposal lowers the eligibility requirement for the pension.[33] Evaluating the potential effects of this proposal is more complicated, considering that workers’ circumstances vary. Currently, an employee is eligible for the pension if they have contributed to the social insurance fund for at least 20 years and have reached the legal retirement age (55 for women and 60 for men). This proposal lowers the minimum requirements from 20 years to 15 years, and eventually to 10 years in the long term, with the intention of making pensions more attainable.
To those employees who join the social insurance system at a later age, this proposal would give them a better chance of being eligible for the pension. It also acknowledges the reality that the total employment time of factory workers in certain manufacturing sectors is often not long. For instance, companies in the garment and footwear industries have been known to find ways to lay off elderly workers (meaning those over 35 years old),[34] leaving them disadvantaged in the labour market and struggling to find new employment. Because it is difficult for workers in these industries to accumulate 20 years of social insurance contribution, lowering the minimum requirements for social insurance contribution would enable more people to access the pension, and make pensions more appealing overall.
This proposal nonetheless overlooks other issues concerning workers’ circumstances and their lack of trust in the social insurance system. Many workers choose not to wait for the pension not just because of the requirement regarding the minimum years of contribution, but also because they must wait until their retirement to access their money. A typical female worker in the garment industry, for example, can start working in her early 20s, if not before. If she keeps on working and contributing to the social insurance fund, she will reach the minimum years required for the pension in her 40s, yet she has to wait until she is 55 to receive the pension. In reality, many workers do not plan to work in the factory until their retirement, as their health and productivity tend to get worse after years of intensive and hard labour. A union official at Pou Yuen, the largest footwear company in Ho Chi Minh City, has observed that about 500 to 600 senior workers, especially those who are 40 years old and above, quit every year.[35] According to the current regulation, once an employee’s social insurance contributions have exceeded the threshold of pension eligibility, they are not able to withdraw social insurance premiums as a lump sum and have to wait until their retirement to receive the pension. At Pou Yuen, some workers have resigned from their jobs a few months before the total period of their contributions would have reached 20 years, in order to avoid having their social insurance premiums “locked” in the system.
The draft law reduces the minimum period of pension eligibility from 20 years to 15 years. However, employees would still be able to withdraw social insurance premiums if the total period of their contributions is less than 20 years. This means that those who have accumulated from 15 to 20 years of contributions are eligible for the pension and still able to withdraw their social insurance premiums if they wish to. It is unclear whether the legal amendment will keep people, especially factory workers, in the system for longer. Given that violations of social insurance law are still common, and factory workers generally remain sceptical of the state’s ability to manage the social insurance fund, workers with precarious conditions would still choose to withdraw their social insurance premiums when necessary.
Since industrial workers are the key targets and beneficiaries of social insurance law, it is important that any future reforms take into account their views and circumstances, particularly their precarious working and living conditions. Strengthening law enforcement and ensuring better protection of workers’ social insurance rights will be crucial to raising workers’ trust in the state’s management of the social insurance fund. Future reforms of the social insurance system should be coupled with improved social policies and labour relations reforms that support workers’ livelihoods and grant them a greater voice in the collective bargaining process.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
2023/24 “What’s Interesting about the Thai General Election is not Who Wins but What Comes After” by Termsak Chalermpalanupap
EXECUTIVE SUMMARY
- Pheu Thai (PT), Thailand’s chief opposition party, looks certain to win the largest number of House seats in the upcoming general election on 14 May.
- But coming first in the poll does not guarantee PT the lead in forming a new government. Neither will the party automatically land the next premiership for one of the three premiership candidates of the PT.
- Those 250 senators appointed during the military rule of coup leader General Prayut Chan-o-cha will have a big say on who the next prime minister will be.
- The PT leadership has been clamouring for a larger “landslide” victory of winning at least 310 seats in the 500-member House of Representatives.
- With 310 MPs, the PT will be able to attract support from a few parties to secure at least 376 votes to win the premiership for its candidate in a race to be conducted in a joint parliamentary session of the 500 MPs and 250 senators.
- If such a huge “landslide” victory fails to materialise, the PT faces different extraordinary scenarios, one of which is for it to give up its quest for the next premiership, and to support some other party’s candidate who can win the support of a majority of senators.
- In the latter case, the PT will at least be in the new government; and more importantly, General Prayut, the incumbent premier, will be side-lined for good.
*Termsak Chalermpalanupap is Visiting Fellow and Acting Coordinator of the Thailand Studies Programme, ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2023/24, 3 April 2023
INTRODUCTION
In Thailand’s upcoming general election on 14 May, Pheu Thai (PT), the chief opposition party, looks certain to win the largest number of seats in the House of Representatives. But it does not necessarily follow that the party will definitely land the next premiership for its candidate.
Also uncertain is whether the PT will be able to score a “landslide” victory and win at least 250 seats to control the 500-member House. Without a “landslide” victory, the PT will face difficulties in finding enough support from other parties to secure the next premiership for its candidate. In order to win the premiership, a candidate needs at least 376 votes of support in a joint parliamentary session of the House’s 500 MPs and the Senate’s 250 members. Not many senators would vote for anyone from the PT.[1]
If it wants to join a victorious coalition, one pragmatic concession is for the PT to forego vying for the premiership, and instead support another party’s candidate who is more acceptable to a majority of the senators. Deputy Prime Minister General Prawit Wongsuwan, leader of Palang Pracharath Party (PPRP), the largest in the current government coalition, is one such candidate.
On the other hand, the PPRP and four of its ally parties[2] from the government coalition shoring up General Prayut’s premiership (June 2019 – March 2023) may form a rival minority coalition. This group can win the premiership for its candidate, presumably General Prawit, with strong support of senators.
However, such a minority government is doomed to fail in governing because it will not be able to pass any significant bill in the House where the PT-led opposition controls the majority vote. It may be able to induce opposition MPs to defect to join government parties, or bribe opposition MPs to cross party lines to vote for government bills, but both strategies will be costly and unsustainable.
One conceivable quick fix is the forced dissolution of one or two parties – including the PT – for allegedly violating election law.[3] MPs from a dissolved party can join another party within 60 days. Many of them may join parties in a PPRP-led coalition and help transform it into a viable ruling coalition.
These peculiarities in Thai politics will make the aftermath of the upcoming general election more interesting and intriguing than the poll itself.
Moreover, if exiled former prime minister Thaksin Shinawatra returns to Thailand after the general election[4], his presence will raise tensions and make all political deal-making talks about coalition formation even more complicated.
PHEU THAI WILL WIN BIG AGAIN
In the NIDA Poll survey outcome publicised on 19 March, the PT topped the survey conducted in early March with 49.85%. Coming second and third were respectively Move Forward, the second largest opposition party, with 17.15%, and incumbent Prime Minister General Prayut Chan-o-cha’s United Thai Nation (UTN), with 12.15%.[5]
Suan Dusit Poll published on 26 March confirmed that the PT was most popular with 46.16%. In second place was still Move Forward with 15.43%. In third place, however, was Bhumjaithai (BJT) Party with 11.12%; the UTN had dropped to fourth place with only 8.73%.[6]
Few in Thailand would be surprised by the prediction that the PT will once again win the largest number of House seats. After all, in the previous general election, on 24 March 2019, the PT came first by winning 136 House seats, having contested 250 of 350 constituencies.[7] But it did not get any share of the party-list House seats, because it was deemed to have won more House seats than it deserved to have.[8]
However, the upcoming general election will come under a new election system where two ballots are used,[9] and without the old rule regarding how many MPs a party “deserves” to have. The number of election constituencies (all single seats) has also been increased from 350 to 400. This will benefit large well-known and well-funded parties which can field competitive candidates in all 400 constituencies.
At the same time, the number of party-list House seats has been cut from 150 to 100. The author’s own initial estimate indicates that about 392,150 second ballot votes will be required to get one party-list House seat.[10] This will significantly disadvantage small parties. In the previous general election, one party-list House seat went to the New Palangdharma Party which garnered only 35,099 votes.[11]
The PT is confident it will be more successful than in the previous general election, because the biggest winner will this time also get the lion’s share of the 100 party-list seats, regardless of how many seats its candidates have won in election constituencies. Therefore, the PT leadership is now clamouring for a bigger “landslide” of winning at least 310 House seats, not just 250 as it initially aimed for. Its goal is to win 260 of the 400 constituency seats, and 50 of the 100 party-list House seats.
With 310 House seats, the PT leadership believes it will be able to attract support from several parties to reach or exceed 376 votes – and win the race for the premiership, even without any support from senators. With such a success, some fair-minded senators may even turn to vote for the PT’s premiership candidate. They would not want to disregard voters’ clear mandate for the PT to lead the next government.
POTENTIAL RIVAL COALITION
It is debatable how big the PT’s “landslide” victory will turn out to be. Winning up to 250 House seats is already very difficult; and reaching 310 is highly unlikely.
NIDA Poll Director Dr Suvicha Pou-aree has predicted that the PT could win 240 to 260 House seats, based on survey data as of early March 2023.[12] A “secret poll” conducted by security authorities (presumably from the Internal Security Operations Command or ISOC) estimated that the PT could win around 170 House seats (including 25 of the 100 party-list House seats, from 10 million second ballots).[13]
The PT is facing stiff competition from well-funded government parties, notably the UTN, the PPRP, and the BJT whose senior leaders enjoy the advantage of incumbency and can exercise enormous government influence during the election campaign.
Moreover, the PT also has to compete with fellow opposition allies, notably Move Forward, and Thai Liberal, whose support bases are stable and solid. The PT is also troubled by Thai Sarng Thai Party led by a popular former PT veteran, Khunying Sudarat Keyurapan, who was one of the PT’s premiership candidates in the 2019 general election.
After years of political polarisation, Thai voters have remained divided between those who support the status quo (pro-government, pro-military, pro-monarchy, and anti-Thaksin parties) and those who want change and a new government to stop General Prayut’s return to power.
The polarisation can be seen in the declining number of “Undecided” in NIDA Poll’s surveys, which dropped from 28.66% in January 2022 down to 8.30% in December 2022, and 2.35% in March 2023.[14]
The struggle for votes will take place within each of the two opposing camps. Consequently, a big gain for the PT will mean a big loss for its allies, Move Forward, and Thai Liberal.
Likewise, in order to do well, General Prayut’s UTN will have to “fish in its neighbours’ ponds”, wooing veteran politicians from the PPRP and other government parties to join the UTN,[15] or convincing their supporters to defect and vote for his UTN’s candidates.
In response, the PPRP appears to have reached an alliance agreement with Bhumjaithai (BJT), the second largest government party of Deputy Prime Minister and Public Health Minister Anutin Charnvirakul. Anutin and two of his senior colleagues had lunch with General Prawit twice in March, most probably to discuss and to conclude the alliance deal.[16]
In the 2019 general election, the PPRP won 116 House seats (19 of them party-list seats), and the BJT won 51 House seats (12 party-list seats). Over the past four years, the BJT’s strength grew to 65 House seats due to defections from other parties.
The PPRP and the BJT are confident that their alliance will attract the support of other government parties, notably Democrat, Chartthaipattana, and Chartpattanakla. Together they hope to have enough House seats to wrest the majority control in the House from a PT-led coalition.
NO ETERNAL ALLIES OR PERPETUAL ENEMIES
What will happen should a coalition led by the PPRP and the BJT fail to secure majority control in the House? Neither PPRP leader General Prawit nor BJT leader Anutin would want to venture into forming a minority government and face inevitable defeat in the House.
To avoid such a predicament, both General Prawit and Anutin have not ruled out the possibility of working with the PT in forming a new government and ending the political polarisation.
However, such a cross-over coalition will most likely exclude General Prayut’s UTN and Move Forward. General Prayut has long been at odds[17] with Thaksin, whose youngest daughter is going to be one of the PT’s candidates for the next premiership. Move Forward, on the other hand, will not work with General Prawit and the PPRP, because it considers them a “vestige of military dictatorship”.
General Prayut can certainly see the manoeuvrings to side-line him and to isolate his UTN. If the UTN fails to win at least 25 House seats, the new and untested party cannot put forth his name in the premiership race in parliament after the general election.
There is not much that General Prayut can do now to improve his situation. He virtually has nothing new to offer Thai voters. In fact, his campaign slogan reads: “ทำแล้ว ทำอยู่ ทำต่อ” [ Done that, still doing, and (will) continue to do].[18] He offers political continuity; but more and more Thai voters want change.
General Prayut is also handicapped by the short duration of his remaining eligibility to hold the premiership, which will reach the constitutional limit of eight years in mid-2025.[19] In other words, even if he somehow succeeds in returning to power, he will have to step down when his eight-year eligibility ends. And another big problem looming ahead in this scenario is that his UTN does not have any well known politician to succeed him in the premiership, except party leader Pirapan Salirathavibhaga.
