EXECUTIVE SUMMARY

• The 1 February military coup in Myanmar is the direct outcome of domestic political tensions. It is a situation of deep-seated mutual distrust between the popular NLD party that sought to complete democratic transition under a civilian government, and the military (Tatmadaw) with declining public support but significant constitutional and coercive power that fears for its own political survival.

• Myanmar’s crisis is ASEAN’s most serious challenge since Vietnam’s invasion of Cambodia in the late 1970s. It threatens ASEAN’s long-standing objective of keeping the region in peace, free of external intervention.

• If mishandled, it poses an existential threat to ASEAN by weakening the organisation’s internal unity and decreasing its relevance and centrality in shaping regional affairs and regional order.

• It appears high time for ASEAN to weaken its commitment to the norm of non-intervention and give more effect to its communal values and the notion of ASEAN Centrality. Directly responding to the Myanmar crisis serves ASEAN Centrality and its emphasis on a caring and people-oriented community. Continued inertia based on strict adherence to the non-intervention principle will further weaken ASEAN’s agency, unity and relevance.

• ASEAN is the only actor that can lead the de-escalation and mediation process in Myanmar. Its immediate focus must be on diffusing tensions and bringing the two sides to the negotiating table. It must occupy the driver’s seat in the international community by actively framing the issue and engaging with both domestic groups in Myanmar and various external powers.

• If ASEAN mediation fails and the situation develops towards widespread violence, then ASEAN must be prepared to take some hardline measures against the Tatmadaw. One such measure could be temporary suspension of Myanmar’s membership of ASEAN until the Tatmadaw aligns its behaviour with ASEAN’s communal values. 

* Yongwook Ryu is Assistant Professor at the Lee Kuan Yew School of Public Policy (LKYSPP), National University of Singapore. Bernard Minn and Myat Myat Mon are Master in Public Policy candidates at LKYSPP.

INTRODUCTION

There is a sense of déjà vu about the recent military coup in Myanmar. In 1988, the widespread pro-democracy demonstrations known as the 8888 Uprising were brutally suppressed by the military, and a coup ensued that led to the formation of the State Law and Order Restoration Council (SLORC). In May 1990, the military junta government held free elections which resulted in a landslide victory for the National League for Democracy (NLD) led by Daw Aung San Suu Kyi. Refusing to cede power, the military junta put Daw Aung San Suu Kyi under house arrest, suppressed the democracy movement, and returned to ruling the country as SLORC. The latest military coup, which occurred on 1 February 2021 has therefore familiar themes: a landslide election victory for NLD (in November 2020), the military’s refusal to accept the results, widespread pro-democracy demonstrations, and the possibility of coercive crackdowns, if matters are not managed quickly.

The recent coup is the direct outcome of domestic political tensions that had been building up between the NLD and the military for years. Myanmar’s fleeting democracy, which began in 2011, was guilefully crafted by the Tatmadaw (the Myanmar military) to safeguard its interests in the form of the military-drafted 2008 Constitution. These safeguards included prohibiting Daw Aung San Suu Kyi from leading her own political party and enabling the military free rein to carry out the most powerful functions of government. Any attempts to unpick these safeguards through constitutional amendment are further protected through Article 141 of the Constitution which reserves 25% of seats in parliament for the military. A change to the Constitution requires at least 75% of votes in Parliament.

However, the Tatmadaw did not foresee Daw Aung San Suu Kyi and her aides navigating constitutional loopholes. One such loophole was to create the post of State Counsellor, which effectively rendered Daw Aung San Suu Kyi as the proxy leader of her party, thereby allowing her to govern from 2016 to 2020. As her term progressed, Daw Aung San Suu Kyi has repeatedly called for constitutional amendment to consolidate power for the civilian-led government at the expense of the military. Although her party’s attempt to amend the constitution was unsuccessful, her continued rhetoric in the matter threatened to remove the Tatmadaw from Myanmar’s political structure. What we had therefore was a situation of deep-seated mutual distrust between publicly popular Aung San Suu Kyi’s NLD that sought to complete democratic transition under a civilian government and a military with declining public support but significant constitutional and coercive powers that feared for its own political survival.

