Aurelia Butler

JAKARTA (Reuters) -Indonesia may have to widen its budget deficit to fund a multi-billion-dollar free school lunch programme promised by likely new president Prabowo Subianto, showed a briefing document seen by Reuters on Sunday.Defence Minister Prabowo and running mate Gibran Rakabuming Raka, the eldest son of outgoing president Joko Widodo, declared victory in this month’s presidential election after a quick ballot count on Feb. 14 showed they had won nearly 60% of votes, ahead of the official results announcement due by March 20.President Widodo’s cabinet has since started to calculate the cost of the lunch programme, said a person familiar with the matter, declining to be identified as they were not authorised to speak with media.Analysts said the programme could undermine Indonesia’s track record of fiscal discipline.The document, prepared by the coordinating ministry for economic affairs, showed the programme could widen the budget deficit by as much as 0.33% of gross domestic product (GDP) in 2025 if introduced across the world’s third-biggest democracy.The ministry arrived at the figure by assuming each child from one year old through to the end of elementary school – 58 million children – receives one meal a day worth up to 15,000 rupiah ($0.96) or less than $1 for five days a week, for a total cost of 193.2 trillion rupiah ($12.39 billion).The cost would drop to about a third of that total if the programme is only offered to children of low-income households.The calculations assumed a 2025 budget deficit of less than 2.5% of GDP, and 2025 economic growth of 5.3% to 5.6%, the document showed.For comparison, the fiscal deficit for 2024 has been set at 2.29% of GDP, while the economic growth target is 5.2%.The programme will be discussed with President Widodo at a cabinet meeting on Monday, CNBC Indonesia cited Airlangga Hartarto, coordinating minister for economic affairs and a member of Prabowo’s election campaign team, as saying on Friday.The ministry and the presidential office did not respond to Reuters requests for comment.Prabowo’s campaign team has said the programme will initially require up to 120 trillion rupiah, before reaching 450 trillion rupiah when nationwide coverage is achieved in 2029.($1 = 15,590.0000 rupiah) More

Stay informed with free updatesSimply sign up to the More

(Reuters) – A look at the day ahead in Asian markets.Stock markets in Asia start the week with clear momentum behind them, especially in Japan and China, but may be vulnerable to a spot of profit-taking as investors pause for breath after last week’s tech- and AI-fueled global buying frenzy.The Asian economic calendar on Monday is light, with Japanese producer price inflation for January the main event, followed by industrial production from Singapore.China’s CSI 300 index of blue chip shares eked out a slender rise on Friday to seal its ninth straight day of gains and best run since January 2018. Another rise on Monday would mark its longest winning streak since late 2014.Friday’s rise was only 0.1% though, suggesting fatigue may be setting in. For Japan, however, there’s little sign of fatigue yet, at least not on the surface, with the Nikkei 225 surging more than 2% on Friday to a new all-time high. The 40,000-point mark will surely be traders’ near-term target now.The weak yen continues to help make Japanese assets attractive to foreign investors, and the dollar goes into Monday’s session comfortably above 150.00 yen. Again, is a bout of profit-taking or even intervention imminent, or does recent momentum persist?Hedge funds’ bearish positioning in the yen has grown to historically high levels, the latest U.S. futures market figures show, so perhaps the FX market is ripe for a correction.The dollar has had a good start to the year, up 2.5% against a basket of G10 currencies and even more against some key Asian currencies, most notably the yen. Morgan Stanley analysts recommend trimming dollar exposure against emerging Asia. Japanese services PPI ended last year running at an annual rate of 2.4%, the fastest in almost nine years, indicating that broader inflationary pressures are building. But overall annual wholesale price inflation, when manufacturing sector is taken into account, is virtually zero. Services and manufacturing are giving off very different signals.Monday’s services PPI comes a day before consumer inflation figures are released. The consensus is for core inflation to slow to 1.8% from 2.3% in December, which would be the first print below the Bank of Japan’s 2% target in almost two years.Japan’s inflation rates are under close scrutiny as the BOJ prepares to lift interest rates into positive territory for the first time since 2016.The main economic event in Asia this week could be China’s purchasing managers index data on Friday, as they will offer an early glimpse into how manufacturing and service sector activity have fared this month. A tentative rebound may be underway in Chinese stocks, but there’s little evidence yet of a similar recovery in the economic numbers.The Chinese economic surprises index is barely in positive territory, even though expectations have been lowered substantially in recent months.Here are key developments that could provide more direction to markets on Monday:- Japan services PPI (January)- Singapore industrial production (January)- U.S. 2-year, five year bond auctions (By Jamie McGeever; editing by Diane Craft) More