On 25 March, at a media event to introduce the UTN’s 400 candidates for the upcoming general election, General Prayut officially accepted the party’s nomination of him as the No.1 premiership candidate. Pirapan was appointed the No.2 premiership candidate.[20]
Pirapan (64) used to be one of Democrat Party’s deputy leaders; he is now secretary-general of the prime minister. Being a low-profile operator who is more comfortable working with senior bureaucrats, he lacks firepower when dealing with political heavyweights such as Thaksin, General Prawit, and Anutin.
CONCEIVABLE BUT EXTRAORDINARY SCENARIOS
Deadlock in the selection of a new prime minister will occur if a PT-led coalition fails to secure 376 votes in a joint parliamentary session of MPs and senators, and a rival minority coalition led by the PPRP and the BJT along with a majority of senators stay firm in blocking all of PT’s three premiership candidates.[21]
The deadlock can end in a few scenarios: Either PPRP leader General Prawit or BJT leader Anutin wins the premiership with the support of a majority of senators, and forms a minority government. Then the incumbent prime minister dissolves the House and calls an early general election.
Alternatively, in order to avoid wasting time and resources in another general election so soon, the PT may give in and join the minority coalition, and let either General Prawit or Anutin become the new prime minister. The PT will then be in government. And more importantly, General Prayut will be side-lined for good.
If there is no collusion between the PT and the PPRP & JBT team, then parliamentarians can look for candidates from small parties (those with fewer than 25 MPs), or outsiders not nominated by any party.[22] While the premiership selection stays pending in parliament, General Prayut will continue to head the interim government.
In the meantime, the Election Commission will continue to quietly go over complaints of alleged wrongdoings of several major parties, including the PT, the PPRP, the BJT, and Move Forward. At least 19 cases are active and require further probing.[23] If some of these parties are dissolved, their MPs would need to find new homes. General Prayut’s UTN will be a safe place for these party-less MPs to run to. If this happens, General Prayut may become a more viable option in the premiership race in parliament.
Yet another more dreadful scenario will have a PT-led coalition in power with a PT candidate as new prime minister. Before long, such a new government might want to help Thaksin (73) return to spend his twilight years at home with his family in Thailand. For 16 years, Thaksin has been living in exile overseas, mostly in Dubai. He faces 10 years’ jail from three criminal convictions.[24]
If Thaksin is somehow able to return scot-free, his old enemies from the conservative side of Thai society may instigate a new round of violent protests. This will inevitably lead to bloody clashes and chaos. Before long, some army generals might step in and seize power again under the pretext of restoring peace and order. General Prayut did just that after nearly seven months of anti-Yingluck protests in Bangkok from November 2013 – May 2014. If so, Thailand will then return to square one, wasting a whole decade to the unending struggle between Thaksin and General Prayut.
CONCLUSION
The future of Thailand will be in the hands of Thai voters when they go to cast their ballots on 14 May.
Most voters may have already made up their minds.
In any case, voting for candidates and parties which support a national conciliation should be an option to keep in view.
Thailand needs all the help it can get from forward-looking Thai voters.
The country cannot count on any sacrifice from most of the political old-timers. They have neither eternal allies nor perpetual enemies; they only have permanent self-interests.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
“The Belt and Road Initiative in Cambodia: Costs and Benefits, Real and Perceived” by Jayant Menon
2023/23 “The AUKUS Announcement and Southeast Asia: An Assessment of Regional Responses and Concerns” by Ian Storey and William Choong*
EXECUTIVE SUMMARY
- The plan by Australia, the UK and US (AUKUS) to provide the Royal Australian Navy (RAN) with nuclear-powered submarines from the early 2030s entails significant financial, operational, technical and industrial challenges.
- It has also elicited both negative and positive reactions from regional states. Southeast Asian responses to the AUKUS announcement have been mixed and essentially unchanged since 2021.
- The Philippines, Singapore and Vietnam appear to tacitly support, or at least understand the motivations behind, AUKUS. Malaysia and Indonesia have been more critical and have reiterated their concerns about arms racing, regional stability and nuclear non-proliferation.
- The various concerns about AUKUS can probably be mitigated. Australia has pledged to adhere to its nuclear non-proliferation commitments and implement safeguards. AUKUS will not ‘trigger’ an arms race because it is a reaction to China’s rapid military modernisation and build-up of military capabilities.
* Ian Storey and William Choong are Senior Fellows in the Regional Strategic and Political Studies Programme at the ISEAS – Yusof Ishak Institute. Ian is the co-editor of Contemporary Southeast Asia and William is the editor of Fulcrum.
ISEAS Perspective 2023/23, 29 March 2023
INTRODUCTION
On 13 March 2023, US President Joe Biden, Australian Prime Minister Anthony Albanese and British Prime Minister Rishi Sunak met in San Diego, California to announce a timetable to provide the Royal Australian Navy (RAN) with eight to 12 nuclear-powered attack submarines over the next three decades.[1]
Since the AUKUS (Australia-United Kingdom-United States) initiative was first announced on 15 September 2021, it has generated considerable controversy, debate and speculation. Canberra’s cancellation of a US$90 billion contract for 12 French-designed Barracuda-class conventionally-powered attack submarines caused a rift, albeit a temporary one, in the three countries’ relations with Paris. Defence analysts in Australia and elsewhere questioned whether the country would be able to fund, build and operate the complex naval vessels in a relatively short period of time. Observers also weighed the pros and cons for regional security dynamics and the impact AUKUS would have on Canberra’s already strained relations with Beijing.
While China reacted negatively to AUKUS, Southeast Asian responses were mixed and more nuanced.[2] Malaysia and Indonesia expressed concern that AUKUS might fuel regional arms racing, undermine nuclear non-proliferation regimes and contravene key ASEAN security initiatives such as the Zone of Peace, Freedom and Neutrality (ZOPFAN) and the Southeast Asia Nuclear Weapon-Free Zone (SEANWFZ). Other countries, including Singapore, the Philippines and Vietnam, were generally more sanguine about AUKUS, and expressed understanding for Canberra’s decision. Following the March 2023 announcement, their respective positions remained essentially unchanged, though there were changes in tone and emphasis.
The purpose of this Perspective is twofold. First, it provides a brief analysis of the motivations for AUKUS and the challenges facing the initiative. Second, it examines regional responses to the March announcement, identifies changes in approach and assesses the validity of concerns raised by some countries.
AUKUS: RATIONALES, TIMETABLE AND CHALLENGES
In San Diego, the AUKUS partners reiterated that the principal rationale for the initiative is to promote the ‘Free and Open Pacific’ concept, and to deter and defend against challenges to the international order, primarily posed by China.[3] A secondary rationale is to modernise and connect America’s alliances in the Atlantic and Pacific. A third reason is to help Australia defend its maritime trade routes.
Canberra’s original decision to cancel the Barracuda-class submarines was based on a strategic assessment that China’s rapid military modernisation, and assertive actions in the South China Sea and Taiwan Strait, had significantly altered regional security dynamics. To better prepare Australia for a more contested security environment, the government decided the RAN needed to operate nuclear-powered submarines rather than conventionally-powered ones because they offered advantages in stealth, speed and endurance. In the 18 months since the original announcement, those assessments have not changed, and have only been reinforced by China’s coercive policy in the South China Sea and against Taiwan.
To achieve the goal of providing Australia with nuclear-powered boats, the AUKUS partners laid out a multi-decade three phase timetable.[4] In Phase 1, from 2023 onwards, US and UK submarines will increase port visits to Australia, while RAN personnel will embed on board American and British submarines, and civilians will train at the two countries’ submarine industrial facilities. Phase 2 envisages Australia acquiring three to five US-built Virginia-class submarines beginning in the early 2030s. In Phase 3, from the late 2030s, Australia will begin construction of eight AUKUS-class submarines which will be based on a UK-design but which will incorporate advanced US technology. The RAN will commission its first AUKUS submarine in the early 2040s.
Realising this ambitious plan entails considerable financial, operational, technical and industrial challenges never before faced by Australia. The programme will require approval from the US Congress to sell the submarines to Australia and transfer sensitive technology to the UK and Australia. The whole-of-life cost of the programme has been estimated at US$180 billion to US$250 billion, but will inevitably be revised upwards as production schedules slip and technical problems arise. In just ten years, Australia will have to train hundreds of naval and civilian personnel to operate and maintain the Virginia-class submarines. By the late 2030s, Australia will have had to develop the industrial capacity to build eight AUKUS-class boats in Adelaide.
As proponents and detractors of AUKUS debated these challenges, China and Russia repeated their strong opposition to the trilateral initiative. Both countries accused the three countries of trying to ‘contain’ and ‘encircle’ them by extending the NATO alliance into the Indo-Pacific, fuelling arms racing in the region and undermining the Nuclear Non-Proliferation Treaty (NPT) and International Atomic Energy Agency (IAEA) safeguards.[5] Southeast Asian responses have been more measured and nuanced, but have echoed some of Beijing’s and Moscow’s concerns. The following section examines the positions of the key regional maritime states.
REGIONAL RESPONSES
Among Southeast Asian countries, the responses to the first AUKUS announcement in September 2021 were varied. The Philippine national security establishment welcomed the trilateral arrangement, while Singapore and Vietnam were implicitly supportive. Malaysia and Indonesia, however, warned of the risks of nuclear proliferation, arms racing and the risk of AUKUS provoking aggressive actions by some countries. Southeast Asian responses to the AUKUS update of March 2023 evinced growing acceptance of the need for the nuclear power technology sharing arrangement: the Philippines remained supportive and Vietnam maintained its accommodative position. There was no statement from Singapore, suggesting that the country’s position remains unchanged. Malaysia and Indonesia tamped down their opposition to the deal, while at the same time indicating their acceptance of the strategic rationale for the arrangement and the concurrent need to support regional peace and stability.
The Philippines
The Philippines’ Department of Foreign Affairs’ (DFA) response to AUKUS on 16 March was more measured than then Foreign Secretary Teddy Locsin’s 2021 statement, but still generally positive.[6] The DFA stated that the Philippines appreciated the efforts made by the AUKUS parties to keep them updated on the developments, and noted the “assurances made at the highest levels that AUKUS will contribute to the preservation of regional peace and stability”. The DFA said that Indo-Pacific partnerships or arrangements such as AUKUS should “support our pursuit of deeper regional cooperation and sustained economic vitality and resilience” and should uphold ASEAN centrality and reinforce a rules-based international order. However, the DFA urged the AUKUS parties to cooperate with the IAEA to ensure that their activities met the “relevant international nuclear safeguards and non-proliferation standards”.
Manila’s supportive position is not surprising: the country has seen repeated instances of Chinese coercion in the South China Sea. It has also offered new access locations to the US military, which would facilitate American force projection in the event of a military contingency in the Taiwan Strait. This means the Philippines would almost certainly be drawn into the fray given its alliance with America and geographical proximity to Taiwan. While AUKUS is unlikely to deter China from doubling down on its assertive policy in the South China Sea, it might help deter Beijing from taking military action against Taiwan.
Vietnam
Vietnam’s reaction to the San Diego statement was consistent with its response to the 2021 announcement. On 17 March, the Foreign Ministry stated that all countries should contribute towards “peace, stability, cooperation and development in the region and the world” and that nuclear energy should be used for peaceful purposes and must ensure the safety of humans and the environment.[7] In view of its territorial and jurisdictional disputes with China in the South China Sea, and increasingly closer defence ties with the United States, Vietnam’s mild statement may be interpreted as a tacit endorsement of AUKUS.
Singapore
Singapore’s position on AUKUS, if unchanged from 2021, underscores its support for America’s military presence in the region which the country views as vital to maintaining the balance of power. In the view of the island state, this balance should not swing either to China or the US; in this sense, AUKUS and the capabilities it brings could be seen as restoring an equilibrium in the balance.
Malaysia and Indonesia
In its statement of 14 March 2023, Malaysia expressed the same concerns as in 2021 (about arms races and proliferation risks),[8] though there was a marked change in tone. Malaysia said it appreciated the “readiness on the part of the three [AUKUS] countries” in engaging with Kuala Lumpur at “various levels” and sharing the latest updates and future projections for AUKUS prior to the announcement. It acknowledged the “need of countries in terms of enhancing defence capabilities taking into account respective requirements and concerns”.[9] Nonetheless, Malaysia reiterated its demand that AUKUS should “fully respect and comply” with Malaysia’s policy on the operation of nuclear-powered submarines in its waters, as well as the United Nations Convention on the Law of the Sea (UNCLOS), ZOPFAN and SEANWFZ.[10] Malaysia stressed the importance of “transparency and confidence building among all countries”, and called on them to refrain from any “provocation” that could trigger an arms race or affect regional peace and security.[11]
Indonesia’s reaction following the March 2023 AUKUS announcement was also more nuanced than its 2021 statement and may be interpreted as being more accommodating.[12] The Foreign Ministry said it had been “closely following” the AUKUS partnership, in particular, the pathway to achieving “critical capability”. The ministry added that it is critical that all countries maintain peace and stability in the region. Jakarta said it expected Australia to remain “consistent in fulfilling” its NPT and IAEA obligations, and also to ensure that it develops a “verification mechanism” that is “effective, transparent and non-discriminatory”.[13] It is worth noting here that the concerns raised in 2021 — about arms racing and power projection — were not mentioned this time.