Somewhat fortunately, the initial statement from the Tatmadaw suggested that it was not interested in reversing a decade of reforms which had positioned Myanmar as one of the fastest growing economies in the region, if not the world. In his post-coup address to the nation, Tatmadaw’s Commander-in-Chief, Min Aung Hlaing, stated that his government would build a genuine and disciplined democratic system with no changes to economic and foreign policy. He has called on foreign investors to continue their business activities, and established the State Administration Council (SAC) with representative appointment of members from different ethnic groups and technocrats.

Despite these actions, the Myanmar public continues to view the military with a deep sense of disdain and distrust and is unwilling to accept anything less than the return of governing power to the NLD.

The situation has significantly worsened since the first protest took place in Mandalay on 4 February, and threatens to turn into large-scale violent internal conflicts. Figure 1 shows the timeline of major events since the 1 February military coup, while Figure 2 shows the daily and cumulative numbers of deaths since 8 February when the first killing occurred.

MOST SERIOUS CHALLENGE TO ASEAN

The current crisis in Myanmar is the most serious challenge to ASEAN since Vietnam’s invasion of Cambodia in the late 1970s that challenged ASEAN’s vision of regional order based on the Treaty of Amity and Cooperation. It also threatens ASEAN’s long-standing goal in foreign policy of keeping the region free of external intervention and promoting regional peace and stability. Therefore, failure to resolve the current Myanmar crisis will pose a long-term existential threat to ASEAN by weakening the organisation’s internal unity and decreasing its relevance and centrality in shaping regional affairs and order. In addition, it will expose internal fissures within ASEAN, which external powers can exploit for intervention in the region. The modern history of Southeast Asia attests that the occurrence of national political turmoil and regional fissure invites political and military intervention by external powers in the region. This is a key reason why the founding fathers of ASEAN placed so much emphasis on building national and regional resilience.

Furthermore, the Myanmar crisis raises an old debate within ASEAN, namely, what degree the norm of non-intervention needs to be adhered to. The non-intervention norm has always existed uncomfortably with the notion of ASEAN Centrality as well as with the stated goal of an ASEAN Community. While the norm has been a cardinal principle, it is not the only relevant principle or norm within ASEAN today. At least since ASEAN became the main architect of the regional institutional landscape in the 1990s, ASEAN has explicitly promoted ASEAN Centrality in regional affairs. Furthermore, its regionalist project of constructing an ASEAN Community has increasingly emphasised the importance of creating a caring and people-oriented community.

It is high time then for ASEAN to weaken its commitment to the non-intervention norm and give effect to ASEAN Centrality and communal values. The non-intervention norm has been used all too easily in the past to avoid addressing controversial and difficult issues. If ASEAN hides behind the veil of non-intervention again this time, it will significantly marginalise ASEAN in regional affairs and weaken its relevance and centrality. The only option for ASEAN is to take a proactive attitude to resolve the Myanmar crisis and to be quick on its feet to start its mediation effort immediately before the situation gets out of control. This requires a shift away from its cardinal norm of non-intervention and non-interference. ASEAN is required to practise what it preaches. Directly responding to the crisis in Myanmar aligns with ASEAN’s principle of ASEAN Centrality and its emphasis on a caring and people-oriented community, while continued inertia based on strict adherence to the non-intervention norm poses severe risks to ASEAN’s agency, relevance and unity.

ASEAN is the only actor that can play a meaningful role in this issue. Initially, ASEAN’s response to the Tatmadaw’s seizure of power was distant and non-committal. Only on February 18 did ASEAN propose to hold an informal ASEAN ministerial meeting to exchange views on the ongoing developments in Myanmar. More recently, however, following a flurry of diplomatic exchanges within ASEAN led by Indonesia and Brunei, ASEAN began its engagement in the issue, which culminated in the virtual Informal ASEAN Ministerial Meeting (IAMM) on 2 March.

The chair’s statement on the IAMM contains three paragraphs (paras 8, 9, and 10) that are directly relevant to Myanmar. These paragraphs contain a modest description of the current Myanmar situation as a “concern” to ASEAN and call for “utmost restraint”, “flexibility”, “constructive dialogue” and “practical reconciliation”. In addition, they reiterate the importance of resolving the Rohingya situation and addressing the humanitarian crisis in the Rakhine State. No doubt, these paragraphs are an expected disappointment to many, especially given ASEAN’s failure to respond effectively to past regional crises, ranging from the Asian financial crisis to the 2015 Rohingya crisis.