Stay informed with free updatesSimply sign up to the More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.John Maynard Keynes saw today’s trade troubles coming. Back in 1944 at Bretton Woods, he advocated a global trading system that would target persistent imbalances between surplus and deficit countries, rather than policing one-off trade violations. Too bad that’s not what we got.As the World Trade Organization’s 13th ministerial meeting starts on Monday, I suspect the conversation around trade will continue to be small and technocratic. This misses the core problem, which is that the long-term imbalances between the deficit countries and the surplus nations have created unsustainable economics and politics around the world.Fixing this requires more than incremental tweaks; it calls for a radical reorganisation of the global trading system. Carnegie Endowment senior fellow and economist Michael Pettis argues for this in a new paper that builds on the ideas in his co-authored 2020 book Trade Wars Are Class Wars.Deficit countries, particularly the US but also the UK, Australia and Canada, have had no choice but to balance out the loss of manufacturing jobs with excess debt, resulting in more fragile, financialised economies. The surplus countries, meanwhile — most notably China, but also Taiwan, South Korea and Germany — get jobs but remain stuck with weak domestic demand because households are directly or indirectly subsidising manufacturing. In order to accept that persistent imbalances are actually a problem (rather than a natural evolution as advanced economies move away from manufacturing) we need to reconsider some entrenched views about trade.For starters, 19th-century British economist David Ricardo, who first put forth the idea of “comparative advantage”, never imagined a world in which subsidised manufacturing by foreign states would leave domestic consumers unable to absorb domestic production. For him, comparative advantage meant trading cloth for wine — not ditching the industrial commons.Economists may infer from Ricardo that the US or parts of Europe simply have a comparative disadvantage in manufacturing, while parts of Asia have an advantage. But that fundamentally misunderstands the concept. Nineteenth-century comparative advantage wasn’t based on an industrial policy that transferred money globally from consumers to producers. Exports were meant to maximise the value of imports — not, as Pettis puts it, “externalise the consequences of suppressed domestic demand”.Likewise, while many mainstream economists assume that foreign money flowing into US dollars should both lower American interest rates and finance American investment, this hasn’t been the case for decades. That’s because it’s flowing into countries where business investment has been constrained by demand. Consider, says Pettis, that much of the foreign money flowing into the US goes into the assets of multinational companies that park that cash rather than invest it.You could, of course, bump up domestic demand with an industrial policy that incentivises certain industries — such as manufacturing. That’s what President Joe Biden’s administration is doing right now. You could also make cheap imports more expensive, as Donald Trump would probably do with much higher tariffs, if he won a second term.But neither of those solutions are optimal, in part because they force each country to go it alone. A more effective plan would involve the major deficit countries coming together to force surplus nations to stop imposing their economic choices on the rest of the world.That would probably mean a joint approach to tariffs, capital controls and friendshoring, so no one has to rebuild the entire industrial commons alone.So far, so Panglossian. But the alternative is that the US continues to take a unilateral approach to rejiggering the global trade system. We’ve seen how action around Chinese steel and aluminium dumping has morphed into worries about critical minerals, electric vehicles and more recently transport and logistics, which brings into question not only unfair trade practices but also worries about the security of ports and other critical infrastructure.The Biden administration last week poured billions of dollars into domestic manufacturing of cargo cranes, to counter fears of hackers exploiting software in Chinese cranes. While Chinese officials have called the concerns “entirely paranoia”, it’s worth noting that many of the world’s ports, freight carriers and forwarders, as well as some terminals in the US, use a Chinese logistics platform called LOGINK, the making of which was subsidised by Beijing and is provided free of charge in order to encourage its global use.As a 2022 US-China Economic and Security Review Commission report put it, the platform allows Beijing access to “sensitive data, including commercial transport of US military cargo, insight into supply chain vulnerabilities, and critical market information. All this could help Chinese firms compete on unequal footing in the nearly $1tn third-party logistics industry.”  