Malaysia and Indonesia’s emphasis on the need for AUKUS to support regional peace and stability mirrors Singapore’s expressed position in 2021, calling for the trilateral deal to contribute constructively to peace and security in the region. It appears that persistent diplomacy by AUKUS countries, particularly Australia, to explain the trilateral deal to Southeast Asian countries has softened the ground. Australia, for example, made 60 calls in March to leaders in Southeast Asia and the Pacific to discuss the agreement.[14] In March, Australia’s chief of navy was in Singapore and Indonesia to address concerns about AUKUS.[15] The latest responses by Kuala Lumpur and Jakarta suggests a growing cognizance of the need for a regional balance of power and a need to respond to China’s growing defence capabilities and assertiveness.
ASSESSING REGIONAL RESPONSES
The concerns raised by Southeast Asian countries can be categorised into three groups: fears about interference by external powers and nuclear proliferation; concerns about arms racing and aggressive actions by major powers; and the use of Indonesia’s archipelagic sea lanes in the event of a future conflict (say, in the Taiwan Strait).
Interference by Extra-ASEAN Powers and Proliferation Risks
Malaysia’s reiteration of the need for ZOPFAN and SEANWFZ underscores its desire for a region free from the influence of external powers and a deep-seated resistance to the presence of nuclear weapons in the region. As noted by the authors in 2021, ZOPFAN is a dead letter while SEANWFZ is not an instrument that Australian can sign (it is only open to accession by the five recognised nuclear-weapon states, but none of them has signed it).[16]
Indonesia has called on Australia to adhere to its NPT and IAEA obligations, but this appears to be more hortatory in nature rather than belying any real suspicion that Australia would cross the nuclear threshold. Australia has an “exemplary” record in non-proliferation.[17] It signed the NPT in 1973 and implemented enhanced NPT safeguards under the Additional Protocol in 1997. It is a founding member of the IAEA. It is true that from Canberra’s perspective, its strategic environment has deteriorated; still, it does not feel the need to even broach the idea of going nuclear (which is the case for Japan, which now has a domestic debate about whether nuclear weapons outside the US extended deterrence umbrella are feasible).
A more serious concern is the risk of non-nuclear weapons states using the cover of acquiring nuclear-powered submarines as a covert route to nuclear weapons. In an opinion editorial, the Jakarta Post argued that Canberra’s assurances about abiding by the NPT aside, there is no guarantee that “other countries will not follow suit”.[18] The point echoes an argument made by James Acton that countries can use Australia’s precedent as a non-nuclear weapon state as a cover to develop nuclear weapons.[19] The issue, however, remains largely hypothetical. Firstly, Australia has taken practical steps to ensure compliance with the NPT and adhere to IAEA safeguards. Australia has asked the IAEA to start talks on arrangements required under Article 14 of its Comprehensive Safeguard Agreement. Under the agreement, the IAEA has the right and obligation to apply safeguards to the use of nuclear material in Australia or carried out under its control anywhere.[20] Secondly, if other non-nuclear states such as Iran were to take the aforementioned “covert route” to nuclear weapons, it would be detected by the non-proliferation regime and acted upon.
Arms Racing
On the issue of arms racing, it is worth noting that only Malaysia has broached the issue following the March 2023 announcement by the AUKUS countries. Malaysia’s position mirrors concerns voiced by China after the announcement was made. Again, however, it is worth noting that Malaysia’s position has shifted from stating that AUKUS is a “catalyst” for arms races, to a stance where it urges all countries to refrain from provocations that would “potentially trigger an arms race”.
As argued by the authors previously, concerns about AUKUS sparking an arms race fail to distinguish between cause and effect.[21] It is a shared view that China’s military build-up in the region has precipitated security concerns by other states. In its March 2023 update of the 2021 Integrated Review of defence and foreign policy, the UK underscored the need to “shape” the UK’s strategic environment with like-minded partners all over the world, given that China poses an “epoch-defining challenge” to the international order (the phrase was used four times in the 59-page document).[22] Japan’s December 2022 National Security Strategy struck the same tone, noting that China’s rapid enhancement of military power, attempts to change the status quo in the East and South China Seas, and augmented partnership with Russia challenged the international order.[23]
Currently, there is little or no evidence of arms racing in the Indo-Pacific, as seen in previous episodes such as the Britain and Germany at the turn of the twentieth century or the US and the Soviet Union in the 1950s and 1960s. As Tim Huxley argues, China is a “long way” from competing with the US in terms of military effort; moreover, no other regional states comes close to competing with China.[24] In 2018, China’s defence spending stood at US$151.5 billion against America’s US$602.8 billion; corresponding figures for 2021 stood at US$207.3 billion and US$754 billion respectively.[25] Moreover, Southeast Asian countries’ defence spending as a proportion of GDP have remained largely stable, and have tracked relatively rapid economic growth.[26] Evinced fears by Malaysia and Indonesia about arms racing stem more from concerns about a potential (rather than extant) arms race in Northeast Asia that could spill over into Southeast Asia. If such an arms race does occur in Northeast Asia, Southeast Asia is “best obliged” to come up with a “predictable, standard response” (either enhancing self-reliance or seeking external partners).[27] Even on the former, Southeast Asian countries would “fall short” of attaining even asymmetrical means such as anti-submarine systems.[28]
Fears about eight to 12 AUKUS submarines sparking an arms race are also misplaced when compared to China’s rapid acceleration in its defence spending and increase in the PLA’s capabilities. The collective tonnage of warships launched by China between 2014 and 2018 was 678,000 tonnes －larger than the aggregate tonnages of the navies of France and Spain combined.[29] The PLA-Navy currently operates six nuclear-powered attack submarines, six nuclear-powered ballistic missile submarines and 44 diesel-powered/air-independent powered attack submarines. It would likely maintain between 65 to 70 submarines through the 2020s[30] — years before the first AUKUS submarine becomes operational. Overall, China’s defence budget for FY2022 increased 7 per cent over the previous year. The nominal size of China’s defence budget is about 2.2-fold bigger than the corresponding figure 10 years earlier.[31]
Closure of Indonesian Archipelagic Sea Lanes
There is also the question as to whether Indonesia might close off its archipelagic sea lanes to AUKUS submarines. Such access will be vital for AUKUS boats.[32] A retired two-star army general and member of Indonesia’s parliamentary committee overseeing foreign affairs, defence and intelligence said that Indonesia’s “standpoint is clear that [our country’s archipelagic sea lanes] cannot be used for activities related to war or preparation of war or non-peaceful activities”.[33] This would constitute a concern for the three AUKUS countries. If AUKUS submarines are prevented from entering Indonesian archipelagic waters and thereafter into say, the Taiwan Strait during a military contingency, there could be a loss in stability that could affect the region as a whole.
Officials from the AUKUS countries, however, are confident that their submarines will continue to operate, closure or not. Firstly, according to UNCLOS (to which Indonesia is a party), all ships, including submarines, are allowed to navigate through archipelagic waters under the right of “archipelagic sea lanes passage”. This right grants ships to navigate in their “normal mode” －as applied to submarines, this means they can remain submerged.[34] Dita Liliansa’s analysis is worth quoting at length here:
“While UNCLOS promotes peaceful uses of the seas and oceans, it contains no provision permitting archipelagic states to suspend the right of archipelagic sea lanes passage through their archipelagic waters. Rather, it specifically provides that there shall be no suspension of the right of archipelagic sea lanes passage [emphasis added].”[35]
Secondly, for decades US Navy submarines have been traversing regional waters; when Australia commands the AUKUS subs, it is expected that they will conduct operations in a similar manner.[36] As Collin Koh states, archipelagic sea passage is the same as transit passage －neither can be suspended. According to him, Indonesia could suspend innocent passage in its archipelagic waters outside archipelagic sea lanes. In such cases, however, Jakarta can only do it “temporarily, and in specific areas”.[37] Thirdly, AUKUS officials intimate that even a closure of the sea lanes (while unlikely) will not compromise submarine operations, partly because Indonesia lacks the capabilities to locate and track them.
CONCLUSION
The plan to provide the Australian Navy with nuclear-powered attack submarines within the next decade is one of the most controversial defence procurement programmes in the Indo-Pacific. Implementing the multi-decade endeavour will be extremely costly, and technically and operationally challenging. Several Southeast Asian countries, such as Malaysia and Indonesia, have reiterated their concerns that AUKUS could undermine regional stability and weaken global nuclear non-proliferation regimes. Officials from the three AUKUS countries－but especially Australia－have spent considerable efforts to explain the strategic rationales for AUKUS and assuage their concerns, resulting in a more nuanced stance than when the trilateral security initiative was first announced in 2021. However, it is likely that Malaysia and Indonesia will continue to express disquiet regarding the effect AUKUS submarines will have on security dynamics in the region.
ENDNOTES
For endnotes, please refer to the original pdf document.
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2023/22 “Strong Party-to-Party Relations Cement Cambodia-China Bilateral Ties” by Chheang Vannarith
EXECUTIVE SUMMARY
- The Cambodia-China relationship has been significantly shaped and enhanced by party-to-party engagement. The Cambodian People’s Party (CPP) and the Chinese Communist Party (CPC) have played an instrumental role in forging political trust and personal ties between the leaders of the two countries.
- The two political parties contribute to the building of political trust through mutual learning and understanding, developing common strategic narratives on certain international issues and aligning certain foreign policy agenda.
- The strategic interests of the CPP in engaging the CPC include promoting performance-based legitimacy and party-building. The CPC has gained a solid political and economic foundation and strong influence in Cambodia through its comprehensive engagement strategy, which includes party diplomacy.
- Cambodia has increasingly relied on China for its economic growth, and this has given China an advantage, and it is here to stay in terms of political, economic, and social footprint and influence.
* Vannarith Chheang is the President of the Asian Vision Institute and former Visiting Fellow at ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2023/22, 28 March 2023
INTRODUCTION
Under Prime Minister Hun Sen’s leadership, bilateral ties between Cambodia and China have been continuously strengthened. In 2010, the relationship was upgraded to a comprehensive strategic partnership. From 1999 to 2022, Hun Sen made seven official visits and eight working visits to China. The latest working visit to China was in February 2022 to mark the third anniversary of his visit on 10 February 2020 to show political support for China in the fight against the COVID-19 pandemic. In November 2020, Chinese President Xi Jinping awarded the Friendship Medal of the People’s Republic of China to Her Majesty the Queen-Mother Monineath Sihanouk.
The political parties of both countries play a critical role in forging this trust-based and result-oriented relationship. This paper sheds light on the cooperation between the Cambodian People’s Party (CPP) and the Communist Party of China (CPC) and explains how party-to-party ties affect the quality of the overall bilateral relationship. It argues that the political parties contribute to the building of political trust through mutual learning and understanding, developing common strategic narratives on certain international issues, and aligning certain foreign policy matters.
BACKGROUND
Cambodia-China relations have been remarkably enhanced after the signing of the comprehensive strategic partnership in 2010. Significantly, China was the country Cambodia signed its first comprehensive strategic partnership agreement with. During the fight against Covid-19 and the subsequent socio-economic recovery, Cambodia was increasingly dependent on China, which became Cambodia’s top trading partner, investor and donor.
Economics explains most clearly Cambodia’s foreign policy behaviour towards China, especially in infrastructure development, trade, investment, and tourism. China perceives Cambodia as a trustworthy partner and a launchpad to expand its geopolitical and geo-economic influence in the Mekong region. Meanwhile, Cambodia perceives China as its most important development partner, for providing it with significant resources to strengthen the output legitimacy of its government.
Cambodia has been supportive of China-proposed international initiatives such as the Belt and Road Initiative (BRI) and the Community of Shared Future. In April 2019, the action plan for forging the Cambodia-China Community of Shared Future (2019-2023) was signed by the two parties, covering a wide area of cooperation including party-to-party cooperation. Both sides have agreed to give full play to the important role of inter-party exchanges in boosting bilateral cooperation and promoting greater development of Cambodia-China relations in the new era.
