Asian Economic Policy Review最新文献

The Lao economy has gradually recovered since mid-2022, helped by a crawl toward prepandemic normalcy with eased mobility restrictions and cross-border economic activity promoted via the Laos–China railway. The economy avoided collapse amid pandemic adversities due to people's reactionary self-protection, such as a temporal shift to a self-sufficient lifestyle. Nevertheless, the currency depreciation and higher fuel prices raised price levels by 73% in 2022–2023. Households with foreign-currency-denominated assets have hedged against inflation, as foreign currency deposits grew 2.3 times in kip terms in the same period, creating distributional impacts for the haves and have-nots. Overall, the surviving Lao economy faces macroeconomic imbalances, overshadowed by a public and publicly guaranteed debt of 112% of gross domestic product (GDP) at the end of 2022.

The Lao economy grew by 7–8% annually over a decade before slowing down to 3–6% in 2018 onward as the government recognized the urgent need for fiscal consolidation. The higher growth until 2017 was driven by ambitious infrastructure investment, synchronized with widening external current account deficits financed by massive foreign direct investment and parallel public sector borrowing. Heightened fiscal and external sector vulnerabilities accompanied this accelerated growth.

Despite the government's efforts to promote the manufacturing sector, the economy's reliance on the resources-based sector persists. According to the Lao Statistics Bureau, between 2015 and 2022 the agricultural share of GDP gradually declined from 18% to 15%, and the mining and quarrying share from 12% to 7%, but the electricity share increased from 8% to 14%. In the same period, the nontradable sector remains dominant, with services remaining above 40% and construction increasing from 7% to 12%. In contrast, the manufacturing sector remained around 9–10%.

Manufacturing faces such structural constraints as labor shortages and competitive imports from Thailand and China. One to three minimum wage differentials between Laos and Thailand encourage Lao workers to pursue jobs in Thailand, the largest cross-border destination for Lao workers with 226,000 documented Lao migrant workers as of mid-2023, according to the International Labour Organization. Industrial diversification is a challenge, except for tourism potential for now.

Considering the resources-based sector's dominance in the Lao economy, Mieno and Demachi (2024) should re-examine their claim that the fear of the resource curse is not imminent.

Chronic current account deficits due to large debt servicing and unbanked foreign exchange earnings kept foreign exchange reserves around US$0.6–1.0 billion in the 2010s. However, the Export–Import Bank of China's debt service deferrals since 2020 and the swap arrangement with the People's Bank of China helped increase the reserves to US$1.8 billion as of September 2023.

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Mieno and Demachi (2024) investigate the mid-term growth challenges in post-COVID-19 Laos by examining real sector growth, external fundraising, and the domestic financial system. They conclude that foreign direct investment (FDI)-driven export-led growth in mining, power, infrastructure, and some other areas may continue, although the sustained public debt from excessive investments to propel such growth carries remarkable risks. The external debt situation remains severe but may be manageable if the recent recovery trend of the real sectors persists. Mieno and Demachi claim that the underdeveloped domestic financial system is the major cause of the external debt problems and macroeconomic destabilization. These conclusions align with general local perceptions including my observations through regular field visits to Laos since the early 2000s. The following are summary and my comments on some of the shortcomings of Mieno and Demachi (2024).

In their Introduction, Mieno and Demachi start by pointing out that the recent macroeconomic destabilization, expressed in terms of the sharp depreciation of the Lao kip against the US dollar since 2021, but the role of the Thai baht in the Lao economy can hardly be overestimated. Thailand had been the only viable trade route for Laos' major cities before the completion of the Lao-Chinese railway in 2021. The exchange rate against the Thai baht often had a significant positive and negative impact on the Lao economy (Kyophilavong et al., 2018). The depreciation of the Lao Kip against the Thai Baht in the latter half of 2010s was more drastic (Ministry of Planning and Investment, 2021), therefore, explicitly discussing it might improve our understanding of the recent macroeconomic destabilization.

In their section 2, Mieno and Demachi illustrate how growth in Laos since the mid-2010 was propelled by investments financed mainly by foreign investors and government borrowing, and convincingly argued why a healthy fiscal condition is essential to such a growth model. Their section 3 provides an in-depth discussion of Laos' external debt, most of which was raised to finance economic growth described their section 2. They reveal, as expected, that Laos' external debt is concentrated in the neighboring countries such as China and Thailand. Mieno and Demachi rightly point out that China's financing of large infrastructure projects in Laos results from the alignment of interests of the parties involved. However, Mieno and Demachi stop short of generalizing this to the case with Thailand, which had a more extended history or similar development with the recently rising Vietnam. The presence of economically expanding neighboring countries has a significant implication for the viability and sustainability of the growth model based on foreign-funded infrastructure development.

Given the very limited data, Mieno and Demachi's section 4 is an out

According to a survey of 81 central banks conducted by the Bank for International Settlements (BIS) in 2022, 93% of the surveyed central banks were exploring Central Bank Digital Currencies (CBDCs), with half developing or running concrete experiments. CBDCs will likely reshape the financial landscape across the globe. Ueda and Hay's (2024) study of Cambodia's Bakong, which was officially launched in October 2020, offers a rare opportunity for understanding the operation and implications of one of the world's first operational CBDCs.