If you thought that trade strife in physical goods was disruptive, consider what happens when you add in concern about Beijing’s subsidies allowing the Chinese Communist party to monitor global shipping. I’m guessing topics like this, and the systemic problems that cause them, won’t be top of the agenda at the WTO. They should be. [email protected] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Further relief on eurozone inflation is expected on Friday with data expected to show the underlying rate of consumer price growth, which strips out more volatile energy and food prices, dropping below 3 per cent for the first time in two years.That would be a key milestone for policymakers at the European Central Bank in the run-up to their next meeting on March 7 as they debate when to start cutting interest rates. The headline rate of eurozone inflation has fallen steadily from its record high of 10.6 per cent in October 2022. Economists polled by Reuters forecast that annual price rises would continue to slow from 2.8 per cent in January to 2.5 per cent in February. However, this is unlikely to be enough to convince rate-setters that the headline rate of inflation will quickly drop to their 2 per cent target, which would enable them to start cutting rates. Peter Schaffrik, an economist at RBC Capital Markets, said this was “one of the last months where base effects will exert a significant drag” referring to downward pressure on inflation caused by the drop in energy and goods prices from their elevated levels a year earlier. “The remaining process of disinflation is thus likely to be somewhat slower than so far to date,” he said.The minutes of the ECB’s previous meeting, published last week, showed policymakers thought it was likely “there would be a downward revision” to its inflation forecast for this year due to be released in March. However, most rate-setters also agreed that “the disinflationary process remained fragile and letting up too early could undo some of the progress made”. Martin ArnoldWill the Fed’s preferred measure of inflation fall further?  The Federal Reserve’s preferred measure of inflation is expected to show that price pressures eased slightly in January, but progress is likely to be limited given what is already known about inflation last month. On Thursday, the Bureau of Economic Analysis will release January’s personal consumption expenditures index data. Economists surveyed by Reuters forecast that the headline PCE figure will be 2.4 per cent year-over-year, down from 2.6 per cent in December. The core measure — which strips out the volatile food and energy sectors and is most closely watched by the Fed — is forecast to come in at 2.8 per cent, down from 2.9 per cent the previous month.  The data will come in the wake of hotter-than-expected CPI numbers for January, which showed the headline rate falling, but less than expected, and no decline in core inflation. Following the publication of the CPI data, traders adjusted their expectations of interest rate cuts this year. Thanks to hot January inflation, a strong jobs market and hawkish remarks from Fed chair Jay Powell, investors have moved from betting on six rate cuts this year to year, starting in June rather than March. “PCE is going to print a number that is not consistent with reaching the Fed’s 2 per cent target in the near term,” said Eric Winograd, director of developed market economic research at AllianceBernstein. “I expect it will send the same message as CPI — that the progress the Fed is looking for is not there. We already know that this has not been a good month for inflation.” Kate DuguidWill Chinese data bolster a market recovery?Chinese manufacturing data released on Friday is expected to show a continued steadying of the sector that could aid authorities battling to arrest a stock market sell-off.The closely watched Caixin manufacturing purchasing managers’ index is this month forecast to hit 50.6 — above the 50 threshold that separates expansion from contraction, though down slightly from January’s reading of 50.8. Even so, it would mark a fourth consecutive month of rising activity.The figures come as Beijing tries to contain a market rout sparked by slowing growth and a crisis in the property sector. After tumbling in 2023, the benchmark CSI 300 index of Shanghai-and Shenzhen-listed stocks has gained 3 per cent since January thanks to a flurry of state support. Last week, the People’s Bank of China slashed a mortgage-linked loan rate in an attempt to reinvigorate the real estate sector. Although investor sentiment on China remains depressed, Bank of America strategists said last week that there was “scope for the country to be a relative outperformer among global peers” as bank lending picked up over the months ahead. China’s “credit impulse” — the change in the flow of credit — was a “headwind for growth for much of the last year” but has now moved back into positive territory, BofA’s analysts said. In a worst-case scenario, they expect China’s manufacturing PMI new orders index to dip just below 50 by mid-year. Equivalent indices tracking activity in Europe and the US are expected to fall more sharply. George Steer More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Malaysia’s prime minister has condemned a rising tide of “China-phobia” in the west, as south-east Asian countries navigate the challenges and benefits of tensions between Washington and Beijing.Anwar Ibrahim questioned why Malaysia would “pick a quarrel” with China, its largest trading partner, in response to US criticisms of his country’s ties with Beijing.