ASEAN

GROUP 2

SUBMITTED BY:
ARUSHI CHANANA (335/2019)
ASHISH KUMAR PANDEY (364/2019)
GARIMA MITTAL (341/2019)
ISHAN SINGH (322/2019)
PRANJAL MOITRA (309/2019)
RESHAM GROVER (315/2019)
SAKSHAM AGRAWAL (332/2019)
SOURAJIT DAS (325/2019)
ASSOCIATION OF SOUTHEAST ASIAN
NATIONS (ASEAN)
ASEAN is an intergovernmental organization promoting intergovernmental cooperation and
facilitating economic, political, security, educational and socio-cultural integration amongst its
ten member countries, Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Laos,
Myanmar, Cambodia and Vietnam, and other Asian nations.
ASEAN was founded in the year 1967 by five countries Indonesia, Malaysia, Philippines,
Singapore and Thailand. ASEAN was created because of the common fear of communism.
This was then to promote stability in the region. With time ten more members were added in
the group. The group has initiated free trade agreement amongst its members and with other
countries like, China and also, made travel of the citizens in the regions easier.
To establish a single market, ASEAN created AEC in 2015. The average growth rate of
ASEAN was between 3.8% to 7% between the years 1989 to 2009. To promote free trade
amongst its members nations, ASEAN free trade agreement was established in the year 1992.
The further goals of ASEAN include, single market and production base, competitive economic
region, a region of equitable economic development and a region which is fully integrated into
the global economy.

TWO MAJOR ECONOMIES IN ASEAN

VIETNAM
The country is ASEAN’s star performer. Economic and political reforms from 1986 has helped
the country to rise from the one of the world’s poorest nations to a lower middle-income
country. More than 4.5 crore people were brought out of poverty in about sixteen years from
2002 to 2018. Also, the people under poverty were down from 70% to 6% of the total
population. The GDP per capita stands at $2551 in 2018 which is 250% of what it was in 1996.
INDONESIA
The country is ASEAN’s biggest economy. Out of the total $3.1 trillion size of ASEAN,
Indonesia comprises about 36% whereas other countries contribute less than 15% each. Also,
Indonesian land forms about 42.5% of ASEAN’s total landmass. It is the only country in its
region to be a member of G20 countries. Indonesia’s GDP increased by 573% between 2000
to 2019 from $165 billion ($823 per capita) to about $1111 billion ($3932 per capita). Also,
poverty rates in Indonesia have fallen from nearly 25% in 1998 to about 9.8% in 2018.
BRIEF DISCREPTION OF THE ECONOMIES
VIETNAM
It is the eastern most country on the Southeast Asian Indochinese Peninsula. With a population
of about 97 million, it is the 15th most populated country in the world. Vietnam has historically
been dependent on agriculture mainly wet rice cultivation. Central Vietnam is the centre for
mining of bauxite in the country. The major reforms that shaped Vietnam’s economy were Doi
Moi reforms in the year 1986, which were mainly focussed on socialist oriented market. This
made the private run companies to operate under market constraints. After these reforms, the
economy grew exceptionally at a pace of about 7% from 1990 to 1997. Even in the time of
global recession of late 2000, the economy still grew at 6.8%. but due to continuous devaluation
of the currency, the inflation was also rising in the country and reached double digit many
times. The Doi Moi reforms also helped the country to reduce poverty by using policies such
as equitable distribution to prevent inequality and also, subsidizing education and healthcare
and promoting investment in poorer remote areas.
Currently, manufacturing, information technology and high-tech industries form a big part of
the economy. Also, Vietnam has been the eighth largest crude oil producer in the world and
third largest in the Asia Pacific region in 2010.
Owing to land reforms in the agricultural sector, it is the largest exporter of cashews in the
world with a third of global share.
INDONESIA
It is a country in Southeast Asia, between Indian and Pacific Ocean. It is the world’s largest
island country. With population of 267 million people, it is the 4th most populated country in
the world. Indonesia has a mixed economy in which both private and government sector play
vital role. The service sector has maximum contribution of 43.6% of GDP while agriculture
has least of 13.1%. Although agricultural has generated most employment of 31.1% after
service sector’s 47.1%. The economy’s structure has gradually changed from dependency on
agriculture in 1950s to industrialization in 1960s. The reduction in trade barriers and falling oil
prices in the 1980s lead to the diversification of exports from crude oil to manufactured goods.
The Asian recession of 1997 lead to Indonesia’s downfall with inflation peaking to about 72%
in the following years but improvement in domestic consumption and banking sector in 2007
helped the country survive the great recession and perform well in that period. Currently, palm
oil and coal briquettes are the main exports value, with petroleum gas, crude petroleum, rubber
and cars making up majority of other exports.
MAJOR ECONOMIC INDICATORS
GDP PER CAPITA
 VIETNAM
Its nominal GDP per capita in 2019 as forecasted by IMF stands at $2739.821 increased
from $2551.123 in 2018 which stood at mere $97.158 in 1989. Hence, Vietnam’s GDP
per capita in nominal terms has increased by massive 2720% over 30 years (1989-
2019). Its GDP per capita in PPP terms was $6608.60 in 2018 up from $6233.5 in 2017
which stood at mere $1457.60 in 1990. Hence, Vietnam’s GDP per capita in PPP terms
has increased by 353.4% in about 30 years.
3000
2551
2500 2366
2214.39
2052.32 2107.01
2000 1907.56
1754.55
1542.67
1500 1333.38
1232.37