The CPP and CPC formed official party-to-party ties in February 1996 during the visit of a CPP delegation to Beijing, forging a partnership based on the principles of independence, equality, mutual respect and non-interference. From 1996 to 2020, there were more than 60 official visits made to each other. In August 2011, both parties signed a Memorandum of Understanding (MOU) on cooperation and exchange. In September 2017, another agreement was signed to deepen party-to-party ties. And most recently in February 2023, party-to-party relations were featured in the joint statement between the two countries on building a Cambodia-China Community with a Shared Future in the New Era. The statement reads that “both sides agreed to strengthen political party cooperation and exchanges in various areas and at all levels to enhance exchanges on governance and personnel training; promote cooperation between counterpart departments on supervision, organisation and publicity; and advance friendly youth exchanges.”[1]
Concerning human resource development and capacity building, CPC has provided scholarships and short-term training and field visits to key members of the CPP. The training programmes aim to promote personal friendship, develop a shared worldview, and share best practices in governance. From 2006 to 2019, the CPC offered more than 40 scholarships to the CPP staff members to pursue higher education at various universities in China, mainly in public administration. Moreover, from 2015 to 2019, there were five field visits to China per year. At the outbreak of Covid-19 pandemic in 2020, the CPC organised two online training courses. Cooperation on capacity building is expected to gain new momentum in 2023 after the removal of travel restrictions.
STRATEGIC IMPORTANCE
The enhanced party-to-party ties have significantly contributed to the overall bilateral relations in three areas. Firstly, this is seen in the promoting of mutual political trust through personal ties and mutual understanding. The exchanges of visits at all levels between the two parties have cultivated personal ties and friendship between the leaders of the two parties.
At the bilateral meeting in August 2018, then-Minister Song Tao, Head of CPC’s International Department, and Prime Minister Hun Sen, President of the CPP stressed the need for broadening pragmatic cooperation in all fields.[2] In the meeting between Minister Liu Jianchao and Hun Sen in August 2022, China pledged to increase the import of agricultural produce from Cambodia and deepen cooperation on green energy.[3] Liu Jianchao also met General Hun Manet, the future Prime Minister candidate from CPP.
Notably, Hun Manet was first introduced to President Xi Jinping during Hun Sen’s trip to Beijing in February 2020. Various Chinese leaders have met Hun Manet to further promote mutual understanding and connect future generations of leadership. For instance, State Councillor and Foreign Minister Wang Yi met Hun Manet during his participation at the ASEAN Foreign Ministers Meeting and related meetings in August 2022, ending with a renewed commitment to advance the China-Cambodia community with a shared future and to further develop China-Cambodia solidarity and friendship.[4] In January 2023, a Youth House was launched to promote personal ties and mutual learning between the young leaders from the two parties. The launching event was presided over by General Hun Manet and Minister Liu Jianchao. Indeed, China has built a solid foundation in Cambodia, in the politico-economic and the socio-cultural realms.
Secondly, bilateral ties have been strengthened where the developing shared worldviews and strategic narratives is concerned. The two parties have supported each other in socialising and diffusing common strategic concepts, norms and initiatives at various multilateral platforms. Speaking at the Leaders’ Summit between the CPC and World Political Parties in July 2021, Hun Sen said “maintaining political stability and placing the happiness, prosperity and well-being of the people at the heart of major political decisions of the CPC is a good example for other political parties to learn from”.[5] This statement reflects the convergence of strategic interest and worldviews between the two parties.
In 2014, President Xi Jinping introduced a new Asian security concept featuring mutual trust, mutual benefit, equality and coordination. Moreover, in 2022, President Xi Jinping proposed a Global Security Initiative featuring common, comprehensive, cooperative and sustainable security. In a similar vein, at the ASEAN Defence Ministers Meeting Plus (ADMM Plus) in Siem Reap in August 2022, Prime Minister Hun Sen introduced the “harmonious security’ concept featuring mutual respect, mutual understanding, mutual trust, and mutual interest. To realise ‘harmonious security”, Hun Sen proposed five elements, namely (a) promoting ASEAN centrality, (b) promoting open, inclusive and rules-based regional security architecture, (c) strengthening people-centred and trust-based cooperation, (d) promoting common and comprehensive security and (e) promoting cooperative security.
The Global Security Initiative concept and the harmonious security concept are complementary. The key difference here is the concept of rules-based international order. China is reluctant to use this term in its foreign policy narrative. Another difference relates to the understanding of and approaches to the new Asian security concept proposed by China with an emphasis on an Asian security that belongs to Asia. President Xi stated that “it is for the people of Asia to run the affairs of Asia, solve the problems of Asia and uphold the security of Asia”.[6] The Cambodia-proposed harmonious security concept is more open and inclusive, and although there are slight normative differences between it and China’s New Asian Security, both focus on common, comprehensive, and cooperative security.
Thirdly, we see an aligning on certain foreign policy matters. Being driven by common strategic interests, the two political parties have aligned their foreign policy agenda, especially within the frameworks of CPC-led multilateral platforms such as BRICS Political Parties, Think Tanks and Civil Society Organisations Forum,[7] CPC in Dialogue with Political Parties from Southeast Asia,[8] and World Political Parties Summit. Moreover, Cambodia and China work closely within the framework of the International Conference of Asian Political Parties (ICAPP), the world’s largest political organisation consisting of more than 300 political parties from the Asia Pacific region. Cambodia supports China’s efforts in promoting a new model of international relations by fostering a new model of party-to-party relations in which “political parties seek common grounds while shelving differences, respect and learn from one another.”[9] This is also in line with Cambodia’s foreign policy objective of promoting mutual respect, mutual understanding, mutual trust and mutual interest for peace and prosperity (M4P2).
It is worth noting that the CPP firmly adheres to the “One-China” policy and has been a strong advocate of Chinese international initiatives such as the Belt and Road Initiative (BRI), the new Asian security concept, the Community with a Shared Future, the Global Development Initiative (GDI), and the Global Security Initiative (GSI).[10] Moreover, the CPP and CPC share similar views on promoting South-South cooperation and the Non-Aligned Movement. Hun Sen, in particular, strives to revitalise the spirit and momentum of these movements to protect the legitimate interests of developing countries.[11] Due to this strategic convergence of interests and worldviews, Cambodia is generally seen as a “natural ally” of China.
CPP’S STRATEGIC INTERESTS
The CPP’s strategic interests in engaging the CPC include the enhancement of the party’s performance legitimacy,[12] and party-building. China is Cambodia’s top trading partner as well as investor. In 2021, the total fixed-asset investment from China hit USD 2.32 billion and the bilateral trade volume reached USD 11.2 billion. China has provided a grant of USD 2.06 billion to Cambodia from 2001 to 2022. Moreover, China accounts for more than 40 percent of Cambodia’s foreign debt, which topped USD 10 billion in 2021.[13] China sold more than 40 million doses of COVID-19 vaccines and donated 13.3 million doses to Cambodia. It has also expressed its support of a development path for Cambodia best suited to its national conditions,[14] indicating that China will not interfere with Cambodia’s domestic affairs.
Although Cambodia is increasingly reliant on China on economic and security mattes, it does not mean that Cambodia has compromised its strategic autonomy and independence. For instance, Cambodia is the first Southeast Asian country to openly register support for Japan’s Free and Open Indo-Pacific and to co-sponsor UN resolutions to condemn Russia’s invasion of Ukraine.[15] Cambodia’s position on Ukraine has helped it to forge closer strategic ties between Cambodia and the US and its allies in Europe and Asia. These choices are expressions of Cambodian autonomy. Additionally, the CPP Congress held on 28-29 January 2023 articulates CPP’s foreign policy and its focus on independence and international law.[16]
Party building constitutes a key pillar in party-to-party relations. Party building requires theory development and modernisation, organisational capacity and leadership, and discipline and proper conduct to win the hearts and minds of the people. The CPP has adopted the approach of “reflecting in the mirror, taking a bath, rubbing off dirt, taking a treatment, and undergoing a surgery” as a systematic reform process.[17]However, the reform results are limited. Cambodia remains one of the most corrupt countries in the world. In 2021, it was ranked 157 out of 180 countries in the Corruption Perception Index, with a score of 23 out 100.[18]
As part of the party-building process, the young generation of the CPP leadership tends to prefer centrist politics. Suos Yara, the spokesperson of the CPP, suggested adopting centrist democracy as the political ideology of the party.[19] Centrist democracy is the middle path between the extreme left and extreme right. Centrist democracy stresses the values and principles of social market economy in which a free-market economy goes hand in hand with social and environmental protection and the promotion of humanity. The CPP believes that state intervention is necessary to ensure that the fruits of growth are shared in a just and fair manner. Moreover, being inspired by the success story of the CPC in poverty reduction, the CPP is similarly pursuing a people-centric development strategy to ensure that the people are the owners of the development and that they fairly receive the fruits of development and progress.[20] However, corruption and the mismanagement of state resources remain the core governance issue in the Kingdom.[21]
Both parties have exchanged views on governance-related issues such as the development of socialist democracy, consultative democracy, and social market economy. Indeed, these governance concepts are in line with the CPP’s development strategy as outlined in its five-year development strategy. The CPP is drafting another five-year plan for 2023-2028 by focusing on five pillars, namely human capital development, economic diversification, private sector development and employment, resilient, sustainable and inclusive development, and digital economy and society. At the centre of the five pillars, the plan features governance reforms aimed at attaining institutional building, clean public services, an effective and clean justice system, efficiency in governance, and private sector governance.
CONCLUSION
The Cambodia-China relationship has been shaped by the quality of party-to-party cooperation. The CPP and the CPC have been instrumental in cementing political ties. After forming an official relationship in 1996, the two acted in a wide range of cooperation areas such as exchange of visits at all levels, sharing of experiences in party building and state governance, and human resources development. Moreover, both parties have formed shared worldviews and strategic narratives on certain international issues, while coordinating foreign policy postures. The CPC’s party diplomacy towards Cambodia has been proactive and robust.
The CPP regards the CPC as a key source of performance legitimacy, especially in infrastructure development and the promotion of investment, trade, and tourism. It is argued that Cambodia increasingly relies on China for economic growth. Such power asymmetry gives China leverage over Cambodia in terms of political, economic, and social influence. CPP-CPC ties will continue to shape, if not define, the overall bilateral relationship between the two countries and their people.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
2023/21 “From Laissez Faire to Restriction to Cooperation: A History of Thai Responses to China’s Influence on Thai Chinese Education” by Sivarin Lertpusit
EXECUTIVE SUMMARY
- Education was employed as an effective soft power[1] tool in developing ‘Chinese nationalism’ among overseas Chinese in Thailand from the early 1900s through to the 1940s.
- Some schools had ties to the Chinese Communist Party (CCP) and the Kuomintang (KMT). Political ideologies, communism and Sun Yat Sen’s Three Great Principles were taught secretly in Chinese schools, and these schools also served as the nerve centre of Chinese activism in Thailand.
- In an effort to stem the spread of political ideologies from China, Thai governors introduced ‘control’ laws in the 1930s and encouraged ‘assimilation’ in the 1940s. During the 1960s, Chinese nationalist sentiments waned as ethnic Chinese assimilated into Thai culture.
- Since the establishment of Sino–Thai ties in 1975, educational partnerships have been formed. The 2000s saw active government-to-government cooperation between the Chinese Language Council International (Hanban) and Thailand’s Ministry of Education.
- The People’s Republic of China (PRC) provided comprehensive support for Chinese language education in Thailand, including Confucius Institutes (CIs), Confucius Classrooms (CCs), volunteer teachers, scholarships, exchanges and the assignment of working committees.
- Educational cooperation has been advancing as relations between Thailand and the PRC strengthen. Language proficiency in Chinese is essential for maintaining commercial ties between the two countries at both the provincial and institutional levels.
*Sivarin Lertpusit is Assistant Professor at the College of Interdisciplinary Studies, Thammasat University and a former Visiting Fellow at ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2023/21, 27 March 2023
INTRODUCTION
As home to around 7.5 million people of Chinese ancestry, Thailand tops the list of countries with the most significant Chinese diaspora population.[2] Making up the largest ethnic group in Thailand, people of Chinese ancestry exert a significant influence over the country’s economy. However, unlike the Chinese in Singapore or Malaysia, Chinese ethnic minorities in Thailand typically cannot speak their ancestral languages. Between 1930 and 1950, the Thai government had imposed strict regulations on Chinese educational institutions, causing the transmission of the Chinese language to be lost.
In recent years, however, the bond between Thailand and the People’s Republic of China (PRC) has been strengthened. The Thai and Chinese governments enjoy a rather high degree of cooperation in the educational field. Thailand is home to the most prestigious Confucius Institutes (CIs) in the Greater Mekong Subregion. Furthermore, Thai students are the second biggest group of foreign students furthering their studies in China. As a direct result of the collaboration between the two countries, a significant number of Memoranda of Understanding (MOU) and educational institutions have been established. Thus, the question arises: How and why has the PRC succeeded in ‘reconnecting’ the cultural link with Thailand?