In our view, however, the most important provision of the statement is paragraph 2, which emphasises “political stability” of member states and the need to “collectively address common challenges” in the region. It is this paragraph that explicitly recognises that “the strength of the ASEAN Community lies in putting people at its centre” and calls for adherence to “the rule of law, good governance, the principles of democracy and constitutional government, respect for fundamental freedoms, and the promotion and protection of human rights”. These are precisely the values and principles of ASEAN’s that the military coup in Myanmar and subsequent actions taken by the Tatmadaw have contravened.

The chair’s statement is only a starting point, not an end stage, for ASEAN’s engagement with both the Tatmadaw and Aung San Suu Kyi’s NLD. And it is only ASEAN – and no other actor – that can lead the de-escalation and mediation effort. Not only does ASEAN possess extensive experience in interacting with the Tatmadaw, but it also understands the complex political structures of Myanmar. The Tatmadaw also finds ASEAN less intimidating and is comfortable enough to engage with ASEAN in exchanging views. ASEAN’s track record of successful engagement with Myanmar includes acting as a conduit between the Tatmadaw and the international community throughout the 1990s based on the policy of ‘constructive engagement’ as well as its response to the devastation of Cyclone Nargis in 2008. In contrast, the Tatmadaw’s strained relationship with the United Nations, the US and the West entails the latter’s lack of leverage over the Tatmadaw and impracticality of brokering a deal.

WHAT CAN ASEAN DO?

What should and can ASEAN do, then? Its first task must focus on diffusing current tensions by bringing the two sides to the negotiating table. This requires gathering precise facts on the ground and the exact views of both the Tatmadaw and NLD, in order to know the range of negotiable outcomes. In this regard, it is encouraging to see that Indonesia has taken the initiative to consult with various ASEAN member states and engage with the Tatmadaw and the Committee Representing Pyidaungsu Hluttaw (CRPH) that is widely viewed as representing the NLD and the people. This effort must be kept up and sustained with patience and flexibility.

At the same time, ASEAN must frame the issue in the right way, and it should send out an unequivocal message to the Tatmadaw that further violent crackdowns must be avoided. Failure to produce its own interpretation of the current crisis will only diminish ASEAN’s centrality and relevance. Here, ASEAN is well-advised to stand with or give more consideration to the ordinary people in Myanmar. If it tolerates brutal suppression of pro-democracy supporters by the military in the name of non-intervention and non-interference, it will essentially deny its own social purpose and decrease its relevance for ordinary Southeast Asians. In this regard, the chair’s statement of the IAMM in reiterating the importance of these communal values is heartening. ASEAN must take a brave step forward to promote and implement these values in its foreign policy, too.

ASEAN should also actively consult external great powers such as the US, China, Japan, and EU. This is necessary not only to garner international support for ASEAN’s mediation effort, but also to decrease the likelihood of great powers exploiting the situation or pushing Myanmar toward an external power. The more united the international community is, the more effective ASEAN’s mediation effort will be.

And finally, if ASEAN’s mediation fails and the situation spirals into massive violence, then ASEAN should be prepared to take some hardline measures against the Tatmadaw. One such measure could be temporary suspension of Myanmar’s membership of ASEAN. ASEAN’s approach to Myanmar today cannot be the same as its approach in the 1990s. Back then, Myanmar was not a member of ASEAN, whereas now it is an integral member of the ASEAN family. Hence Myanmar, like all other ASEAN member states, is expected to uphold and follow the ASEAN Charter communal values, of which communal values of human rights, rule of law, and good governance are an integral part. In fact, ASEAN should have issued a strong warning to Myanmar when the Rohingya crisis happened in 2015, but instead it largely remained silent and inactive. Wrong behaviour gone unpunished only begets similar wrong behaviour. Hence if Myanmar deviates from ASEAN’s communal values in an egregious manner, then ASEAN must seek to enforce its own values and social norms, not merely issuing a series of verbal statements of ‘grave concern’.

