Defying the dollar: ASEAN pushes for greater local currency use

  ASEAN leaders declared at this week’s summit in Labuan Bajo, East Nusa Tenggara, that member
  countries should use their own currencies more often in intraregional trade, as the bloc aims to
  insulate the region from external volatility.  

  ASEAN is seeking to improve its regional payment connectivity through initiatives such as the
  recently launched Indonesia-Malaysia quick response (QR) standard, which allows citizens of both
  countries to use QR codes and their local currencies to make payments in the other. The bloc is
  also encouraging the settlement of regional accounts in local currencies rather than with the US
  dollar, the go-to currency for international trade.  

  “This is in line with the purpose of ASEAN centrality, so that ASEAN can be much stronger and
  self-reliant,” President Joko “Jokowi” Widodo said of the currency policy recommendation in
  remarks on Thursday.  

  Among ASEAN countries, Indonesia, Thailand, Malaysia and the Philippines been developing their
  capacity for local currency settlement since 2017. Recently, the region has established the similar
  framework with China, Japan and South Korea.  

  ASEAN leaders have also agreed to explore the development of a unified ASEAN local currency
  transaction framework that would help countries in the region transition away from established
  trade currencies like the US dollar. 

  A number of countries have become wary of their reliance on the US dollar amid global inflation,
  volatility and a series of recent bank failures in the country.  

  In the past few years, many currencies have lost value against the greenback, making purchases
  from overseas more costly and contributing to domestic price rises in some countries.  

  Center of Economic and Law Studies (CELIOS) executive director Bhima Yudhistira told The
  Jakarta Post on Thursday that the recent ASEAN move might be interpreted as de-dollarization.  

  Bhima said such a move was “an inevitability” given ASEAN countries’ urgent need to improve
  economic efficiency amid heightened geopolitical uncertainty.  

  While the move might be seen as an effort to distance the bloc from the US, Bhima believed the
  two would remain strategic partners given ASEAN’s growing importance on the global stage. 

  Haryo Kuncoro, a professor of economics at Jakarta State University’s School of Economics, told
  the Post on Thursday that local currency settlement sought to minimize reliance on the US dollar
  but not to do away with it entirely.  

  “When dollars are scarce or expensive, LCS becomes a solution that will allow transactions to
  proceed,” Haryo said.  

  He said he expected dollars to remain in use by ASEAN countries, especially given that it was not
  mandatory for regional businesses to settle in local currencies.  

  “There is no obligation for exporters or importers to use [local currencies], no punishment either
  for those who choose not to use them,” Haryo said.  

  Publicly listed lender Bank Permata chief economist Josua Pardede concurred, saying ASEAN
  countries were seeking stability in their own currencies, which played an important role in their
  economies.  

  Josua said developing countries, like most ASEAN member states, felt the need to limit their
  dependence on the US dollar in response to the volatility it experienced from 2020 to 2022 as a
  result of the pandemic and geopolitical issues.  

  “With this agreement, the price of export and import goods in ASEAN will become more stable so
  players do not have to weigh exchange rate fluctuations too much,” Josua told the Post on
  Thursday. 

  Challenges

  CELIOS’s Bhima said ASEAN member states would have to follow the declaration with more
  concrete action for any real changes to occur, especially as the declaration was non-binding.  

  “It is problematic that it is non-binding, but I hope it will bring working groups to life, especially
  sectoral cooperation, for example between Bank Indonesia [BI] and the central banks of ASEAN
  countries,” said Bhima.  

  “That would be far more concrete,” he added.  

  Bhima noted that he did not expect the implementation of ASEAN’s currency policies to be smooth,
  as not all member states were equally prepared to settle accounts in local currencies.  

  ASEAN countries like Indonesia, Malaysia, Singapore, Thailand, Vietnam and the Philippines were
  relatively better prepared for local currency settlement, but Timor-Leste, which was preparing to
  join the bloc, and Myanmar which was embroiled in civil strife, were still a long way away. 