The Cambodian case appears to be unique in a number of ways. On the one hand, while most central banks focus on one of the two key functions of the CBDCs, retail or wholesale, the National Bank of Cambodia (NBC) emphasized both functions. On the other hand, in addition to creating digital wallets for the Cambodian Riel, the NBC also created digital wallets for the US dollar.

The NBC announced three key goals when launching the Bakong: reducing dollarization; preventing the spread of the COVID-19 pandemic; and promoting efficiency, resilience, and inclusion. If the way to achieve this is through the substitution of cash payments by digital payments using the CBDC, then it is not immediately clear how a reduction of dollarization happens as a result of introducing the CBDC. As Ueda and Hay (2024) point out, the impact on efficiency and resilience is less clear.

The existing literature shows that the effects of CBDCs on financial efficiency, financial stability, market competition, and social welfare depend largely on the designs of the CBDCs and market conditions. For instance, adoption of the CBDCs may enable central banks and regulators to monitor risks in real-time and take actions in a timely fashion. However, the CBDCs may also make bank runs happen faster. Whether the CBDCs would improve or deteriorate financial stability depends on the interaction between these two forces.

According to surveys by Ueda and Hay (2024), the adoption rate of the Bakong among shops is extremely low, lower than not only ABA Pay and Acleda Pay but also Alipay. This is not surprising because the additional value offered by the Bakong, on top of existing mobile payment services, is very limited. Ueda and Hay (2024) point to network effects as a potential reason for the low adoption rate.

CBDCs have one important advantage, compared to privately run digital payment services, as they are legal tenders, that is, digital forms of sovereign currencies. They should be, in theory, safer, although the difference is probably not visible during normal times. For this reason, it is strange that the NBC is inclined to deny that the Bakong is its liability. The Bakong or digital Riel should be issued by the NBC through a two-layer system—the central bank issues the CBDC to participating banks, which, in turn, issue the CBDC to the public. The purposes of this two-lay

My research interests include: (i) why did Thailand, the Philippines, and Indonesia adopt flexible inflation targeting (FIT)?; (ii) how do the institutional details of FIT differ among the three countries?; and (iii) how do we evaluate the performance of the inflation targeting? Has the macroeconomic performance improved due to the adoption of FIT?

Nookhwun and Waiyawatjakorn (2024)—N&W hereafter—is a welcome addition to the literature on FIT in Asia and answer most of my research questions. It provides a comprehensive survey of the monetary policy framework of the three FIT adopters and two non-adopters among the original five ASEAN countries. N&W (table 1) summarizes the monetary policy framework including objectives, FIT or not, policy instruments, and communication strategy. N&W (figure 2) is a comprehensive time-series (2000–2023) summary of actual inflation rates, inflation targets, and inflation expectations.

The Thailand case (N&W (figure 2(a))), which I am most familiar with, is interesting. Thailand adopted FIT in 2000 with a 0–3.5% range of the core inflation rate. It is rather a wide range compared to other FIT countries' ranges. Targeting core inflation, which is less volatile, seems to be easier than targeting headline inflation. Why did the Bank of Thailand set up a “low bar” for itself?

The answer for adopting FIT with a “low bar” was given to me by the person who was responsible for the adoption of FIT in Thailand. He said that it would be important to keep the inflation rate in the range to restore the credibility of the Bank of Thailand. So the low bar was intentional. He added that the range can be narrowed once credibility is established by hitting the target for some time. The reputation of the Bank of Thailand had been tarnished in the financial crisis of 1997–1998, by allowing foreign reserves to be used in futile efforts to defend the fixed exchange rate.

After the adoption of FIT in Thailand in 2000, the core inflation rate would stay for more than 90% of the time in the 0.0–3.5 range. The range was narrowed to 0.5 to 3.0 in 2009. This showed the confidence gained by the Bank. Grenville and Ito (2010) recommended that the indicator inflation should be headline inflation instead of core inflation because headline inflation is more similar to the cost of living of the ordinary people. They also recommended that a point target with a tolerance band would be better than the range because it would have an expectation anchoring effect. These recommendations were adopted in 2015, with a point target of 2.5% plus/minus 1.5%. But the timing turned out to be extremely poor in retrospect. Energy prices fell sharply in 2015 and the global inflation rate came down. The inflation rate in Thailand undershot the lower bound of the tolerance band (namely, below 1.0%) for almost the entire period from 2015 to 2020. The new framework adopted in 2020 re-specified the range