No one thinks that managing all this is an easy task. Indeed, it requires deft diplomatic manoeuvring between conflicting domestic groups in Myanmar as well as between various external powers. Many expect ASEAN’s mediation attempt to fail, and ASEAN could also end up introducing different risks and concerns in the process. Of particular concern is the Tatmadaw becoming dependent on Beijing and going under Chinese influence. But these are reasons for ASEAN to proactively engage with various parties and resolve the issue through its own initiative, rather than sitting idly behind the norm of non-intervention. We are reminded of the past record and positive result of ASEAN acting united during Vietnam’s invasion and occupation of Cambodia throughout the 1980s, to uphold its principles and norms, which promoted regional peace and stability.

Only ASEAN can carry out this present task. If it succeeds, it will rejuvenate ASEAN’s relevance, unity and centrality in regional affairs. If it does not act, then it will only further decrease ASEAN’s already-declining unity and relevance. The choice is ASEAN’s to make. It is time for ASEAN to give effect to its communal values and self-proclaimed ASEAN Centrality, because Myanmar’s future is also ASEAN’s future.

ISEAS Perspective 2021/27, 10 March 2021.

EXECUTIVE SUMMARY

• Sustained revival of economic activities in ASEAN requires successful containment of COVID-19 within and outside the region. Half of the ASEAN members have contained the pandemic, but not Indonesia and The Philippines, while Myanmar, Malaysia and Thailand are dealing with new waves of infection.

• Economic growth in ASEAN countries appears to have bottomed out during the second quarter of 2020, although the shape of the recovery will vary between countries.

• For countries that have controlled local transmission of the virus, a V-shaped recovery looks likely. For the others, the possibility of a delayed or W-shaped recovery increases the longer reintroduced containment measures stay in place.

• The emergence of new variants that may be more transmissible, virulent or resistant to vaccines adds new uncertainty to regional and global recovery prospects, and hastens the need for an expeditious vaccine rollout.

*Jayant Menon is Visiting Senior Fellow of the Regional Economic Studies Programme and Sithanonxay Suvannaphakdy is Lead Researcher (Economics) at the ASEAN Studies Centre, ISEAS – Yusof Ishak Institute.

INTRODUCTION

The COVID-19 pandemic has had major social and economic effects across the world. Lockdowns and infections affect domestic economies via supply and demand channels. On the supply side, they reduce labour supply and productivity, while business closures and social distancing also cause supply disruptions. On the demand side, layoffs, loss of income and worsened economic prospects reduce household consumption and firms’ investment. The uncertainty over the path, duration, and impact of the pandemic could result in a vicious cycle where reduced business and consumer confidence in turn increases job losses. This article examines the economic impact of the pandemic on the ASEAN countries, tracing its trajectory through the downturn, and the expected recovery path in 2020-2021.

CONTAINING COVID-19 IN ASEAN AND THE WORLD

Sustained recovery of economic activities in ASEAN requires a successful containment of COVID-19. Krueger (2020) and others have argued that until community transmission of the virus is controlled, economic recovery will be uncertain and attempts at returning to pre-COVID-19 levels of normality may not be sustainable. However, several major economies and some ASEAN countries have been struggling to contain community spread of COVID-19. The United States, India, the United Kingdom, France, Germany and Japan are still facing high numbers of daily COVID-19 infections and deaths (Figure 1a). As of 30 January 2021, these countries had reported 46.5 million infections and 838,380 deaths, which accounted for 46 percent of global infections and 38 percent of global deaths, respectively.

The emergence of several more transmissible COVID-19 variants could further increase the number of infections and deaths. These include a variant called B.1.1.7 in the UK, another called 1.135 in South Africa and the P.1 in Brazil (Hernandez and Toy, 2021). In fact, there is growing concern that most recent surges around the world could be due to new variants, some still unidentified (Menon, 2021). The uncertain and unpredictable nature of the pandemic was confirmed when infection rates suddenly began to decline in many countries including the US and UK in February 2021; the reasons for it or its sustainability remain unclear.

The pandemic has so far been managed relatively well in half of the member countries of ASEAN. Indonesia and The Philippines struggled to contain community spread almost from the start, while Myanmar and Malaysia, and more recently Thailand, are now trying to contain new waves of infection (Figure 1b). The average number of daily infections in The Philippines has declined from about 4,135 cases in August 2020 to 1,648 cases in January 2021. The average number of daily infections in countries that have controlled community transmission – Brunei, Cambodia, Laos, Singapore and Vietnam – has also shown a downward trend, dropping from 170 cases to 44 cases over the same period. In contrast, the average number of daily infections in Indonesia has increased from 2,123 cases to 10,771 cases over the same period. The resurgence of infections in Malaysia and Myanmar since September 2020 is also concerning; in January 2021, Malaysia had the highest number of infections in ASEAN per million population.