1000

500

0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

 INDONESIA
Its nominal GDP per capita in 2019 as forecasted by IMF stands at $4330 increased
from $4284.70 in 2018 which stood at mere $529.93 in 1989. Hence, Vietnam’s GDP
per capita in nominal terms has increased by massive 717% over 30 years (1989-2019).
Its GDP per capita in PPP terms was $11605.90 in 2018 up from $11161 in 2017 which
stood at mere $4626 in 1990. Hence, Vietnam’s GDP per capita in PPP terms has
increased by 151% in about 30 years.
 4500 4284.7
4120.4
3968.1
4000 3824.3
3693
3563.3
3421.3
3500 3270.6
3122.4
2979
3000

2500

2000

1500

1000

500

0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

INFLATION
 VIETNAM
The inflation rate in the country increased to 3.52% in November, 2019 compare to
2.24% in the last month. It was the highest inflation rate since October, 2018 and was
majorly due to inflation in housing and construction materials and food and catering
services. Inflation rate in the country has been around average of 6.22% from 1996 to
2019 with a peak of 28.24% in August, 2008 and an all time low of -2.60% in July,
2000.

 INDONESIA
The inflation rate in the country decreased to 3.13% in October, 2019 as compared to
3.52 % in the last month. It was the lowest inflation rate since April and was majorly
 due to soft inflation in housing and utilities, food and catering services, transportation,
communication and financial services and clothing. Inflation rate in the country has
been around average of 9.74% from 1997 to 2019 with a peak of 82.40% in September,
1998 and an all-time low of -1.17% in March, 2000

UNEMPLOYMENT
 VIETNAM
The unemployment rate in the country increased to 2.17% from 2.16% in the third
quarter of 2019 from the previous quarter. The average unemployment rate between
1998 and 2019 has been about 2.33% with the peak being 4.50% in the last quarter of
1998 and the lowest being 1.81% in the last quarter of 2012. Less unemployment rate
is due to the 2012 labour code.

 INDONESIA
The unemployment rate in the country decreased to 5.28% from 5.34% in the third
quarter of 2019 from the previous quarter. The average unemployment rate between
1982 and 2019 has been about 6.05% with the peak being 11.24% in the second last
 quarter of 2005 and the lowest being 2% in the last quarter of 1983. Indonesia’s main
problem has been underemployment in the periods of low growth.

GROSS SAVING RATE

 VIETNAM
The countries gross saving rate 26% in 2018 which is more than 25.5% in 2017. It has
an average savings rate of 4.6% between 1955 to 2018 with peak of 29.6% in 2012 and
an all time low of -24.8% in 1968.