CHINESE INFLUENCE ON THAI EDUCATION BEFORE THE 1960s: FROM LAISSEZ FAIRE TO RESTRICTION
The arrival of Chinese in Thailand dates to the 19th century. Nonetheless, the very first Chinese school, the Hua Eah school, was not founded until 1908, following the visit of Dr Sun Yat Sen. During his four visits to Thailand between 1903 and 1908, he attempted to persuade overseas Chinese in Thailand to embrace the revolution in their homeland.[3]
With the support of the Zhong Hua Association and the Tong Meng Hui (Sun Yat Sen’s Revolutionary Alliance), four Chinese schools, one library and a lecture hall were established. Curricula were adapted from reformed Chinese education, and Sun Yat Sen’s Three Great Principles were promoted by the teachers, who were themselves revolutionaries. It soon became obvious that the Hua Eah school had been established for political reasons, and the school was shut down in 1911, in the wake of the political revolution in China. After the revolution, these teachers returned to China to serve the new Republic of China (ROC).
Following the closure of the Chinese schools established by Sun Yat Sen, local Chinese groups established dialect schools to retain their Chinese identity and networks, as illustrated in Table 1. Chinese dialect schools grew significantly, from 30 in 1920 to 271 in 1933. After 1933, however, the number of Chinese schools in operation fluctuated greatly.
Table 1: Local Chinese Schools 1911-1921
| Year | School | Dialect Groups |
| 1911 | Xin Min | Five Dialects |
| 1913 | Jin-Te | Kejia (Hakka) |
| 1914 | Ming-Te | Cantonese |
| 1916 | Pei-Yuan | Hokkien |
| 1921 | Yu-Min | Hainan |
Source: Skinner 1957 and Kajadpai 1974
Prior to the 1930s, the Nationalist Party (KMT) dominated Chinese schools in Thailand. By 1929, the Chinese Communist Party (CCP) had emerged and begun to participate in nationalist struggles alongside KMT.[4] Both parties cultivated their political beliefs within the networks of their respective schools. As a result, the Chinese schools in Thailand were a useful tool to instil Chinese patriotism among the overseas Chinese. KMT-influenced schools included Huo Kiew Kong Hug, Puey Eng, Puey Huo and Dong Huo Kong Hug. Meanwhile, schools such as Jin Tek, Eeng Chai, Hiep Yuk Two and Mi Gang were suspected of having ties to the Communist Party.[5]
As the number of Chinese schools grew, the Thai government began to closely monitor the political activities in Chinese communities, especially in Chinese schools. The political shifts in China were reflected among Chinese activists in Thailand[6]. Chinese nationalism grew in response to political tensions in China and the Japanese invasion of mainland China in 1931. In 1933, approximately 270 Chinese schools also served as secret headquarters for Chinese activists.
CHINESE SCHOOLS: THAI LEADERS’ PERSPECTIVES AND SUBSEQUENT RESTRICTIONS
Chinese nationalism in Thailand emerged after the 1911 Xinhai revolution. Nurtured in the Chinese schools in Thailand, Chinese nationalism soon came into conflict with Thai nationalism. King Rama VII, the monarch of Siam, mentioned the Chinese as a key issue in a communication to Francis B. Sayre on 23 July 1926. While he acknowledged that his country had profited from the existence of the Chinese people before the Xinhai revolution, he thought that the subsequent emergence of Chinese nationalist sentiments had resulted in an unmanageable state of chaos.[7] Another prominent figure, Field Marshal Plaek Pibulsongkram, a notable Thai leader renowned for his anti-Chinese and pan-Tai sentiments, promulgated policies to minimize the economic influence of the overseas Chinese and implemented the Occupation Act of 1941 that reserved jobs for Thai citizens.[8] In 1939, he announced his intention to liquidate all Chinese schools.[9]
The Private Schools Act of 1918 and the Primary School Act of 1921 were the first laws passed in Thailand which explicitly sought to promote Thai nationalism through the educational system. These acts required Chinese schools to be nominally under the supervision of the Thai government.[10] They also required all teachers, including foreign ones, to be fluent in Thai and to commit at least three hours per week to teaching Thai. After Pibulsongkram came to power, the acts were made more stringent. In addition to Thai language proficiency requirements, the Private Schools Act of 1936 prohibited political activities on school grounds.[11]
To further suppress the Communists and to some extent, keep the KMT in check, the Communist Act of 1933 was enacted.[12] Between March 1933 and August 1935, 79 schools were closed due to many violations[13] such as the presence of unqualified teachers and materials teaching political ideology[14] (see Table 2).
Table 2: Number of Chinese schools from 1920-1938
| Year | Schools | Students |
| 1920 | 30 | N.A. |
| 1925 | 48 | N.A. |
| 1932 | 200 | N.A. |
| 1933/34 | 271 | >8,000 |
| 1934/35 | 193 | 4,742 |
| 1935/36 | 191 | 7,562 |
| 1936/37 | 224 | 9,124 |
| 1937/38 | 233 | 16,711 |
Source: Skinner 1957 and Penpisut 2007
By 1939, the hours of Chinese language instruction had been reduced to just two hours each week.[15] Between 1938 and 1940, 242 Chinese schools were forced to close their doors as a consequence of the acts.[16]The final suppression in 1940 resulted in the closure of all Chinese schools in Bangkok.[17]
After World War II ended, the Free Thai Movement, a coalition partner of the KMT, came to power,[18] allowing for overseas Chinese in Thailand to open their schools again. In 1946, Thailand and China signed a treaty of amity, and it led to the opening of roughly 430 Chinese schools in Thailand.[19] However, the return of Communist activities in the Chinese schools led to the resurgence of anti-Communist sentiments among Thailand’s rulers. Pibulsongkram, returning to power in 1948 with the help of the United States, began to suppress Chinese schools again.[20] The Private Schools Act of 1948 was amended, and a quota system was introduced, capping the number of Chinese schools at 152 institutions. Concurrently, school inspectors conducted rigorous investigations, banning certain Chinese textbooks.[21] In 1949, the civil war in China led to the political split of Taiwan from China, with the KMT dominating in Taiwan and the CCP in China. Amidst subsequent political changes in China, strict regulation of Chinese schools in Thailand was continuously enforced until the late 1980s. By 1988, only 120 Chinese schools remained in operation.[22]
REVIVAL OF SINO–THAI DIPLOMATIC RELATIONS AND SINO–THAI EDUCATIONAL COOPERATION
The Thai government’s mistrust of ethnic Chinese political movements decreased in the late 1970s due to assimilation policies and warmer ties with the People’s Republic of China (PRC). Internally, the communist movement flourished in rural areas far into the 1970s, but was undercut by the 1980 proclamation of amnesty for communists under 66/23, which eventually repealed the ban on Chinese language and Chinese schools.[23] Internationally, Thailand and the PRC established diplomatic connections in 1975, a few years after the Nixon Doctrine. The two countries signed the first Memorandum of Understanding (MOU) related to the Thai–Sino Joint Committee on Scientific and Technological Cooperation in 1978. After that, cooperation in educational affairs began to develop.
In 1992, the Thai government led by Anan Panyarachun approved the use of the Chinese language at all levels of instruction in private schools.[24] In the national education strategy for Thailand (1992–96), the Chinese language was now perceived as a language with economic benefits.[25] In 1997, the Chinese language was listed in the curriculum plan for high schools across the country. The following year, it was included as a subject on the university admissions exam, and allowed for inclusion in all degree programmes[26]. Subsequently, the Chinese language curriculum was formally listed in the National Education Act of 1999 and included in the medium curriculum in 2001.[27]
In 1999, China and Thailand released a declaration outlining their cooperation strategy for the 21st century, which included education. The MOU for cultural exchange, signed in 2001, addressed student exchange programmes, scholarship provision and the development of cultural studies.[28]
The shortage of skilled Chinese language teachers and textbooks has been a major barrier to the expansion of Chinese language education in Thai schools and universities since the early 2000s. In 2006, however, the PRC began providing Thailand with Chinese educators, curriculum advisors and educational resources, such as elementary and secondary-level Chinese textbooks published in collaboration with China Higher Education Press.[29] From the MOU between the Ministries of Education in 2009, China also sponsored a Chinese language training programme for Thai teachers in Thailand and China. MOUs were also signed in 2013 and April 2022 between the Center for Language Education and Cooperation (CLEC) and three Thai organizations: The Ministry of Education, the Office of the Vocational Education Commission and the Office of the Higher Education Commission.[30]
Presently, 16 Confucius Institutes (CI) are located in Thai higher education institutions and 21 Confucius Classrooms (CC) operate in Thai schools.[31] Founded by the Office of Chinese Language Council International, or Hanban, the objective is to spread Chinese culture and language. Thailand was not only the first nation to host a CC, at Wat Trai Mitre, Bangkok, but also the first country to receive Chinese-teaching volunteers, in 2003.[32] The number of these volunteers grew from 23 in 2003 to over 17,000 in 2019. Additionally, the partnership also enabled the exchange of professors, students and individuals through scholarships. Chinese language training programmes to cultivate Thai instructors in Chinese emerged as well. In 2018, Thai students were the second largest group of international students studying in China, after students from South Korea.
Besides government-to-government cooperation, collaborations have also formed at the provincial and institutional levels between the two countries. The provinces of Yunnan and Guangxi from China have become significant players in this aspect.[33] Under the Greater Mekong Subregion framework, collaboration between Yunnan institutions and Thai tertiary organizations have been promoted by the Yunnan government. At the institutional level, hundreds of partnerships have been launched, such as the MOU between the Open University of Fujian and Wilailak University to open an overseas Chinese college in Bangkok. The institution is to focus on Chinese language and vocational training.[34]
Since the restoration of Sino–Thai relations in 1975, collaboration between Thailand and the PRC has tightened in the academic sphere. Meanwhile, the severing of diplomatic ties between Thailand and Taiwan reduced the activities, support and collaboration with the latter. The consequences include the replacement of simplified Chinese characters in Chinese textbooks and sources of information in Chinese newspapers[35]. In response, Taiwan employed the Southbound policy in 2016 to develop Omni-relations with Thailand, Indonesia, India, Malaysia, the Philippines and Vietnam. The ongoing policy aims to increase collaboration between Thailand and Taiwan through the Zhong Hua Association, the Taiwan Education Center and the Thai–Taiwan Technological College.[36] Nonetheless, the influence Taiwan’s educational system exerts in Thailand lies a long way behind the PRC’s.
CONCLUSION
When it comes to projecting soft power, the Chinese have long used Thailand’s educational system as an ‘instrument’. The first movement was initiated by several political organizations, including the KMT and CCP, which advocated Chinese nationalism and their respective political philosophies among overseas Chinese. The Thai government took a hard stance against the dissemination of political ideology through traditional Chinese schools, which ultimately led to the shuttering of these institutions. The turning point in the perception of Chinese schools came after the normalisation of Sino–Thai relations in 1975.
In the second period, educational cooperation and aid between the two nations increased significantly. Strong economic and political links acknowledge and value the growing cultural connection, and education—through CIs, CCs, scholarships and Chinese volunteer teachers—has become a vehicle for spreading mainland Chinese soft power in this era. Furthermore, since the Office of the Basic Education Commission (Thailand) officially certified Chinese as a second language choice in 2001, the PRC’s influence on Thai education has grown dramatically.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
2023/20 “Malaysia’s 15th General Election: Ethnicity Remains the Key Factor in Voter Preferences” by Marzuki Mohamad and Ibrahim Suffian
EXECUTIVE SUMMARY
- In Malaysia’s 15th General Election, no single coalition achieved a majority in the Dewan Rakyat. This paved the way for Pakatan Harapan (PH) to form a government with the other major coalitions, except the Perikatan Nasional (PN).
- This election reaffirmed that change of government in Malaysia is possible. The emergence of post-election political realignments comprising rival parties points to more vibrant democratic contestation taking place in a country where race has hitherto been the main barrier to changes of government.
- However, our study based on voter surveys and election results shows that ethnicity remains the key underlying factor determining voters’ political choices. Other variables such as economic concerns, governance issues and political stability are also at work, but are secondary to ethnicity. As secondary factors, these other variables come into play to determine voters’ choice within an ethnic group only when no single party commands majority support in that ethnic group.
- While Malaysia has shown impressive progress towards ending one-party dominance and has paved the way to more vibrant democratic contestation, one should not ignore race as an underlying factor which still determines voters’ political choices.
- Because the Malay votes were split (mainly between UMNO and PN, and with PH to a lesser degree), the post-election manoeuvrings and realignments led to a somewhat paradoxical situation where PH gained the right to lead the government even though its mainstay of support came from the non-Malay voters. This could imply that the current political configuration is intrinsically fragile, with the risk of being unravelled by further realignments among the Malay parties.
*Marzuki Mohamad is Visiting Fellow at the School of Culture, Language and History, College of Asia and Pacific, Australian National University and Associate Professor in the Department of Political Science, Abdul Hamid Abu Sulayman Kulliyyah of Islamic Revealed Knowledge and Human Sciences, International Islamic University Malaysia. He is former Principal Private Secretary to the 8th Prime Minister of Malaysia. Ibrahim Suffian is Executive Director, Merdeka Center for Opinion Research.