ECONOMIC IMPACT AND GOVERNMENT RESPONSE

The measures introduced to deal with the pandemic save lives but are having wide-ranging negative economic effects and inducing economic contagion. In their most recent projections released in January 2021, the IMF sees world output contracting by 3.5 percent in 2020, up from a contraction of 3.8 projected in October 2020 (Table 1). Growth in 2020 in the original five ASEAN member countries is projected to be negative, with the newer members expected to post positive but low growth except for Cambodia. The Philippines is expected to be the worst hit, contracting by 9.6 percent, followed by Thailand at -6.6 percent, and then Singapore and Malaysia, both expected to contract by about 6 percent. Indonesia is only expected to contract by 1.9 percent; this is due partly to the fact that it did not institute a general lockdown. Of the countries that implemented a general lockdown, Vietnam was the first to lift curbs, and the IMF projects that its economy grew by 1.6 percent in 2020.

Like the IMF, the ADB has also had to revise its forecasts several times, reflecting the uncertainty surrounding both the evolution of the pandemic and how governments are responding to it. The ADB has been generally less pessimistic than the IMF in its forecasts for growth in 2020 (Table 1). Both IMF (2021) and ADB (2020) expect that the ASEAN economy will contract by about 4 percent in 2020, but rebound strongly in 2021 by about 6 percent. These projections imply a V-shaped recovery for most countries, although the situation in countries contending with new waves of infection is less clear.

These forecasts take into account the stimulus packages that governments introduced to mitigate the economic impacts of the pandemic and measures introduced to contain its spread. The difference between the gross and net effects of the pandemic is depicted in Figure 2, and reflects the type and size of stimulus measures used. The size of the stimulus varies greatly across countries, and tends to be highest in the richer countries, as Figure 3a demonstrates (see also Lee et al., 2020). In Singapore and Malaysia, this has amounted to around a quarter of GDP, while it is almost non-existent in poorer countries such as Laos and Myanmar. When these amounts are normalised for population size (Figure 3b), the cross-country differences are more pronounced, with Singapore clearly standing out at almost US$9,000 per capita. Brunei comes in second at around US$700, while the difference between Malaysia and Thailand narrows significantly, with both now around US$650.

Apart from the forecasts, actual GDP growth figures are available for the first three and sometimes all four quarters of 2020 for the five original ASEAN member countries, Brunei and Vietnam (Figure 4). These numbers allow us to map the trajectory of intra-year economic performance, and to assess whether countries have bottomed-out in terms of the fall in their GDP.

TRACING THE TRAJECTORY OF RECOVERY

Economic growth for most ASEAN countries appears to have bottomed out during the second quarter of 2020, and recovery appears to be underway in the third quarter. This is true for both the countries that could not avoid a technical recession (the original ASEAN five members) or those with forecast of negative annual growth (Cambodia). It is also true for the countries with positive quarterly growth so far (Brunei and Vietnam) or forecast positive annual growth (Laos and Myanmar). More high frequency data such as trade flows, which are usually available on a monthly basis, suggest that the bottom may have been reached in or around May 2020 for most countries.

For countries that have controlled community transmission of the virus, a V-shaped recovery with the trough bottoming out in the second quarter with a strong rebound thereafter, currently appears to be the most likely outcome. For countries still struggling to contain community spread, the shape of recovery is more difficult to predict, since much depends on how long the containment measures are in place. The possibility of a delayed or W-shaped recovery gains likelihood the longer the reintroduced containment measures are in place.

In the remainder of this section, we try to map the trajectory of growth during the year and assess the outlook going forward for each ASEAN country. We begin with the countries that could not avoid a recession, and then consider those that have.

Recovery from recession

Given the huge size of its stimulus, combined with relaxation of social distancing measures after controlling community transmission, Singapore reported a slower year-on-year decline of 5.6 percent in the third quarter, compared to the 13.3 percent decline in the previous quarter. This improvement continued into the fourth quarter, when the contraction declined further to 2.4 percent, much lower than the advance estimate of 3.6 percent. With the revision to the fourth quarter number, Singapore’s growth contraction for 2020 is estimated at 5.4 percent, lower than forecast by the IMF or ADB.

