Shipping, Yemen: Palmed off.
Also: China, Vietnam, Myanmar, Indonesia, Malaysia, and Argentina.
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SHIPPING. YEMEN. Palmed off.
An escalation in attacks in the Red Sea.
A Norwegian tanker in the Red Sea was hit off the coast of Yemen by a rocket, Houthi rebels said on Tuesday. A Houthi official warned of further attacks on ships heading to Israel. Tracking data suggested Israel was not its destination.
INTELLIGENCE. Recently, the Houthis threatened to attack commercial vessels heading for, or departing, Israel. But this ship had no ties to Israel. It was coming from Malaysia, carrying palm oil, and bound for Italy through the Suez Canal. While the reasons for the attack are unclear, the Houthis stance against Israel has been popular among local Yemenis. It may be a tactic to improve support and raise the stakes after years of debilitating war with Saudi Arabia.
FOR BUSINESS. The escalation places all ships passing through the strait on alert, not just those with ties to Israel. With 10% of the world’s oil passing through the Bab el-Mandeb Strait, it is a critical choke point for trade. French and US forces have already been engaged in defensive actions to protect commercial shipping. Danish giant Maersk said it had also implemented additional measures for its ships in the areas. It is likely other shipping lines will follow.
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CHINA. VIETNAM. Counter measures.
Beijing seeking to shore up support with a fellow Marxist state.
Xi Jinping visited Hanoi on Tuesday seeking to improve relations between China and Vietnam. Borrowing Xi idioms, Vietnam announced it would work to create a “China-Vietnam community with a shared future of strategic significance.”
INTELLIGENCE. Beijing is an ideological ally of Hanoi given its single-party system. Despite this, relations have never been easy. A majority of Vietnamese consider China’s actions in the South China Sea to be a threat to Vietnam’s national security. Vietnam upgraded diplomatic ties with the US in September and Japan in November. Caught short, a visit by Xi was necessary to get relations back on track and rebalance perceptions of Vietnam’s Western lean.
FOR BUSINESS. The status of the South China Sea remains an obvious tension in the economic relationship, where Vietnam accuses China of attacking and sinking Vietnamese fishing vessels. The tension further extends to accusations of Chinese cyber-attacks on Vietnamese entities. But China remains Vietnam’s largest trading partner, and Vietnamese leaders will be conscious of balancing economic and party interests with security and national pride.
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MYANMAR. INDONESIA. Marred performance.
Civil war and economic reversal drive a migration crisis.
A World Bank report on Tuesday forecast Myanmar’s economy to be flat in the coming year, with average household income falling 10%. Indonesia appealed for help to resettle Rohingya refugees who have arrived in increasing numbers.
INTELLIGENCE. As a civil war wages and ethnic minorities like the Rohingya are increasingly displaced, neighbouring countries are bearing the brunt. Indonesia said more than 1,500 refugees had arrived since November, all by boat. The growing numbers are putting pressure on Jakarta to take action, where previously it had largely ignored arrivals. There are around 2.5 million displaced in Myanmar. It is an unfolding crisis, but the world’s attention is elsewhere.
FOR BUSINESS. Myanmar is facing simultaneous humanitarian and inflation crises. Fighting near the border with China means food and other essential trade is impeded. Inflation is running at close to 30%. While Myanmar once promised economic riches, foreign investors continue to pull out as instability increases, and the chance of repatriating profits diminishes. The World Bank noted companies in Myanmar were operating at just 60% of capacity.
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MALAYSIA. Key to the cabinet.
A reshuffle aims to sooth economic worries.
Prime Minister Anwar Ibrahim announced a new cabinet on Tuesday, focussed on health, education, and the economy. Malaysia last month recorded faster than expected growth for the third quarter, but this was still just 3.3% year-on-year.
INTELLIGENCE. Anwar expanded the Cabinet from 28 to 31 members. Five new ministers are being sworn in. A notable addition to the line-up is Amir Hamzah Azizan as ‘second’ finance minister. He was formerly CEO of Malaysia’s biggest pension fund. Anwar has led a coalition government since last November’s election win but has faced growing backlash from Malaysians, with the trade and China-exposed economy their chief concern.
FOR BUSINESS. Malaysia’s economy is facing headwinds, with exports lower this year compared to 2022 and the ringgit dropping steadily against a basket of currencies. Malaysia is trying to transition to a high-wage, modern economy but challenges remain. While abundant energy resources allowed the government to offer subsidies, helping to industrialise the country, this also kept wages suppressed and perpetuated inefficient resource allocation.
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ARGENTINA. Shock and awe therapy.
The new government wastes no time enacting its agenda.
Argentina said on Tuesday it would devalue the peso by around 50%, cut energy subsidies and cancel public works tenders. The IMF welcomed the plans, stating it would help put Argentina onto a path of private-sector-led growth.
INTELLIGENCE. Javier Milei was elected on a radical economic agenda, which included promises to eradicate the central bank and significantly pare back spending. But these first moves are more conventional, with the IMF having recommended a devaluation of the currency and cutting unsustainable subsidies. Economy Minister Luis Caputo was blunt; persistent fiscal deficits were the cause of Argentina’s economic woes, and shock treatment was needed.
FOR BUSINESS. The moves will hurt those accustomed to Peronist middle-class welfare but includes a doubling of social spending for the poorest. Argentina now has a poverty rate above 40%, and the challenge to keep the economy competitive without worsening destitution, or driving hungry porteños onto the streets, is huge. The measures have nonetheless sent a positive message to investors. The Argentine S&P MERVAL Index hit a record high on Tuesday.