“Why must I be tied to one interest? I don’t buy into this strong prejudice against China, this China-phobia,” he said in an interview with the Financial Times in Penang, his birthplace in northern Malaysia.The Malaysian leader’s comments underscored how the superpower rivalry has created a predicament for governments in south-east Asia, a region of 700mn on China’s doorstep that is also strategically important to the US Indo-Pacific strategy.But the friction has also created opportunities for countries such as Malaysia, Indonesia, Vietnam and the Philippines to leverage their economic, security and political ties with the US and China.Malaysia, which is officially neutral, seeks to maintain “good stable relations with the US [while] looking at China as an important ally”, said Anwar. He added that any claim he was leaning towards Beijing, as he said US vice-president Kamala Harris suggested at the Asean summit in Jakarta in September, was “not right and grossly unfair”.Anwar, Malaysia’s sixth prime minister in five years, took office in November 2022 following a long journey to the political leadership. He helped steer the country through the Asian financial crisis as deputy prime minister, but was jailed twice by his mentor-turned-rival Mahathir Mohamad on politically motivated corruption and sodomy charges. He returned to public life in 2018 following a royal pardon.As premier, Anwar has focused on resuscitating the economy from years of mismanagement and instability. Malaysia’s gross domestic product grew in 3.7 per cent in 2023, down from a post-pandemic boom of 8.7 per cent in 2022, and exports have suffered because of China’s economic slowdown, with the ringgit at 20-year lows.As part of that effort Anwar has prioritised boosting Malaysia’s manufacturing, energy and industrial sectors, often with the help of record foreign investment pledges. China’s Xi Jinping committed an estimated RM170.1bn ($35.6bn) to Malaysia after Anwar travelled to Beijing and the Boao Forum in Hainan last year. Weeks later, Anwar significantly changed Malaysia’s 5G network plan, paving the way for greater participation by Huawei, the Chinese telecommunications giant.Malaysia’s semiconductor industry has capitalised on companies shifting supply chains to protect against geopolitical risk, a strategy known as “China plus one”. Malaysia has set up a task force focused on moving up the semiconductor value chain, and Anwar said his government was “heavily focused” on strengthening its front end wafer manufacturing capacity.Much of that activity has focused on Penang, a former British colony that is a crucial hub for back-end chip operations such as packaging, assembly and testing. The state recorded more foreign direct investment in the first nine months of 2023 than in 2013-2018 combined, according to InvestPenang, a non-profit entity of the state government.US chipmaker Micron Technology said in October that it would invest $1bn to expand its operations in Penang, while Intel is building its first overseas facility for advanced 3D chip packaging in the state.Chinese chip groups have also been increasing their presence in Penang, where domiciling or striking joint ventures allows them to avoid US tariffs and maintain relationships with western suppliers, according to analysts.Former Huawei unit xFusion is partnering with local operator NationGate to manufacture graphics processing unit servers in Penang, while chip packaging and testing company TongFu Microelectronics has expanded its facility in the state in partnership with US group AMD.Anwar said he did not anticipate conflict from the convergence of US and Chinese companies in Penang, although he added that his government was advising local companies to ensure they understood relevant US policies and regulations.Washington has for years worked to restrict China’s development of semiconductor technology, including export bans on advanced chipmaking components and equipment.“We are a small country struggling to survive in a complex world,” Anwar said he told Harris. “I want to focus on what is best for us.”Video: The race for semiconductor supremacy | FT Film More