 INDONESIA
The countries gross saving rate 33.9% in September,2019 which is less than 34.2% in
the previous quarter. It has an average savings rate of 34.7% between March, 2010 to
September, 2019 with peak of 37.8% in March, 2011 and an all time low of 28.3% in
December, 2015.
 26.5
26.142

26

25.5 25.314 25.274

25.195
25.083 25.108 25.187 25.138
24.857
25

24.5
24.068
24

23.5

23
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

TRADE TO GDP RATIO

 VIETNAM
The country’s trade to GDP ratio in 2018 was 187.52% which is 12.86% less from
2017’s 200.38%. The highest ratio was 200.38% in 2017 and all time low was 18.95%
in 1988. High trade to GDP ratio in the country mainly owes to the relaxed liscensing
policy in the country. Vietnam’s main trading partners are USA, China, South Korea,
Germany, Japan and Singapore.
  INDONESIA
The country’s trade to GDP ratio in 2018 was 43.02% which is 3.66% more than 2017’s
39.36%. The highest ratio was 96.19% in 1998 and all time low was 10.52% in 1962.
Indonesia ran a trade surplus of about $35 billion in 2017 but because it exports mainly
commodities so, price of the commodities and global demand heavily affect the
employment rates in the country. Its main trading partners are China, USA, Japan,
India, Singapore, Malaysia and Thailand.

FOREIGN DIRECT INVESTMENT

 VIETNAM
Foreign Direct Investment into the country rose by 6.8% to $16.5 billion from January
to November, 2019. The manufacturing industry got 68% of the investment of the total.
Average FDI between 1991 and 2019 is about $6.57 billion with a peak of $15.5 billion
in 2018 and a low of $0.40 billion in 2010. In 2019, till now Hanoi has drawn more
than $5.5 billion of FDI. This is because the municipal authorities there are trying to
increase usage of information technology in handling administrative procedures in
business and investment registration, tax, insurance and land use. The tranperancy and
speed of registrations has made Hanoi very attractive for foreign investors. Japan has
highest share of investment in Vietnam (24.5%) followed by South Korea (20%),
Singapore (14%) etc.
 INDONESIA
Foreign Direct Investment into the country rose by 17.8% to
IDR 105 trillion in third quarter of 2019 compared to a rise of 9.8% in the second quarter
of 2019. The transporting, warehousig and communication sectors got the highest
investments majorly from Singapore (19.5%), Japan (7.5%) and China (16.4%).
Average FDI between 2010 and 2019 is about IDR 75.53 trillion with a peak of IDR
112 trillion in the last quarter of 2017 and a low of IDR 35.40 trillion in first quarter
of 2010. Although FDI has decreased from 2019 as compared to 2018. Due to economic
policies introduced by the government which introduced 14 stimulus packages mainly
focusing on deregulation, law enforcement and business certainity, interest rate tax cuts
for exporters, energy tariff cuts for labour intensive industries, tax incentives for
investment in special economic zones and lowered taxes on property acquired by local
real estate investment trusts. FDI is expected to improve in coming years.
FISCAL DEFICIT
 VIETNAM
In 2018, Vietnam’s government deficit was 3.5% of the country’s GDP. From 1988 to
2018 the governments’s average deficit is about 2.75% of GDP and highest deficit was
9.90% of GDP and lowest was a surplus of 1.2% of GDP in the years 1988 and 2006
respectively.