  Source: The Jakarta Post 

  Indonesia tax cut drives electric car sales for Hyundai, Wuling 

  Sales of electric cars in Indonesia jumped last month after the government launched tax incentives,
  auto executives said, in an early sign that electric vehicle (EV) adoption is gaining traction in
  Southeast Asia's largest economy. 

  Effective from April, Indonesia cut the value-added tax (VAT) on electric cars from 11% to just 1%,
  provided they are manufactured with at least 40% local content. 

  Hyundai Motor Co's sport-utility vehicle IONIQ 5, a model eligible for the tax cut, saw sales jump
  three-fold to more than 600 units in April compared with the previous month, Sanghoon Yoon, an
  executive with Hyundai Motor ASEAN told Reuters on the sidelines of a seminar on energy
  transition in Jakarta. 

  "At the moment EVs are very expensive because of the battery," Yoon said on Tuesday. "So I think
  in the beginning we need a kind of subsidy from the government and it will increase the demand
  for EVs." 

  Hyundai aims to sell 10,000 units of IONIQ 5 in Indonesia this year, helped by the tax cut and as a
  shortage in semiconductor chips eases, he said. 

  That compares with 3,000 units sold since the model was launched in 2021. 

  Sales of Wuling Air EV, a small car manufactured by SGMW Motor Indonesia, part of a joint
  venture (JV) that includes Chinese firm Wuling Motors Holdings, surged by more than 80% on a
  monthly basis to more than 740 units, said Dian Asmahani, marketing director for the Indonesian
  arm of the JV. 

  The two models are the most popular electric cars in Indonesia. 

  Hyundai's Yoon said the South Korean company plans to introduce more battery-EV models in
  Indonesia to capture the growing market. 

  Fitch Ratings said in February sales of four-wheeled EVs, including hybrid models, in Indonesia is
  expected to exceed 50,000 units in 2023, up from 20,681 units last year, noting that government
  incentives could provide potential upside to the forecast. 

  Source: Reuters 

  New Indonesian fund promotes Indigenous role in climate change fight 

  Indonesian civil groups launched on Monday (May 8) a multimillion-dollar fund aimed at
  empowering Indigenous and local communities across the Southeast Asian country in the fight
  against climate change. 

  The Nusantara Fund - the first direct funding mechanism for indigenous and local communities in
  the country - was launched by the environmental group Walhi, the Consortium for Agrarian Reform
  (KPA) and Indigenous people's NGO AMAN. 

  It received US$3 million in initial support from international philanthropic organizations such as the
  Ford Foundation and Packard Foundation. 

  It is part of a US$1.7 billion Forest Tenure Pledge that was first announced at COP26 in Glasgow,
  which recognized the important role of Indigenous and local communities in protecting tropical
  forests and their contribution to mitigating climate change. 

  Indonesia, home to the world's third-largest rainforest area, claims to have made some progress
  by reducing the rate of primary forest loss for five straight years up to 2021, but total forest cover
  keeps receding. 

  A study by Rainforest Foundation Norway found that Indigenous communities received about
  US$2.7 billion of climate funds in forest management between 2011 and 2020 from donors and
  philanthropies, equivalent to less than 1 per cent of official development assistance for climate
  change mitigation and adaptation over the same period. 

  The Nusantara Fund was launched to help correct such an imbalance in climate fund distribution,
  said Ford Foundation president Darren Walker. 

  "This fund has been designed in part to respond to that imbalance and to demonstrate the efficacy
  of the idea that when you provide resources to local communities, you are more likely to have the
  impacts that we need to address the climate challenge," Walker told AFP Monday. 

  The fund seeks to address the needs of the communities in a bottom-up approach, looking to
  them to identify challenges that they face and solutions, said WALHI director Zenzi Suhadi. 

  "We create the mechanism of the Nusantara Fund directly to the local community and indigenous
  people," said Suhadi. 

  AMAN secretary-general Rukka Sombolinggi added that villagers "know best" the challenges they
  face and how they want to tackle them. 

  The founders of the fund seek to attract up to $20 million in investment in the next 10 years to help
  map more than 20 million hectares of Indigenous territories and increase the protection and
  registration of 7.8 million hectares on top of the recognized land, among other targets. 

  Source: CNA