KYIV (Reuters) – Heads of the Group of Seven major democracies on Saturday pledged to stand by war-weary Ukraine, and Western leaders traveled to Kyiv to show solidarity on the second anniversary of Russia’s invasion, with no end in the sight to the fighting.After initial successes in pushing back the Russian army, Ukraine has suffered recent setbacks on eastern battlefields, with its generals complaining of growing shortages of both arms and soldiers.The G7 leaders on Saturday held a video conference with Ukrainian President Volodymyr Zelenskiy on the anniversary of Russia’s “special military operation,” which ranks as the deadliest conflict in Europe since World War Two. “As Ukraine enters the third year of this relentless war, its government and its people can count on the G7’s support for as long as it takes,” the G7 leaders said in a statement.The officials, who have been critical sources of military and financial aid to Kyiv, also vowed to continue targeting Russia’s sources of revenue with sanctions. Zelenskiy stressed the need to protect Ukrainian skies and strengthen its army. “We are counting on you,” he said on the call, according to remarks published on his website.Looking to dispel concerns the West is losing interest in the conflict, Italy’s Giorgia Meloni and Canada’s Justin Trudeau came to Kyiv early on Saturday with European Commission President Ursula von der Leyen and Belgian Prime Minister Alexander De Croo. “The message I want to send today to … all the Ukrainian people is that they are not alone,” Meloni said as she signed a 10-year defence pact with Zelenskiy. Trudeau signed a similar accord and pledged some $2.25 billion in financial and military support this year.”We will stand with Ukraine with whatever it takes, for as long as it takes,” Trudeau said.Ordinary Ukrainians held services to commemorate the anniversary, laying flowers to honour their many dead, amid fears the war will last years longer as Russian President Vladimir Putin shows no sign of relenting. “I’m a realist and understand that most likely the war will drag on for the next three or four years. I hope society will mobilise, I hope we’ll be able to somehow defeat Russia,” said Denys Symonovskiy, a Kyiv resident.Outside Kyiv, the war continued unabated.Russian drones attacked the port of Odesa for a second night running, hitting a residential building and killing one person, the regional governor said. In Dnipro, a Russian drone hit an apartment building and a rescue operation uncovered two dead.Meanwhile, a source in Kyiv said Ukrainian drones caused a blaze at a Russian steel plant, which a Russian official identified as one in Lipetsk, some 400 km (250 miles) from Ukraine, that is responsible for about 18% of Russian output.HOLDING THE FRONT LINEThe Canadian and Italian security deals mirror similar pacts signed recently with France and Germany.However, $61 billion in aid promised by U.S. President Joe Biden is being blocked by Republicans in Congress, casting a long shadow over Kyiv’s hopes of pushing back the much larger, better supplied Russian military.In the G7 video call, Biden discussed Washington’s continued support for Ukraine and steps the group can take to continue holding Russia accountable, a White House official said.Seeking to maintain Western focus on Ukraine, Zelenskiy has warned Putin may not stop at Ukraine’s borders if he emerges victorious. Putin dismisses such claims and casts the war as a wider struggle with the United States, which he says aims to dismantle Russia.Anniversary events were held across Ukraine including in the western city of Lviv, hundreds of kilometres from the fighting. Grieving women cried as a priest led a prayer in a cemetery festooned with blue and yellow Ukrainian flags, each marking the death of a soldier. “The boys are holding the front line. We can only imagine what effort and price is paid for every peaceful day we have. I want to believe it is not all in vain. We have funerals every day,” Evhenia Demchuk, a widow and mother of two, told Reuters. The initial shock of the invasion faded into familiarity then fatigue as the world watched initial Russian gains and a stunning Ukrainian counteroffensive in late 2022 slow into grinding trench warfare.Russia, with a much bigger population to replenish the army’s ranks and a larger military budget, might favour a drawn-out war, although its costs have been huge as it seeks to navigate sanctions and a growing reliance on China. UKRAINE’S POSITION GROWS PRECARIOUSUkraine’s position is more precarious. Villages, towns and cities have been razed, troops are exhausted and Russian missiles and drone strikes rain down almost daily.Russia this month registered its biggest victory in nine months, capturing the eastern town of Avdiivka and ending months of deadly urban combat.A recent World Bank study said rebuilding Ukraine’s economy could cost nearly $500 billion. Two million housing units have been damaged or destroyed, and nearly 6 million people remain abroad after fleeing the invasion.In addition to seeking money and weaponry, Zelenskiy is promoting legislation allowing Ukraine to mobilise up to half a million more troops – a target some economists say could paralyse the economy.Russia’s finances have so far proved resilient to unprecedented sanctions. While natural gas exports have slumped, oil sales have held up, thanks largely to Indian and Chinese buying, and the economy has been boosted by massive defence spending.Russia has also ruthlessly punished dissent over the war. On Feb. 16, Putin’s most formidable domestic opponent, Alexei Navalny, died suddenly of unexplained causes in an Arctic penal colony where he was serving terms totalling more than 30 years. More