 INDONESIA
In 2018, Vietnam’s government deficit was 1.76% of the country’s GDP. From 1988
to 2018 the governments’s average deficit is about 1.14% of GDP and highest deficit
was 2.58% of GDP and lowest was a surplus of 3.02% of GDP in the years 2015 and
1995 respectively.
MAJOR POLICY DECISIONS
FISCAL POLICIES
Policies which help the government to monitor the economy by increasing or decreasing the
government expenditure.
MONETARY POLICY
Policies which help the central bank to monitor the macroeconomic variables by adjusting the
money supply , interest rate etc.
VIETNAM
FISCAL POLICIES
 In 2007, due to WTO requirements, many of the charges and fees imposed on imports
and exports like import tarrifs, direct budget expenses like subsidies for exports and
subsidies given to state owned enterprises were removed.
 In 2008-09, due to global financial crisis, exports were falling , FDI decreased
significantally, the growth rate in the year 2008 was only 3.1% and in 2009 3.9% as
compared to the average rate of 7% before the crisis. To tackle this slowdown the
following fiscal measures were taken:
1. Interest subsidy of VND 17000 billion. This was mainly to increase liquidity in the
economy due to falling consumer confidence.
2. State development investment of VND 90800 billion. This was mainly to create
employment and increase income of people.
3. Tax holidays and exemption of VND 28000 billion.
4. Other expenditure on social security benefits and policies to tackle recession and
falling consumer confidence. Total expenditure of VND 9800 billion.
  In the following years till 2012, easily available credit lead to high inflation of 18% in
2011 and fall in GDP rate from 6.58% in 2010 to 5.89% in 2011. This lead government
to use a contractionary policy i.e decrease in public spending to bring economy back to
track with controlled inflation and higher growth.
 In 2012, Vietnam’s national assembly passed resolution granting tax reliefs, like, 30%
corporate tax reduction for some small and medium sized enterprises and labour
intensive enterprises to boost SMEs which contributed about 47% in GDP of the
country.
 The labour code 2012 regulates the employment relationships. This regulates the
probation period ( 6 to 60 days), definite term contract (12 to 36 months), indefinite
term contract (after two consecutive definite contract), seasonal project contracts (less
than 12 months) and foreign employees(maximum 24 months contract).
 Corporate tax rate was further reduced to 25% in 2013 and 22% in 2014. In 2015,
economy slowed down again which required the government to again use expansionary
fiscal policies by reducing taxes for individuals as well as businesses for short run to
revive the economy.
 Also, government is taking many measures to reduce the demand of conventional
sources of energy by increasing taxes on fossil fuels, the increased government revenue
is diverted to the development of renewable resources.
MONETARY POLICIES
 After the 2007-08 crisis, the State Bank of Vietnam decreased the reserve requirement
ratio from 11% to 3%. This was done to counter the affect of crisis and increase the
liquidity of the economy to encourage consumption and investment.
 In 2012, GDP growth rate was very low to about 5.89%, to give the economy a stimulus
SBV made rate cuts six time in 2012. The last one being 1% cut in discount rate (from
8 to 7%), 1% cut in refinancing rate and agricultural lendin rate.
 In 2015, State Bank of Vietnam used open market sale in the third quarter. Except
February and August, there was a net withdrawl of money every month.
 Also, refinance rate and discount rate was decreased by 0.5% and 0.6% respectively in
2015 as compared to 2014 to increase consumption and investment in the economy.

 In September 2019, SBV again reduced four key interest rates (rediscount rates,
refinancing rate, overnight lending rate and rate on valuable papers offered through
open market operations) by 0.25 percentage points each. These rate cuts were made to
boost the economy which is facing trouble due to global trade tensions. Also, because
the inflation target is well under control of 4%, this gives the central bank chance to
trim the rates and boost the economy. The same was done in 2017 to support economic
growth in not so favourable state of world economy when their was a slowdown in
global trade.
INDONESIA
FISCAL POLICIES
 The government of Indonesia, in 2015, introduces 16 economic packages to revive the
manufacturing sector. Although earlier also similar kind of reforms were introduces but
this time they were more focussed and specefic. Following are the reforms implemented
by the government from 2015 to 2017:
1. In September, 2015, with aim to boost industrial competitiveness, many sectors
were deregulated. Also, measures were taken to enhance law enforcements and
business activity.
2. Again in September, 2015, to increase exports, exporters were given tax cuts.
To improve FDI, liscensing procedures made faster for industrial estate and
also, import taxes were relaxed on capital goods in industrial estates and
aviation sector.
3. In October, 2015, energy tariff rates were cut for labour intensive sectors to
increase employment. Also, people’s business credit rate was reduced from 22%
to 7% to further stimulate MSMEs. To support the labour, fixed formula to
increase the labour wages was introduced. To support export oriented MSMEs
having less than 30 employees, micro credit facility was introduced.
4. In November, 2015, to boost investment in remote areas and increase
employment there, tax incentives were given on investments in SEZs.
5. In December, 2015, income tax was waived for labour working in labour
intensive industries. Import duty on 21 categories of airplane spare parts was
waived to boost aviation sector. Incentives to private sector for investment in
oil refineries.
6. In 2016, steps were taken to improve ease of doing business in the country by
cutting procedures, permits and costs. Stimulus to e-commerce industry by ease
and widen access to funding, improve logistics for e-commerce companies etc.
7. In 2018, extension was given to tax holiday facility, in addition to labour
intensive sectors for tax holiday, natural resource based manufacture and digital
economy sector were also given tax holidays. Income tax cut was announced
for exporters who will deposit their earnings in a designated account.
MONETARY POLICIES
 In 2013, the Bank of Indonesia decided to increase the key interest rate by 25 basis
points to 6 percent in order to boost confidence on depreciating rupiah.
 In 2014, the benchmark rate was increased by 25bps to 7.75 % aiming to contain
inflationary pressures after the government raised the fuel prices by 30%.
 Bank of Indonesia seeing the inflation rate in line with the taget, cut the benchmark rate
by 25 basis points first time since 2011, to boost economic growth.
 Also, it decreased the reserve requirement ratio to increase the liquidity in the economy
in November, 2015.
 In 2016, it again cut the benchmark rate by 25 basis points to 7.5%, to support the weak
economy. Also, overnight overnight deposit facility rate and lending facility rate were
cut by 25 basis points to 5.25% and 7.75% respectively. It was further cut 25 basis
points and reserve requirement ration by 100 basis points. In all the key interest rate
was cut by 300 basis points in 2016 from 7.75% to 4.75%.
 In 2017, benchmark rate was increased three times mainly due to falling rupiah.
 In 2019, Bank of Indonesia has cut the benchmark rate about 4 times to increase
liquidity and also, various other rates has been cut like reverse repo rate etc.

