Indonesia’s hawkish monetary stance; Vietnam not liking a gold rush

This week in Asean: 

• Vietnam: Holds first gold auction in 11 years to stabilise market
• Indonesia: Hikes rate to cushion falling rupiah
• Malaysia: Plans to build South-east Asia’s largest chip design park
• Thailand: Welcomes another China EV player to set up a production plant

Dear BT reader,

On Wednesday (Apr 24), Indonesia’s central bank surprised the market with an off-cycle raise of its benchmark interest rate by 25 basis points to 6.25 per cent to support the battered rupiah. 

The rate hike, coupled with the surge in inflation to 3.05 per cent in March – the highest in seven months – is likely to delay the start of an easing cycle, potentially hurting the consumption-led economy. Despite these challenges, Bank Indonesia maintained its forecast for economic growth at 4.7 to 5.5 per cent in 2024.

We have been closely monitoring the currency of South-east Asia’s largest economy. Just last week, the rupiah hit 16,200 against the US dollar, the lowest level since 2020. While concerns of an impending Asian financial crisis reminiscent of the late 90s are brewing, our journalist Goh Ruoxue spoke to economists and found that there is no need to sound the alarm just yet. 

South-east Asian economies are now better positioned with strong fundamentals to withstand currency volatility. Factors such as flexible exchange rates, stronger exchange reserves and better-regulated external borrowing have enhanced the region’s resilience, said the economists. 

However, pressure on local currencies is expected to persist, mirroring the US Federal Reserve’s “higher for longer” monetary policy. Respite may only come when the US dollar weakens, driven by factors such as Fed easing and moderation in oil prices.

This week, the State Bank of Vietnam held its first gold bar auction in 11 years to stabilise the market amid record-high prices. Originally scheduled for Monday, the auction was delayed by one day due to a lack of buyer interest, and only one-fifth of the total of 16,800 taels offered was sold on Tuesday. 

This auction is part of Vietnam’s strategy to boost supply and reduce domestic gold prices, which have remained elevated above global prices by as much as 18 million dong (S$965.7) for each tael.

Under a 2012 regulation aimed at moderating prices and preventing the economy from becoming overly dependent on gold (known as “goldenisation”), Vietnam’s central bank has a monopoly on the production and import of gold. This has sparked unhappiness among local businesses. Read the piece by our Vietnam correspondent Jamille Tran as she unpacks the complexity of the country’s gold problem.

Meanwhile, Malaysia continues to focus on its tech industry. On Monday, Prime Minister Anwar Ibrahim unveiled plans for building the region’s largest integrated circuit design park in Selangor, along with an investment of up to RM3 billion (S$855 million) in the tech ecosystem. 

The fifth-largest economy in South-east Asia will offer tax breaks, subsidies and visa exemption fees to attract global tech companies, with the aim of emerging as a leading startup hub by 2030. Read the story by our Malaysia correspondent Tan Ai Leng to discover where the opportunities lie.

Hope you have enjoyed this week’s issue. There are more stories in the links below. Have a good weekend!

Trending

The EU and Asean are shifting their focus in negotiations for a region-to-region free trade agreement towards specific areas such as digitalisation and sustainability. With a Singapore-EU digital trade agreement expected by 2024 and Asean shaping up as the world’s first regional digital economy agreement, an EU-Asean digital trade agreement is something to watch for.

Asean in Brief

• Vietnamese firms face Q1 debt crunch amid sluggish recovery Despite lower interest rates and ample liquidity, Vietnamese firms saw limited access to debt financing through bank loans and corporate bonds in the first quarter of this year. Read more
• Vietnam’s tech giant VNG seeks to push gaming, AI cloud businesses globally Despite shelving its US listing plans, GIC-backed Vietnamese tech company VNG is banking on its gaming and AI-focused cloud businesses to go global. Read more
• Indonesia awards 45 billion yen contract to Japan’s Sojitz for Jakarta MRT extension Indonesia’s mass rapid transportation construction project in Jakarta will continue under Japanese technology, with the government having signed a 45 billion yen (S$399.6 million) contract with Japanese trading company Sojitz Corporation. Read more
• Indonesia’s March trade surplus beats estimates, posting its largest in over a year Indonesia recorded a significant trade surplus of US$4.47 billion in March, the largest in 13 months, surpassing expectations due to an unexpected decline in imports. Read more
• Thailand’s 500 billion baht handout aims to boost overall economy, not geared to poor: official Thailand’s 500 billion baht (S$18.4 billion) scheme aims to reach the wider population and boost the overall economy through stimulus, a finance official said on Wednesday (Apr 24), responding to central bank recommendations that it be targeted towards the poor. Read more
• Thailand says China’s Chery Automobile to set up manufacturing plant China’s Chery Automobile will set up a plant in Thailand that will make vehicles for both the domestic and export markets. Read more
• Malaysia to build region’s largest chip design park in bid for top startup-hub status With a 13 per cent market share in the global chip industry, Malaysia is set to up the ante by constructing the region’s largest integrated circuit design park. Read more
• South-east Asia’s sinking currencies raise spectre of ’97/98 financial crisis South-east Asian currencies have been whiplashed, losing between 1 per cent and 7 per cent this year against a “smiling” US dollar. Read more
• A cheat sheet of startup and tech M&As in South-east Asia Since 2006, Tech in Asia – now a part of SPH Media – has been keeping tabs on South-east Asia’s mergers and acquisitions in its startup and tech landscape. Read more