ISEAS Perspective 2023/20, 24 March 2023
INTRODUCTION
The results of Malaysia’s 15th General Election on 19November 2022 revealed that ethnicity remains the key factor determining electoral outcome. Although ethnic issues were not the real focus of the election campaign, pre-election surveys and voting patterns show that Malaysian voters generally still choose along ethnic lines.
In this paper, we demonstrate that ethnicity remains the main marker of Malaysian politics. Identity and cultural dichotomies continue to underpin political choices and overshadow other variables such as economic, class, age, gender and region. Political parties devise election strategies and campaigns based on ethnic support, while voters, even as they put economic and governance issues top of their list of priorities, show a preference for parties that best suit their ethnic interests.
This postulation is supported by a series of pre-election surveys including national surveys conducted from 2020 to 2022, and daily tracking surveys carried out during the campaign period. A key finding is that Malaysian voters remain divided along ethnic lines, with more than 80% of non-Malay voters supporting Pakatan Harapan (PH) and almost a similar proportion of Malay voters rejecting that coalition.
While such a larger majority of Malay voters did reject PH, they were however divided between supporting either Barisan Nasional (BN) or Perikatan Nasional (PN). This situation was what eventually gave added advantage to PH in three-cornered fights between PN, BN and PH especially in marginal Malay-majority seats and non-Malay majority seats. With solid non-Malay support, minimal Malay support and the majority of Malay voters divided in their support for the other two coalitions, PH managed to win the most number of non-Malay majority and marginal Malay-majority seats.
In this paper, we focus our analysis on 165 parliamentary seats in Peninsular Malaysia. The politics in the two Borneo states of Sabah and Sarawak have their own dynamics, and warrant a separate analysis.
PRE-ELECTION SURVEYS
For this analysis, we rely largely on five national surveys conducted by Merdeka Centre for Opinion Research.[1] These surveys were finalised in November 2020,[2] February 2021,[3] August 2021,[4] May 2022[5] and July 2022.[6] We also base our analysis on national daily tracking surveys conducted during the election campaign. Historical data found in previous surveys are also used.
It is interesting to note that historical data found in previous surveys shows that different ethnic groups persistently expressed different levels of satisfaction towards the federal government, depending on which coalition was in power. Our surveys since 2013 show that Malay voters were more inclined to perceive BN and PN government more positively compared to non-Malay voters. On the other hand, non-Malay voters were more inclined to perceive the PH government more positively compared to Malay voters (See Figure 1).
In the 13th General Election held in May 2013, BN suffered a major setback by losing the popular vote for the first time in history. It won the election primarily on the back of Malay support, while Chinese voters had mostly stopped supporting the party to favour PH instead.
From May 2013 to April 2018, during which BN was in power, between 27% and 67% of Malay voters said they were happy with the BN government. Indian voters on the other hand gave a lower score of between 18% and 52%. Chinese voters returned the lowest score. Only 4% to 19% of them said they were happy with the BN government during this period.
These apparent ethnocentric perceptions suddenly changed when PH won the 14th General Election in May 2018. In a national survey done that same month, 88% of Chinese voters said they were happy with the newly formed PH government, followed by Indian voters (87%) and then Malay voters (73%).
The sudden change in voter perception, especially among Chinese voters (from 17% in March 2018 to 88% in May 2018), occurred despite material conditions such as unemployment rate and inflation not being drastically different across the BN and PH administrations. Malaysia’s unemployment rate in 2018 was 3.30%, just a 0.11% decline from 2017, while the Consumer Price Index (CPI) for 2018 increased 1% compared to 2017.[7]
PH government’s approval rating across ethnic groups successively declined throughout its 22 months in power. By the end of its rule in February 2020, only 38% of Chinese voters said they were happy with the PH government, followed by Indian voters (28%) and Malay voters (26%).
Although the decline was across all ethnic groups, 15 national surveys done during this period revealed a persistent ethnic pattern where the non-Malay voters viewed the PH government more positively compared to the Malay voters.
Perceptions changed once again when PN took over the government in March 2020. In a national survey done in May 2020, we observed a flip in support for the government, where 87% percent of Malay voters said they were happy with the PN government, followed by Indian voters (54%) and Chinese voters (16%). From March 2020 until August 2021, during which time PN led the federal government, Malay voter sentiments towards the government were consistently in positive territory, while Chinese voter sentiments were in negative territory, as shown in the figure below.
Figure 1: Voter Perceptions towards the Federal Government, across Ethnicities, 2018 – 2022
In our November 2020 national survey, carried out during the COVID-19 pandemic, we found that Malay voters’ satisfaction towards the federal government was higher compared to non-Malay voters. The survey revealed that 87% of Malay voters were satisfied with the government’s performance in managing the pandemic, while only 47% of Chinese voters felt the same. Similarly, 84% of Malay voters were satisfied with the government performance in helping those in need during the pandemic compared to only 47% of Chinese voters who felt the same. This was despite various forms of economic and financial assistance given by the government to all, regardless of race.
There is a more revealing dichotomy between Malay and non-Malay voters’ perception towards the government which points to an enduring ethnocentric political choice. The survey found that 85% of Malay voters felt that the PN government protects the interest of the Malays, while 77% of non-Malay voters believed the government does not treat all races equally. This is key to understanding political choices among different ethnic groups in Malaysia, not only in the 15th General Election, but also in previous elections.
A closer look at party choices also reveals the same ethnic pattern. A more detailed national survey in Peninsular Malaysia involving 5,050 respondents across ethnic groups conducted from 29 March to 21 May 2022 found that Malay voters split between supporting either BN (44%) or PN (20%), with only 6% openly expressing their support for PH. 30% of Malay voters did not disclose their party choice. At the same time, the non-Malay support for PH was 49%, for BN (22%) and for PN (3%), while 28% refused to disclose their party choice.[8]
By May 2022, it was clear that among the non-Malay voters, PH was the most preferred choice while PN was the least desirable coalition. It was also clear that PH was not the party of choice for the Malays, who at the same time were split between favouring BN or PN, with BN having a slight edge over PN.
Be that as it may, a closer look at BN and PN leaders’ approval rating among Malay voters reveals a slightly different scenario. PN Chairman and former Prime Minister, Muhyiddin Yassin, received a higher approval rating (67%) compared to BN Chairman, Zahid Hamidi (19%).
It seems that, at this point in time, although more Malay voters preferred BN to PN, they were more comfortable with PN Chairman, Muhyiddin Yassin, than BN Chairman, Zahid Hamidi, as their leader. With 30% of Malay voters not disclosing their choice of coalition, the question of whether BN or PN was the most preferred choice among the Malay voters remained unclear.
At the same time, the BN-led government’s approval rating showed a steep decline, from 50% in September 2021 to 31% in October 2022.[9] Among Malay voters, only 42% were satisfied with the government’s performance while non-Malay voters recorded a much lower satisfaction level, at only 11%.
During this period, several important events took place which likely affected Malay voters’ appreciation of the two principal government parties, i.e. Parti Pribumi Bersatu Malaysia (BERSATU) and UMNO. In March 2021, UMNO leadership at its annual general assembly passed a resolution to end cooperation with BERSATU after that electoral term. This move was an open declaration of differences between the party and Bersatu, which culminated in the withdrawal of support by several UMNO MPs, which in turn led to the collapse of Muhyiddin Yasin’s prime ministership.
UMNO’s party leadership subsequently called for the early dissolution of the state assembly of Malacca in October 2021 and of Johore in March 2022, moves which heightened voter concerns over the stability of the federal government. In our view, such actions coupled with the relative unpopularity of UMNO’s top leader (more on this later), coloured Malay voters’ perceptions in the months leading up to the general election in November that same year.
Our May 2022 survey found that a myriad of factors were at work which led to low voter satisfaction towards the BN-led federal government, with the main driver being economic concerns (74%), followed by political issues (3%), racial issues (3%) and leadership issues (3%). Inflation (31%), political instability (13%) and corruption (12%) were the top three issues that voters considered most important to them. It is important to note at this juncture that racial issues were not the top priority for voters; instead, a strong ethnic pattern was evident.
Things grew interesting as the election drew close. Our daily tracking surveys during the election campaign showed that the percentage of Malay voters who expressly said they would support PH remained very low, at 11.5%, at the beginning of the campaign, and improved slightly to 13.3% a day before the polling day. It was very clear then Malay voters had made up their mind that PH would not be their party of choice.
Interestingly, Malay voters’ preference of either BN or PN as their coalition of choice differed from the findings of our previous surveys. After the campaign began, Malay voters demonstrated a more favourable attitude towards PN. Our national daily tracking survey on 6 November 2022 found that only 17.6% of Malay voters expressly said they would vote for BN. This is a sharp decrease from 48% in August 2022. The same survey also found that 24.4% of Malay voters expressly said they would support PN, a slight increase from 18.7% in August 2022. At this point in time, 45.7% of Malay voters would not disclose their party choice.[10]
By the end of the campaign period, it was evident that PN had taken the lead in its contest for Malay votes with BN. Our final daily tracking survey on 18 November 2022 found that the percentage of Malay voters who expressly said they would support PN had increased to 32.4%, while BN was trailing behind at 21.3%. 31.8% of the Malay voters surveyed still refused to disclose their party choice.
However, a cross-check on the choice of Prime Minister candidate among the undisclosed Malay voters shows about 30% of them preferred Muhyiddin Yassin as Prime Minister candidate, followed by Ismail Sabri (18%) and Anwar Ibrahim (8%). The rest of the respondents did not state any preference.
At the end of the campaign, the Malay voters’ preferred leader was also quite clear. Muhyiddin Yassin’s approval rating among Malay voters stood at 71%, followed by Ismail Sabri (57%), Hadi Awang (51%), Anwar Ibrahim (32%) and Zahid Hamidi (12%). (See Figure 2)
Based on these findings and the actual election results, we estimate that, on average, about 57% of the Malay voters chose PN.
The non-Malay voters were more forthright in expressing their support for PH. The percentage of Chinese voters who expressly said they would vote for PH increased from 57.5% at the beginning of the campaign to 69.1% a day before polling day. Only 3.1% mentioned they would vote BN, 1% would vote PN, while 26.5% still refused to disclose their party choice on the final day of campaign.
Indian voters too indicated a similar party choice. The percentage of Indian voters who expressly said they would vote for PH increased from 50% at the beginning of the campaign to 59.8% at the end of the campaign. Only 15.2% said they would vote for BN, 0.6% would vote for PN and 23.2% were still refusing to disclose their party choice at the end of the campaign.
By the end of the campaign period, the non-Malay voters’ preferred leader was also quite clear. Anwar Ibrahim’s approval rating among them stood at 65%, followed by Muhyiddin Yassin (13%), Ismail Sabri (12%), Hadi Awang (1%) and Zahid Hamidi (1%).
Based on these findings and the actual election results, we estimate more than 80% of non-Malay voters voted for PH. This includes nearly 95% of the ethnic Chinese and nearly 75% of the ethnic Indians.
Figure 2: Percentage of Voter Support for Leaders by Ethnicity at the End of the GE-15 Campaign Period
THE ELECTION RESULTS
Due to malapportionment, the percentage of votes that a party garnered does not necessarily reflect the percentage of seats it ends up winning in an election. For a long while now, malapportionment has been designed to benefit the incumbent.[11]
In this paper, without ignoring the fact that malapportionment has significant impact on the total number of seats won by a party, we will show that, as our pre-election surveys also indicated, PH won most of the seats in non-Malay majority and marginal Malay-majority areas, while BN and PN won mainly in large Malay majority areas (See Table 1).
Out of 86 parliamentary seats categorised as large Malay Majority seats (where Malay voters constitute 65% or more of the total voters), PN won 67 seats (78%), BN 13 seats (15.1%) and PH 6 seats (6.9%).
Out of 32 parliamentary seats categorised as marginal Malay-majority seats (where Malay voters constitute 51%-64% of the total voters), PN won 4 seats (12.5%), BN 8 seats (25%) and PH 20 seats (62.5%).
Out of 47 parliamentary seats categorised as non-Malay majority seats (where non-Malay voters constitute 51% or more of total voters), PH won 46 seats (97.9%) and BN 1 seat (2.1%). PN did not win any non-Malay majority seats.
Table 1: The Number and Percentage of Seats Won by PN, BN and PH in Parliamentary Seats Categorised as Large Malay-Majority, Marginal Malay-Majority and Non-Malay Majority in the 15th General Election.
| Large Malay Majority Seats (Malay voters 65% and above) | Marginal Malay Majority Seats (Malay voters between 51% and 64%) | Non-Malay Majority Seats (Non-Malay voters 51% and above) | TOTAL | |
| PN | 67 (78%) | PN 4 (12.5%) | PN 0 (0%) | 71 (43%) |
| BN | 13 (15.1%) | BN 8 (25%) | BN 1 (2.1%) | BN 22 (13.3%) |
| PH | 6 (6.9%) | PH 20 (62.5%) | PH 46 (97.9%) | PH 72 (43.7%) |
| TOTAL | 86 (100%) | 32 (100%) | 47 (100%) | 165 (100%) |
In total, PH won 81 seats, PN 74 seats, BN 30 seats, Gabungan Parti Sarawak (GPS) 23 seats, Gabungan Rakyat Sabah (GRS) 6 seats, Parti Warisan Rakyat Sabah (WARISAN) 3 seats, independent candidates 2 seats and Malaysian United Democratic Alliance (MUDA), Social Democratic Harmony Party (KDM) and Parti Bangsa Malaysia (PBM) one seat each.
