By Pitchaya Sirivunnabood and Santi Setiawati
The Association of Southeast Asian Nations (ASEAN) is making strong efforts to maintain financial stability amid the
coronavirus disease (COVID-19) pandemic, mostly through national financial emergency measures for each member state. As
a region, ASEAN has not yet formed a regional financial safety net to deal with a crisis like COVID-19.COVID-19 in ASEAN
Like other regions affected by the outbreak of COVID-19, ASEAN member states (AMS) are seeing a large number of
confirmed cases. According to data from the World Health Organization (WHO), daily new cases in some AMS have been
rising, although the pace is decelerating (Table 1). The spread of COVID-19 across the region has caused economic
downturns and even stopped some economic activities, resulting in negative spillover effects on the region’s financial
stability. International reserves may be deteriorating, and external debt could rise as government spending shoots up
due to the launch of large stimulus packages.Table 1: Trends in Cases of COVID-19 in ASEAN Member States
Lao PDR = Lao People’s Democratic Republic.
Source: Association of Southeast Asian Nations estimates.
AMS promptly responded to COVID-19 with several emergency measurements once the first confirmed cases were detected
(Table 2). Lockdowns, community quarantines, and travel bans have been the primary policies. Thailand, Viet Nam, and
Malaysia were the first three countries to impose travel restrictions to and from the People’s Republic of China (PRC),
Europe, and North America.Table 2: National Responses to COVID-19 in ASEAN Member States
Lao PDR = Lao People’s Democratic Republic.
Source: Authors, based on estimates by the Organisation for Economic Co-operation and Development.
Although the main intention of these responses is to control the spread of COVID-19 and prevent citizens from becoming
infected, economic consequences for the private and public sectors are inevitable. Lockdowns and other restrictions are
harming business sectors, particularly vulnerable groups like small and medium-sized enterprises (SMEs) and informal
workers. In response to these impacts, SMEs are reducing their production or services, and this is causing income
losses, higher unemployment, and liquidity shortages. Surveys carried out by the Organisation for Economic Co-operation
and Development (OECD) on the impacts of COVID-19 on 41 SMEs worldwide have shown that more than half of SMEs face
severe revenue losses. Thailand, for example, reported that 90% of its firms expect extreme revenue losses (OECD 2020).
Tourism and transportation are the two sectors that have been hit the hardest by COVID-19 lockdowns.
AMS have launched fiscal stimulus packages to fight the pandemic. These, in turn, have caused an increase in government
debt. These stimulus packages could amplify the impacts of a rise in borrowing costs, such as through elevated debt (Lao
PDR, Malaysia, and Viet Nam), sizable fiscal deficits (Lao PDR and Viet Nam), greater reliance on volatile capital flows
(Cambodia and Indonesia), and considerable foreign holdings of domestic debt (Indonesia, Malaysia, and Thailand).
Although the composition and the stimulus amounts vary by country, they are mostly given to support vulnerable SMEs and
households.
AMS have also implemented expansionary monetary policy to create liquidity in the system, for example, by decreasing the
required reserve ratio, creating funds for lending to firms, cutting benchmark interest rates, implementing temporary
suspensions of interest repayments, and relaxing the payment conditions for loans related to COVID-19. Nonetheless,
spillover effects on systemically important financial institutions are unavoidable, and there are signs of phenomena
such as runs on banks (holding cash and other safe-haven instruments privately), collapse of the currency exchange rate,
and risks for banks’ liquidity, markets, and credit, which all threaten financial stability. As a result, financial
safety nets are necessary not only at the national level but also at the regional level to ensure and maintain financial
stability in both the foreign exchange and capital markets and to prevent financial crises that could occur from such
unprecedented causes.ASEAN’s regional financial safety net
Unlike other financial crises, which are rooted in several threads of industrial, financial, and monetary phenomena,
both pandemics and natural disasters are unpredictable. Some believe that a pandemic is similar to a natural disaster as
it can further result in an economic and financial crisis. However, what differentiates one type of crisis from the
other is the severity and duration of the shock. A natural disaster is a shock localized in a particular region or in
specific sectors, like tourism. A pandemic, however, is a widespread shock with a prolonged duration that is systemic in
nature and can cause scaled impacts, possibly leading to a financial crisis. The COVID-19 situation is systemic and
unprecedented at the global and regional levels, as the shock hits and contractions happen in all economies
simultaneously.