Indonesia is the least badly affected of all the countries that have gone through a recession this year, most likely due to the fact that they did not implement a hard or prolonged lockdown. The economy contracted by 3.5 percent in the third quarter, even lower than its second quarter contraction of 5.3 percent, which was the lowest among the original five ASEAN members. This trend extended to the fourth quarter, when the contraction narrowed to 2.2 percent. This is despite the tightening of some social distancing measures to try to control ongoing community transmission, without a general lockdown. This latest number further consolidates Indonesia’s position as the economically least affected of the original five ASEAN members. Nevertheless, the recovery remains fragile as long as community transmission remains a problem.

After reporting positive year-on-year growth of 0.73 percent in the first quarter, Malaysia’s second quarter contraction of 17.1 percent was the highest amongst the ASEAN countries. The third quarter contraction was much lower at 2.7 percent, however, following strong quarter-on-quarter growth of 18.2 percent. This strong rebound from the depths of the second quarter contraction suggests that Malaysia was recovering strongly, aided by significant government stimulus measures. The reintroduction of containment measures following a new wave of infections in the third quarter dampened the recovery, however. A higher fourth quarter contraction of 3.4 percent indicates early signs of a W-shaped growth pattern. With infection still on the rise in January 2021, a lot will depend on how much longer the containment measures remain in place, and how the political situation develops when the state of emergency expires on 1 August 2021.

There are no quarterly GDP estimates available for Cambodia (or Laos and Myanmar) to assist in mapping the pattern of growth during the year. The IMF expects that Cambodia’s GDP will contract by 2.8 percent in 2020, while the ADB expects an even larger contraction of 4 percent. Both expect the economy to rebound strongly in 2021, with the IMF projecting 6.8 percent growth, the third highest in ASEAN.

Thailand’s year-on-year contraction of 1.97 percent in the first quarter was the largest in ASEAN, and this contraction continued in the second quarter with a 12.16 drop. Third quarter growth fell by 6.4 percent, much less than market expectations, suggesting that Thailand is also on a recovery path. A new wave of infections in the fourth quarter reintroduced containment measures in many parts of the country, leading analysts to predict that the economy will contract by around 5.5 percent in the fourth quarter. Thailand is the most heavily reliant on travel and tourism in ASEAN, and as long as borders remain closed, its recovery is likely to be weaker than it needs to be (Menon, 2020a). Thailand is also dealing with social unrest that may affect political stability, and further dampen confidence and therewith, investment.

The Philippines contracted by 11.5 percent in the third quarter, lower than the 16.9 percent contraction in the second quarter, as a result of 8 percent quarter-on-quarter growth. Although the decline may have bottomed out in the second quarter, the double-digit contraction was higher than market expectations. Although the fourth quarter contraction was lower at 8.5 percent, it confirmed forecasts that the Philippines was the worst hit economy in ASEAN in 2020. Continuing difficulties in managing the pandemic, including problems with improving testing and tracing, suggests that the recovery will be drawn out and fragile (Menon 2020b).

Recovery from slowdown

Vietnam has not only avoided a recession, it did not experience a single quarter of negative growth in 2020. While the second quarter saw year-on-year growth slow from 3.68 percent in the first quarter to 0.39 percent, third quarter growth rebounded strongly to reach 2.6 percent, and then stronger still to 4.6 percent in the fourth quarter, indicating that it may surpass the IMF’s annual growth forecast of 1.6 percent. Apart from having managed several new waves of infections expeditiously, Vietnam’s positive growth is aided by significant inflows of foreign direct investment as a result of the restructuring of global supply chains following the US-China trade war.

Like Vietnam, Brunei has avoided negative growth so far, after posting year-on-year growth of 2.4 percent in the first quarter, and 2.8 percent in the second. Third quarter growth fell sharply to 0.5 percent, however. Depending on how it fares in the fourth quarter, the IMF forecast of 0.1 percent growth for 2020 may be too pessimistic, and the ADB forecast of 1.4 percent or the ASEAN+3 Macroeconomic Research Office (AMRO, 2020) projection of 1.6 percent may come closer to the mark.