As no single party or coalition commands a majority in the Dewan Rakyat, PH formed a coalition government with other political coalitions and parties, excepting PN. PN is now the single opposition coalition in the Malaysian Parliament, which is controlled by the PH-led ruling coalition enjoying a two-thirds majority in the Dewan Rakyat.
KEY TAKEAWAYS
Based on the findings of our pre-election surveys and the actual election results, we discern that ethnicity remains the key underlying factor in Malaysian politics. But this does not mean that other variables are not important. Variables such as economic concerns, governance issues and political stability are also at work, but are secondary to ethnicity.
As secondary factors, these other variables come into play only to determine intra-ethnic political choice, i.e. party choice within one ethnic community in the event no single party dominantly represents the ethnic group. There has been a strong contest for Malay votes between UMNO and PAS over the past decades. With UMNO dominance now diminishing, the Malays have an alternative party choice in PAS and in the relatively new party BERSATU, which are component members of the newly formed PN.
Since UMNO leaders have been charged in cases of corruption, with its President, Zahid Hamidi, facing criminal charges relating to corruption, abuse of power and money laundering even when he headed the election campaign, UMNO faced a serious trust deficit among Malay voters. At the same time, the BN-led government approval rating was also low due to economic concerns such as high cost of living and rising inflation; this naturally caused Malay voters to shy away from supporting BN.
Although racial issues were not the primary focus of the election campaign, they came into play in determining Malay voters’ party choice. Since they did not see PH as the party that would promote their ethnic interests, and BN was facing a serious trust deficit, the only plausible party choice for the majority of Malay voters in GE15 was PN. This would explain why it was PN, and not BN or PH, which won the most number of Malay-majority seats in GE15.
The same clarification for political choice can be given for the non-Malay voters. As they did not see either BN or PN as the coalitions that would promote their ethnic interests, they did not support either. Unlike the contest for Malay votes which saw a strong rivalry between UMNO and PAS over the past decades, the contest for non-Malay votes did not see any strong fight between DAP, MCA or GERAKAN. Since the 2008 general election, it was quite clear that DAP was the only party that would garnered the most support from non-Malay voters. This may explain why in GE15, non-Malay voters’ support for PH, in which DAP is a leading component, was overwhelming.
CONCLUSION
While the Malaysian political landscape has significantly changed over the past two decades, ethnicity remains a key factor determining electoral outcome. With the dominant party system gradually ended, the change of government from one coalition to another becomes highly possible. The emergence of new political realignments comprising rival political parties is a new trend; this points to more vibrant democratic contestation in a country where race has hitherto been the main factor conserving the political status quo.
However, more vibrant democratic contestation does not suggest that more substantive democratic reform and political change are to be expected. Malaysian politics and society are still divided along ethnic lines. The only difference now is that the coalition that received the most support from the ethnic Malay majority is in opposition, while the coalition that received the least support from them is leading the government. Any attempt at bulldozing reforms which might be seen by the Malays to be trampling on their special position will have far-reaching implications for political stability and for the cohesiveness of the loose ruling coalition, which includes the former dominant party UMNO that still depends on Malay support for its survival. In Malaysia, the glad tidings of democratic advances should not lull one into ignoring the existence of race as the perennial key factor determining voter preference.
ENDNOTES
For endnotes, please refer to the original pdf document.
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2023/19 “Financing the Green Economy: Options for Indonesia” by Reza Siregar and Maria Monica Wihardja
EXECUTIVE SUMMARY
- Indonesia needs to invest approximately US$150–200 billion per year, or about 14% of its GDP, between 2021 and 2030 to meet its 2050 net-zero carbon emissions target.
- Financing a transition to renewable energy is a daunting task. Without significant fiscal reforms, Indonesia has very limited fiscal space for climate-related discretionary spending while its financial sector is very shallow, largely dominated by the banking sector. But short-term financing like bank loans does not match the long-term maturity structure of many green projects.
- Conventional sources of funding, such as foreign direct investment (FDI), remain vital, but are either insufficient or unstable and expose Indonesia to external vulnerabilities. Annual FDI flows to Indonesia were less than 2% of GDP over the last five years, a tiny fraction of the amount needed.
- One potential funding source for the green economy is blended finance. This is a structuring approach that brings various actors – including private philanthropists and Multilateral Development Banks and International Financial Institutions – together to invest in a green project while achieving their own goals, be these financial, social or both.
- Pension and insurance funds, which are currently underdeveloped in Indonesia, could play an important role in financing green projects. Both funds and projects are of a long-term nature, and the deepening of the pension and insurance sectors in Indonesia could help generate the much-needed, large-scale financing needed for green projects.
* Reza Siregar is the Head of IFG Progress Indonesia and Maria Monica Wihardja is an Economist and Visiting Fellow at ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2023/19, 23 March 2023
INTRODUCTION
Indonesia has committed to reaching net-zero carbon emissions by 2050, a deadline brought forward from 2060 last year. Indonesia is the world’s fourth-largest emitter of greenhouse gases (GHG), contributing around 4% of total global emissions in 2019.[1] Around 60% of the country’s energy comes from non-renewable sources such as coal.
Indonesia’s presidency at last year’s G20 Summit tabled the green economy agenda as a key driver to achieve the United Nations sustainable development goals (SDG). However, financing a transition towards net-zero carbon emissions and renewable energy is a daunting task. Indonesia has very limited fiscal space for climate-related discretionary spending, while its financial sector is very shallow, and dominated by the banking sector. Furthermore, short-term financing like bank loans does not match the long-term maturity structure of many green projects.
This paper lays out the challenges Indonesia faces in financing its green transformation and recommends financing options by stocktaking Indonesia’s current policies and reflecting on global best practices.
FINANCING NEEDS FOR THE GREEN ECONOMY
In Indonesia’s 2022 Enhanced Nationally Determined Contribution, the country committed to reducing GHG emissions by 31.89% by 2030 or 43.2% with international assistance, compared to a business-as-usual scenario. By 2050, Indonesia aims to reach its net-zero carbon emission target. This target was brought forward from 2060 following international pledges of support in the form of the Just Energy Transition Partnership fund, an international cooperation of advanced economies led by the United States and Japan. The Partnership committed US$20 billion to finance Indonesia’s energy transition. With the fund, Indonesia is also increasing its target of renewable energy as a share of Indonesia’s total power generation from 11.5% in 2021 to over a third by 2030.
According to a 2021 report by the Ministry of National Development Planning (BAPPENAS), Indonesia needs to invest US$150–200 billion per year, about 14% of GDP, between 2021 and 2030 to meet a 2060 net-zero carbon emission target.[2] Clean energy accounts for about 60% of this investment need. In total, the amount needed until 2030 amounts to at least 140% of Indonesia’s nominal GDP in 2020, while the total assets of Indonesia’s domestic financial sector (banking, insurance, stock exchange and pension fund) amount to less than 120% of nominal 2020 GDP. The picture looks even worse when we assess the ‘green’ assets in the financial sector; less than 2% of bonds outstanding in 2021 are green bonds.[3]
Although today, in Indonesia, most of the costs needed to transition to a green economy are borne by the government, renewable energy and other technologies have been attracting foreign investment and financing into the country.[4] But relying on investment and foreign financing, including foreign direct investment (FDI), concessional international lending and grants to finance Indonesia’s green economy, while leaving its domestic financial sector inadequate and too shallow to finance long-term projects, might be precarious. This is because of the very dynamic global economy and post-pandemic fiscal burdens of many advanced economies and traditional creditor nations. It is important to build Indonesia’s own domestic capacity to finance its transition towards a greener economy.[5]
Indonesia’s President Joko Widodo has issued a presidential regulation (Perpres No. 112/2022) on the acceleration of renewable energy generation and use, early retirement of coal power plants, a carbon tax policy and the Energy Transition Mechanism to finance the transition to renewable energy. This regulation provides vital regulatory framework and assurance of government commitments to transition towards a greener economy and support the development of renewable energy. However, the financing and implementation challenges remain significant.
FINANCING CHALLENGES
Global Challenges
Many emerging and low-income countries have limited budget to invest in green projects – referring broadly to low-carbon and climate-resilient investments – especially after the pandemic. Meanwhile, they also face increasingly high borrowing costs because of the rising interest rates around the world since the war in Ukraine broke out, and the need to manage global runaway inflation. The cost of financing selected green energy generation is also higher in developing countries compared to developed countries.[6] Hence, public financing alone will not be sufficient to help these countries transition to renewable energy.
Financial markets have not been able to sufficiently fill the financial gap either. There are multiple reasons why globally large institutional investors, such as pension and insurance funds, have not invested sufficiently in long-term projects. These include:[7]
- Regulatory and political uncertainties: Institutional investors face enormous risks from political uncertainties and regulatory and policy changes, as well as market risk (cost and price) and others, when investing in long-term projects with maturity of more than two decades.
- Lack of appropriate financial instruments: Institutional investors invest because the risk-adjusted benefits outweigh the costs, and they receive predictable cash flows. They do not invest purely because an investment is green. Investors shy away from long-term projects if there are no financial instruments to help them manage and minimise risks. These may include government and multilateral agency guarantees, concessional loans, joint operations, power purchase agreements, and policy support that serves to guarantee predictable revenues and reduced risk.
- Market failures: Certain policies may disincentivise investment in the targeted sectors. In Indonesia, for example, the carbon tax policy is insufficient to disincentivise pollution, and the government continues to subsidise fossil fuels and coal power plants, all of which make the prices of renewable energy less competitive.
- Lack of project pipeline and quality historical data: There is insufficient information about feasible project pipelines for institutional investors to invest in. And even if there were, there is lack of quality historical data to assess associated risks.
- Lack of experience and knowledge: Many institutional investors, including insurance and pension funds in Indonesia, still have limited experience and knowledge in analysing, underwriting and structuring long-term financing, including green financing, to mitigate long-term risks.
In Annex 1, we present two case studies showing how global institutional investors addressed the challenges of investing in long-term green projects, one in renewable energy in the United States and the second in sustainable agriculture in Brazil.
Challenges in Indonesia
On top of these challenges, there are specific challenges to financing the green economy in Indonesia.
First is a lack of a globally accepted/agreed (or harmonized) definition of ‘green economic activities’ for Indonesia to readily use.[8] The World Bank and International Finance Corporation have come up with their own criteria and definition of green projects.
In 2014, a consortium of investment banks, which has since become the International Capital Market Association, formulated principles for green bonds. However, the consortium did not give any detailed definition of “green”; this is left to the bond issuers.
In Indonesia, the Financial Service Authority (Otoritas Jasa Keuangan) in 2017 enacted a regulation for issuing green bonds. In the regulation, the OJK lists 11 business activities that are eligible for funding through green bonds[9], and these are in line with the principles formulated by the International Capital Market Association, namely:
- Renewable energy
- Energy efficiency
- Pollution prevention and control
- Management of natural resources and sustainable land use
- Conservation of land and water biodiversity
- Environmentally friendly transportation
- Water and sustainable management of wastewater
- Climate change adaptation
- Products that reduce resource use and generate less pollution (eco-efficient)
- Environmentally friendly buildings that meet internationally recognised standards or national, regional or international certifications
- Other environmentally friendly business activities
However, the regulation does not provide a more detailed taxonomy for a green economy in terms of definition, criteria and coverage of specific economic activities or sub-sectors, and therefore the classification of green bonds remains vague.
Second, significant regulatory uncertainties hinder investment in Indonesia.[10] The most recent example relates to the Omnibus Law on Job Creation (Law No. 11/2020), which was ruled as “conditionally unconstitutional” by the Constitutional Court. The court ordered the government to revise it and to ensure sufficient public consultation on the changes. The issuance of a Government Regulation in lieu of the Law, known as Job Creation Perppu No. 2/2022, was passed on 30 December 2022, close to the eve of New Year, which caught many stakeholders off guard. The issuance drew criticisms as lacking meaningful public consultation and was again challenged by a group of Indonesian citizens as being unconstitutional.[11]
Indonesia’s upcoming presidential election in 2024 will mark the end of President Joko Widodo’s ten-year era. It also means that many investors will hold off until the new President is elected before committing to large, long-term funding. Indonesia’s large population, 26% of which is under the age of 15, in stark contrast to ageing East Asia, has much to offer to foreign investors, but Indonesia’s unpredictable swings in the political, business and financial cycle, which are of particular concern in relation to long-term investment projects, has often deterred private sector participation.