To ensure financial stability in the region, ASEAN has taken initiatives under the ASEAN Plus Three (ASEAN+3) financial
cooperation. The first mechanism was developed in response to the Asian Financial Crisis of 1997–1998. The Chiang Mai
Initiative Multilateralism (CMIM) has been developed since then under the ASEAN+3 initiative as a network of bilateral
swap arrangements, amounting to $120 billion in March 2010. The development of the implementation and surveillance
process is being progressed to improve the effectiveness and promptness of the mechanism in response to potential
financial crises. The ASEAN Disaster Risk Financing and Insurance (ADRFI), on the other hand, is being developed to
strengthen regional financial resilience in the context of climate change as natural catastrophes strike. The
comprehensive framework is being designed to equip AMS with risk management and risk transfer capabilities. This
framework will enable them to overcome the financial burden caused by disasters. The activities include both ex-ante and
ex-post arrangements.
In response to the impact of COVID-19, ASEAN has yet to develop a regional mechanism for the pandemic crisis or
equivalent ones. The policy gap in both the CMIM and ADRFI initiatives for dealing with transnational disease outbreaks
is the gap in technical and financial capacity and cooperation in the public health sector among the AMS. This includes
funding to hospitals and medical clinics, health care training for emerging states, and the stockpiling of medicines,
alcohol, surgical masks, vaccines, and other emergency equipment to quickly tackle the spread of a transnational
disease. At the global and regional levels, international financial institutions have also supported the countries
affected by the COVID-19 outbreak. The International Monetary Fund uses the Catastrophe Containment and Relief Trust to
support its member countries, while multilateral development banks like the Asian Development Bank (ADB) have supported
countries in the region, e.g., Thailand, the Philippines, and Indonesia, through grants and loan approvals (Figure 1).
Although this financial support provides a significant increase in liquidity, this might not be enough to respond to a
systemic financial crisis in the region.Figure 1: Countries Receiving COVID-19 Financial Assistance from the Asian Development Bank
Source: Author, based on data from the Asian Development Bank website.
Proper and timely policy options can reduce the economic impacts of the pandemic with the support of regional
cooperation. We propose three policy recommendations for consideration as policy options. First, the establishment of an
ASEAN task force on pandemics will facilitate the coordination and alignment of policy responses across AMS. A regional
framework for policy response can create public trust and promote transparency. Second, the building-up of an ASEAN
pandemic network consisting of hospitals, healthcare workers, pharmaceutical companies, and research institutions is
needed to share information and knowledge on healthcare resources for mitigating pandemic-related shocks and preparing
financing schemes. Third, regional financial safety nets must be strengthened through the contribution of funding
capacity and by broadening their role to manage the financial effects of the COVID-19 outbreak.
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References:
Association of Southeast Asian Nations (ASEAN). 2020. Regional Cooperation in Finance. (accessed 20 August 2020).
ASEAN. 2020. Economic Impact on COVID-19 Outbreak on ASEAN.
ASEAN. 2020. Enterprise Policy Response to COVID-19 in ASEAN.
Center for Strategic and International Studies. Southeast Asia COVID-19 Tracker. (accessed 20 August 2020).
International Monetary Fund (IMF). 2020. Policy Responses to COVID-19. (accessed 17 August 2020).
Organisation for Economic Co-operation and Development (OECD). 2020. COVID-19 Crisis Responses in ASEAN Member States. (accessed 4 August 2020).
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