Laos and Myanmar do not report quarterly GDP estimates, and therefore tracking the trajectory of recovery is difficult, but both countries are expected to avoid a recession this year, based on annual forecasts.

The IMF expects Myanmar to be the fastest growing economy in ASEAN in 2020, with 2 percent growth. This forecast may not fully reflect the new wave of infections that Myanmar is currently struggling to control, however. The military coup that took place in February 2021 may have a major negative effect on the economy depending on how long it lasts, and how the international community reacts, especially with regards to whether economic sanctions are imposed, and what form these will take.

Laos is expected to post positive growth of 0.2 percent this year, according to the IMF’s latest projections. The ADB, however, is projecting a contraction of 2.5 percent. Its debt position, made more precarious by the pandemic, raises concerns over the resilience of its recovery, going forward.

Risks to economic recovery

All ASEAN members are quite heavily dependent on the rest of the world through trade, investments and other linkages. Once community transmission is contained and lockdowns eased, economic recovery in ASEAN would be greatly facilitated by recovery of the global economy. The IMF (2021) projects a sharp recovery in world GDP in 2021, rising by 5.5 percent. Major economies such as China, US and EU are projected to grow by 8.1 percent, 5.1 percent and 4.2 percent, respectively, in 2021. The recovery of these economies is expected to boost exports and imports of goods and services in the region.

ASEAN economies are exposed to the regional and global economy through flows of goods, services, labour, and capital (Figure 5). Singapore, Vietnam, Cambodia, Malaysia, Thailand and Brunei stand out in terms of the high share of exports of goods and services in the GDP. They are more likely to be affected by a sluggish recovery in global demand and trade. The Philippines, Vietnam, Cambodia and Myanmar rely quite heavily on remittances, to the tune of 9.7 percent, 6.6 percent, 5.8 percent and 3.5 percent of GDP, respectively.

CONCLUSION

All ASEAN economies have been severely affected by the lockdown measures introduced to contain the COVID-19 pandemic, but some more so than others. The bottom for the slowdown in economic growth appears to have been reached sometime during the second quarter of 2020, but the turnaround has been uneven across ASEAN countries. For countries that have managed to control community transmission of the virus, a V-shaped recovery looks likely. These include Brunei, Cambodia, Laos, Singapore and Vietnam. For the others, the possibility of a delayed or W-shaped recovery gains in likelihood the longer the reintroduced containment measures are in place. The Philippine economy has been the worst hit, followed by Malaysia, Thailand, Indonesia and Myanmar.

The emergence of new variants of the virus that may be more transmissible and virulent, and  resistant to the new vaccines to boot, narrows recovery prospects for the region as well as the world. A speedy rollout of mass vaccination campaigns provides the best chance of winning the race against community spread as well as the emergence of ever more resistant strains.

ISEAS Perspective 2021/26, 10 March 2021.

REFERENCES

Asian Development Bank (ADB, 2020). Asian Development Outlook Update, September 2020. Manila: ADB.

ASEAN+3 Macroeconomic Research Office (AMRO, 2020). ASEAN+3 Regional Economic Outlook Update, Singapore: AMRO.

Baldwin, Richard (2020) “The supply side matters: Guns versus butter, COVID-style”, VoxEU, 22 March.

Cassey Lee, Siwage Negara and Maxensius Sambodo (2020) “Southeast Asia dodged the worst of Covid-19, but the economic devastation may last for years”, South China Morning Post, 30 September.

Hernandez, Daniela and Sarah Toy (2021). New Covid-19 Strains: What Scientists Know About Coronavirus Variants, Wall Street Journal, 28 January.

International Monetary Fund (IMF, 2020). World Economic Outlook, October 2020. Washington, DC: IMF.

International Monetary Fund (IMF, 2021). World Economic Outlook Update, January 2021. Washington, DC: IMF.

Krueger, Anne (2020). The Open Secret to Reopening the Economy, Project Syndicate, 23 July.

Menon, Jayant (2020a) “Time’s up on COVID-19 travel restrictions”, East Asia Forum, 27 October 2020.

Menon, Jayant (2020b) “Why it’s time to open Philippines’ borders”, Rappler, 27 October 2020.

Menon, Jayant (2021), Better domestic surveillance, not closing borders, is key to containing coronavirus spread, South China Morning Post, 6 February.