Third, the government is constrained by its fiscal inflexibility in its spending choices and low tax-to-GDP ratio (tax revenues account for less than 10% of GDP). Indonesia’s large fuel subsidies along with other mandatory spending and the COVID-19 fiscal stimulus leave little room for climate-related discretionary spending without significant fiscal reforms. Currently, the central government spends around 3.7% of its total budget on average on climate-related spending between 2016 and 2021.[12] This is dwarfed by the amount spent on fuel subsidies, which is around 13 percent of the 2022 central government’s budget. Moreover, the government is constrained by the strict budget deficit rule according to which the annual budget deficit and accumulated public debt cannot exceed 3% and 60% of the nominal GDP, respectively.[13]
It is necessary therefore to boost non-government financing. Indonesia’s financial market alone will not be sufficient to fill the financial gap without further deepening. It is shallow with 75% of the total financial sector assets being dominated by the banking sector.[14] However, bank loans like other short-term maturity financing run into a maturity mismatch when it comes to financing long-term green projects.
Fourth, Indonesia has distortionary policies and incentives that adversely affect prices, risk-taking and asset allocation, including huge fossil fuel subsidies, subsidies for coal power plants, an absence of regulations that disfavour environmentally damaging projects (regulations such as carbon tax and pricing) and the presence of regulations that favour environmentally damaging projects. Indonesia has, for example, removed coal pollution from its list of hazardous industrial emissions since March 2021[15] and provides fiscal incentives for nickel smelters, which are largely powered by coal generation. This makes investment in renewables in Indonesia less attractive and may create market failures, which lead to a suboptimal welfare outcome.
Last, the advanced economies have not fulfilled their financial commitments to help developing and low-income countries, including Indonesia, in climate change mitigation and adaptation.[16] The advanced economies had committed in 2009 to collectively raise US$100 billion by 2020 and annually until 2025 under the Global Climate Fund initiative. But this commitment has not been fulfilled.
Global cooperation in supporting the green energy transition of developing and low-income countries has not been as strong as needed. International financial institutions have also been criticised for not doing enough to finance global public goods, including climate change mitigation and adaptation.[17]
THE LONG-TERM GREEN FINANCING OPTIONS FOR INDONESIA
We explore some financing options to support Indonesia’s green energy transition, namely foreign direct investment, blended finance, and pension and insurance funds, and discuss some key challenges of each financing option.
FDI and the Role of Sovereign Wealth Funds
Direct investment remains the natural route to finance the green transition. Attracting FDI has been the primary aim of recent reform initiatives in Indonesia, including those under the Joko Widodo administration. Along with other foreign capital investments, FDI has been financing Indonesia’s frequent annual current account deficits.
One of the common potential risks from FDI and any other foreign-source financing is that they potentially lead to current account pressure, in the form of primary account payment. In principle, any foreign financing needs to be paid back, both the capital and potential returns, such as profit remittances to the country from which the debt originated. Between 2017 and 2019, Indonesia paid on average more than US$1 billion annually to service debt repayments. Moreover, the inability of the domestic investor base to provide sufficient long-term financing exposes the country to external vulnerabilities, where changes in the macroeconomic policies abroad, such as an interest rate increase in the US, impact the macroeconomic stability at home.[18]
The Omnibus Law on Job Creation, which was revised as Job Creation Perppu No. 2/2022, introduced many measures to ease investment licensing and expand the list of sectors and the extent to which foreign investors may participate in, mostly by reducing or removing foreign equity limits. Among the key breakthroughs of the Omnibus Law was the plan to set up a national sovereign wealth fund, to be known as Indonesia Investment Authority (INA);[19] this was established in 2021.[20]
The INA is targeting investments in renewable energy and waste management, among others, to support the country’s transition towards low-carbon emissions and more sustainable development. The expansion of the asset under the management of INA is expected to supplement the annual FDI into Indonesia in financing Indonesia’s economic development. The challenge, however, is that the INA may only invest in the domestic market, particularly government infrastructure projects, which may limit its ability to win the maximum returns, including from investing globally.
The Covid-19 pandemic contributed to an alarming fall in FDI from an average of more than US$21 billion between 2017 and 2019, to US$19.2 billion in 2020. Though this did increase a little in 2021 and 2022, the total sum of FDI and funds under the management of the INA remains far below the level needed for the green transition. The annual FDI flows to Indonesia are less than 2% of GDP over the last five years, but an average of 14% of 2020 nominal GDP is needed annually between 2021 and 2030 to meet the country’s carbon emission reduction target alone, as indicated earlier.
Blended Finance
To complement the role of FDI in generating sustainable economic growth, the blended-finance approach has gained popularity globally, even among G20 members. Blended finance is a structuring approach that brings various actors together to invest in a project while achieving their own goals – whether it is financial, social or both.[21] The drive for blended finance can be attributed to the United Nations 2030 Agenda for Sustainable Development, a vision for achieving development and prosperity for people and the planet.[22] Signed by world leaders in 2015, the 2030 Agenda calls for the engagement of both public and private actors, including private philanthropists, as well as multilateral development banks (MDB) and international financial institutions (IFI), in the pursuit of sustainable development.
By drawing in various actors to invest alongside each other, blended finance reduces investment risk and hence, crowds in greater funding.[23] MDB and IFI play a key role in creating innovative blended financing structures to make the risk-return profile for green projects more attractive to private investors. For example, they could agree to be the first to endure losses in green financing and hence increasing the expected risk-adjusted return for private investors.[24] They could also play the role in surveillance, capacity development, risk assessment, and climate diagnostic tool. An example of such initiatives is the Resilience and Sustainability Trust fund[25] managed by the International Monetary Fund with US$ 50 billion in pledges to help increase the resilience of low- and middle-income countries to long-term shocks such as climate change.
Besides MDB and IFI, impact investors and philanthropic sources, including global and regional charitable organisations, are also important actors in blended finance.[26] Impact investors have the goal of making positive environmental, social and development impacts, along with financial returns. They are usually willing to provide the heavy up-front funds and absorb initial losses until other investors earn their expected returns. Meanwhile, the public actors have the role of setting up the regulatory framework and ensuring friendly investment climate, good governance and sound policies, including regulatory sandboxing and climate policies such as carbon pricing.
The challenge with blended finance is to find a balance among the various objectives of the actors. For example, while the public actors may primarily target development outcomes, the private actors may mainly seek financial returns, profits and market access.
Pension and Insurance Funds
Pension and insurance funds potentially play an important role in financing green projects worldwide, and in Indonesia.[xxvii] They have matching long-term asset-liability maturities. In the green economy, pension funds usually look for long-maturity, low-risk investments with inflation-adjusted, steady income streams, perhaps in the mature technologies of wind and solar power energies, rather than unproven and untested technologies.[xxviii] The latter are usefully funded by venture capitalists.
Although there are three main asset classes through which pension and insurance funds could access green investments, namely equity, fixed-income securities (e.g., bonds) and alternative asset classes (e.g., real estate and infrastructure funds), green bonds could be a more common financial vehicle to direct pension and insurance funds towards green investments. A 2022 OECD report on pension markets shows that 49.8% of Indonesia’s retirement savings plans are invested in bills and bonds, while 27.2% are in cash and deposits, and 9.7% in equities.[xxix] Similarly, bills and bonds remain the dominant financial instruments for OECD countries to invest their retirement savings plans in (41.6%).
However, until now, Indonesia’s public pension fund (excluding pension funds for civil servants and the military and police) remains underdeveloped at only 2.73% of the nominal GDP in 2020, much lower than other emerging countries, such as India (7.2%), Thailand (12.74%), Brazil (14.97%) and Malaysia (61.42%). Similarly, in 2020, the share of insurance company assets to GDP in Indonesia was 4.61% compared to 22.22% for Malaysia, 10.76% for the Philippines, 23.72% for Thailand and 63.73% for Singapore.
Indonesia could develop its pension and insurance sector to increase the availability of funds for long-term green investments. Among many of the challenges facing the development of the pension fund and the insurance sector is the limited availability of long-term investment assets in the domestic market to manage the asset-liability structures and risk exposures. On their investment returns, both pension and insurance funds rely heavily on the yields of the 10-year sovereign bond of the country as the long and liquid investment option. The long-maturity structures of the green projects will therefore help plug the yawning gap for the longer-term and investment-grade assets. Reciprocally, the deepening of the pension and insurance sectors will generate much-needed large scale financing for the green infrastructure projects.
The Government of Indonesia recently passed a new law, namely Law on the Development and Strengthening of the Financial Sector, known as P2SK Law of 2023. One of the chief objectives is overhauling the insurance and pension fund sectors, which is timely and necessary for building Indonesia’s domestic financing capacity so that the country can meet its global climate change commitment.
CONCLUDING REMARKS
To sum up, Indonesia needs global and domestic financing to meet its net-zero carbon emission targets. While conventional sources of funding such as FDI remain vital, they are insufficient and expose Indonesia to external vulnerabilities, especially amid both the rising frequency of global financial and non-financial shocks. Recent reform efforts, particularly Job Creation Perppu No. 2/2022 and P2SK Law of 2023, are expected to boost the attractiveness of the Indonesian economy for foreign investors, and also to drive the development of other key domestic sources of funding, in particular the pension and insurance sectors, which will be needed to finance its transition towards a greener economy.
ANNEX 1
Case Study 1: Direct investment in Solar Photovoltaic Power by Insurer, MetLife
In 2012, the world saw remarkable demand and growth in solar photovoltaic (PV) instillation as prices for PV modules had been falling sharply (prices fell almost 50% in 2011 alone) driven by competition in the international market, particularly from low-cost Chinese producers and an oversupply of panels following the scaling back of solar subsidies in parts of Europe. The sharply declining prices for solar modules triggered significant corporate distress in solar manufacturing.
Despite the distress in the manufacturing side, investment in solar energy technology companies by venture capitalists and private equity investors peaked in 2008 but remained robust until 2011. Unlike venture capitalists and private equity investors, institutional investors are seeking predictable cash flows that could be guaranteed by long-term power-purchase contracts extending for two decades or more.
In 2007, Austin City Council set a target for renewable power of 30% by 2020, with 100 MW of that power capacity coming from solar energy. Since 2011, Austin Energy has increased these targets to 35% by 2020, with 200 MW of solar development by 2015. In February 2012, the global insurer MetLife (an institutional investor) and Longsol Holdings US Inc (a private owner and operator of solar projects in the US and Europe) purchased the 30 MW Webberville solar power plant in Texas from SunEdison. The US$100 million project was made possible in part because the publicly owned Austin Energy committed to buy all of the facility’s power for the next 25 years (an example of long-term power-purchase contract).
Lessons learned from this case study include:
- Government’s long-term renewable energy goal and commitment reduce the political and regulatory risks and uncertainties, especially because higher-cost electricity generation such as solar PV (compared to fossil-fuel alternatives) is still policy-dependent.
- Institutional investors could work with specialized investors and operators of solar parks, like Longsol Holdings, who have the technical expertise in the area.
- The long-term power-purchase contract agreements enables institutional investors to earn predictable cash flows, which similarly function as a long-term fixed-income.
(Source: Kaminker et al., 2013)
Case Study 2: Investing in sustainable farmland in Brazil by TIAA-CREF, a retirement and investment fund
Investment in agriculture is predominantly by farmers and only a very minor share of investment is by institutional investors. In 2012, institutional investors owned less than 1% of US$2 trillion global farmland market. Farmland is an attractive asset class due to increasing demand for fuel and biofuel, the opportunity to diversify portfolio. However, despite these advantages, institutional investors are not large holders of farmland assets due to historically high barriers to entry such as limited access, low liquidity, limited market information and research, and a large number of off-market transactions.
TIAA-CREF is one of the largest managers of retirement and investment funds in the US. In 2012, TIAA-CREF established a US$2 billion agricultural company (TCGA), which looks to invest in the major growing regions of the world including Australia, the United States and Brazil. TCGA is made up of institutional investors who have made capital contributions to the investment entity and in return receive periodic capital distributions as the portfolio matures.
One problem faced by TCGA in Brazil is the poorly defined property rights. Through massive research, TCGA settled land ownership disputes in Brazil, enabling farmers to secure credits and develop their business. This has unlocked under-utilised land for development, increasing farm investment, productivity and output.
Lessons learned from this case study include the following:
- When institutional investors invest in agriculture, they must work with local farmers or other organisations because they generally do not have the knowledge or experience to manage farms and market the crops.
- The role of the government in creating an enabling framework for green growth investment is key. Brazil has made progress towards creating a stable, investment-grade business environment where investors can be confident that the rules of doing business will not rapidly change.
- Settling land disputes allows capitals to flow into productivity-enhancing investment.
(Source: Kaminker et al., 2013)
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ENDNOTES
For endnotes, please refer to the original pdf document.
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“Rhizome vs Regime: Southeast Asia’s Digitally Mediated Youth Movements” by Yatun Sastramidjaja