POLICY SUGGESTIONS
VIETNAM
Vietnam has emerged as thriving middle income economy owing to the reforms in last three
decades. But in order to become a high income country, Vietnam will need to sustain an avrage
growth of about 7% in coming 25 years. But in this growth path, a rapidly aging population,
low productivity and sluggish investment growth will slow it down. Gains from its structural
transformation are high but these would essentially lead to increase in wages in the country
which in turn will erodes its comparitive advantage as relatively low value, labour intensive
segments of global value chains. To stop Vietnam from falling into this trap, we suggest four
measures which can possibly prevent this:
 Accelerating capital investment, Vietnam is relatively scarce of capital, therefore,
investment in technology, machinary and infrastructure will boost the labour force of
the country. This will require implementation of policies which will ease the financing
of these investment. This will require an improvement in financial system of the country
which can mobilize the significant domestic saving into productive use.
  Imparting new skills relevant to present market conditions, World Bank Human Capital
Index ranks Vietnam at 48 out of 157 countries. Some reports suggests that more than
50% of Vietnamese population lack skills relevant to work. So, government
expenditure in imparting skills to the labour force through vocational training could
help.
 Investing in R&D, Vietnam can benefit from its position in the value chain bu diffusing
technology and ideas and also, can foster innovation by increased expenditure in R&D
sector.
 Institutional reforms, the cummbersome conditions for innvestment continue to impede
the private sector’s development. The weak institurtions in the country with slow and
laggy processes can prve to become a drag in furture growth of the country.

INDONESIA
Indonesia is one of the fastest growing economy in Asia havin an average growth rate of about
5% since 2000. With Singapore being the biggest investor in the country, it attracts a huge
amount of FDI from all over the world. In an attempt to make Indonesia one of the ten biggest
economies of the world till 2030, the Vietnamese government lauched the Industry 4.0 in 2018.
The main challenge faced by Indonesia is wide current account deficit (2.15% 0f GDP in Q1
2018) mainly due to crude oil imports. This deficit undermines the investors confidence in
Indonesian assets and thus puts presssure on the rupiah as Indonesia has become dependent on
external deficits. Some policies that can help Indonesia contain its current deficit are:
 Government should invest in manufacturing of high value products to attract foreign
companies to develop those products.
 To connect domestic manufacturers to global value chains, government must support
them with relevant infrastructure.
 High value goods would require capital, R&D and skilled labour. So, invstment in these
areas is required. Easy financing facility for capital, government allocation of funds in
R&D and expenditure on providing vocational training to the labour force in order to
equip them with latest skills as per global standards.
 As per capita GDP is on the higher side in Indonesia, so are the wages. So, the need is
to develop comparitive advantage in terms of quality and value of goods produced.