Adrison (2024) has written an interesting paper on fiscal sustainability in Indonesia. This work is very useful to readers. Adrison goes into great detail about Indonesia's fiscal situation, both on the revenue and expenditure fronts. Aside from this, Adrison covers economic policies during COVID-19, particularly fiscal policy. In this study, Adrison discusses the fiscal challenges that Indonesia faces, particularly the low tax-to-GDP ratio. According to Adrison, low tax revenue is caused by a number of problems, including low compliance and difficulties in taxing informal micro, small, and medium firms, forcing the Indonesian government to impose presumptive taxation. Adrison also demonstrates that tobacco goods account for around 97% of Indonesia's excise tax income. Other products' contributions to excise tax revenue are minimal. On the expenditure side, Adrison demonstrates that capital spending is not the major component of government spending. Energy subsidies and interest payments are two major government expenses. There was a decline in the allocation for interest payments from 2003 to 2013; however, the increase in the debt-to-GDP ratio over the last 10 years has meant that interest payments have climbed dramatically. Adrison also discusses other expenditure issues, such as intergovernmental transfers and budget absorption. As previously stated, this document is quite helpful; nevertheless, it would be more fascinating and beneficial if Adrison chose one or a few relevant themes from the ones to be discussed later rather than simply explaining Indonesia's revenue and expenditure structure in a nutshell. To enhance and refine this work, I recommend focusing on one or more of the concerns listed below, so that it is more in-depth and not just a general summary.

First, Adrison explains how fluctuations in energy and commodity prices affect Indonesia's tax income significantly. It would be quite fascinating to examine this subject from the standpoint of how terms of trade affect the Indonesian economy, particularly Indonesian fiscal policy. According to Basri and Rahardja (2011), Indonesia's fiscal policy is pro-cyclical since fluctuations in energy and commodity prices affect its revenue side while affecting its expenditure side. It will be fascinating to see if Indonesia's fiscal policy shifts away from being pro-cyclical. This debate is essential and interesting because it examines the extent to which fiscal policy can influence macroeconomic policy in Indonesia, particularly in a period where terms of trade is also influenced by geopolitical tension.

Second, Adrison analyzes the challenges associated with tax revenue. It would be fascinating if Adrison gave us an analysis of how to enhance tax revenue. It would be fascinating if Adrison investigated the influence of administrative reform in improving tax revenues in Indonesia. According to Basri et al. (2021), administrative re

The COVID-19 pandemic imposed extraordinary demands on the use of fiscal policy. Expansionary fiscal policies were required to support households and firms amidst severe economic contractions brought about by mobility restrictions to control the spread of the pandemic. At the height of the pandemic in 2020, Indonesia spent an estimated 115 USD billion or 11.35% of its GDP. Consequently, the country's central government's debt-to-GDP ratio rose from 33.7% in 2019 to 42.9% in 2020 and 44.4% in 2021 (World Bank, 2022). The Indonesian economy would have contracted by more than 2.1% in 2020 in the absence of these expansionary fiscal policies. Now that the economy has recovered, the policy focus has shifted to shoring up fiscal space to secure greater fiscal sustainability.

Fiscal sustainability entails the ability of a government to meet its current and future financial obligations. From an analytical perspective, fiscal sustainability entails the government meeting its flow budget constraint over time.

The various elements of Indonesia's fiscal sustainability are qualitatively discussed by Adrison (2024). Adrison begins with a comparative analysis of fiscal sustainability across Indonesia, Malaysia, and Thailand covering the period 2010–2019. Fiscal sustainability is measured by a ceiling (maximum) for the ratio of primary fiscal deficit to GDP (Burnside, 2005). The results show that fiscally sustainable is achieved in all three countries. The value of the computed average ratio is very low compared to the value of the ceiling ratio—2% of the ceiling for Indonesia, 18% for Malaysia, and 15% for Thailand. These estimates appear too low given the importance attached to fiscal reforms in these countries during the pre-pandemic period. Furthermore, data from the International Monetary Fund also shows that the primary balances (as a percentage of GDP) of both Indonesia and Thailand have been declining since 2005 (IMF, 2023).

In the main body of the paper, Adrison's discussions focus primarily on the two key elements of the primary balance, namely, central government revenues and expenditures. The key challenges to increasing government revenues that are documented by Adrison (2024) are all daunting, sobering, and intractable. A key challenge is the extent of the informal sector in Indonesia. Even though the percentage of self-employed workers in the labor force has declined over time, it has stagnated at around 50%. Theoretically, this problem can be addressed by Adrison's proposal that the national identity card system be synchronized with the tax identification system. There need to be greater political will to implement this and the other reforms recommended by Adrison. The fact that the two-term Jokowi government, which operated on a political base comprising a grand coalition in the parliament, could not undertake effective tax reforms does not bode well for Indone

Cambodia is one of the first two countries that adopted a retail central bank digital currency (CBDC) in October 2020. The design of the CBDC, called the Bakong, is a bit unique. We find a few design flaws that could potentially damage the central bank and then the Cambodian economy as a whole. We show some key statistics from our own survey in 2022 to support our arguments. The Bakong is offered in two currencies, the Khmer Riel (KHR) and the US dollar (USD), as Cambodia has been highly dollarized. We discuss theoretical predictions for the CBDC based on three kinds of substitutes: paper money, bank deposits, and foreign currencies. The third one is specific to the Bakong. Unlike a typical local currency CBDC, the USD Bakong may substitute for the KHR more. Moreover, it has been announced that the retail Bakong is legally not a liability of the central bank, but from the viewpoint of the underlying technology and economics, it is a central bank liability.