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8/16/2019 Article AEC

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New Vision Needed

Looking beyond 2015, ASEAN needs to rework its agenda to master the challenges of a

changing world economy

By Sanchita Basu Das

As ASEAN moves closer to 2015 and strives to build an economic community as envisioned

in its first Blueprint, there would be increasing discussion on ASEAN’s action going beyond

2015. Does ASEAN need another vision that will build on its earlier efforts? The answer to

this question is ‘YES’. This is because community-building is an ongoing process in which

new agreements and declarations need to evolve in light of changes in a global political andeconomic landscape. Moreover, ASEAN involves countries from varied developmental

stages and sizes, which needs a judicious but steady approach to deepen its economic

cooperation.

Global Challenges of the Next Decade

The next vision statement of ASEAN needs to address five key global challenges in the

coming decades. First, since the 2007-08 crisis, the world economy is expanding at a subduedpace and is facing multiple downside risks. While earlier uncertainties like worsening of the

euro area crisis; the United States falling off the fiscal cliff; and a hard landing of China have

diminished, new uncertainties have emerged from the expansionary monetary policies

adopted by the developed economies. A prolonged period of subdued growth in many

economies with high unemployment and inadequate investment has also led to a ‘new

normal’ of lower potential output globally. These factors and other non-economic risks, such

as geopolitical risks and natural disasters, have the potential to derail the still nascent global

recovery.

Ageing is the second issue. According to a report by the World Economic Forum in 2012, in

the next four decades, the share of people aged 60 and over is expected to rise from 10 to 22

percent of the total population (a jump from 800 million to 2 billion people), having

significant implications for public health and national income. Third, infrastructure

development is yet another major challenge of the 21st century. Both developing and

developed economies require a major increase in infrastructure investment to alleviate growth


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constraints, respond to urbanization pressures and meet their crucial development plans,

inclusion and environmental goals. The OECD estimates an enormous investment of over

US$40 trillion that might be spent worldwide on infrastructure projects before 2030.

Fourth, lately international trade is not governed by the theory of comparative advantage.

There is a rapid development of cross-border production networks with each country

specializing in a particular stage of the production sequence. These are rapidly getting

developed in the machinery industry, as it incorporates large numbers of parts and

components produced by diversified inputs and technology. These developmental changes

are more significant in the Asian countries as the growth dynamics shifted from the advanced

countries of the West to emerging, relatively fast-growing economies of the East.

Fifth, food insecurity is a growing concern throughout the developing world. Estimates

suggest that in 2010, approximately 925 million individuals were undernourished and it is

unlikely that the Millennium Development Goal to halve the proportion of people suffering

from hunger by 2015 will be met. Studies on the future of food and farming have identified

several challenges to the global food system - growing global population, changing diets,

food system governance, competition for farm resources and the impacts of climate change.

These imply that more people will be at risk of hunger in the coming years.

Policy Recommendations: The Next Vision of AEC

ASEAN policy-makers thus need to enhance cooperation in order to mitigate negative policy

spillovers. In crafting its next vision statement, ASEAN should look no further than 2025 as

its deadline. This is because the global economy is rapidly changing. ICT is paving the way

for innovation, increased production and rapid diffusion of ideas in technology. In this

scenario of changing circumstances, ASEAN should make continuous adjustments to its

strategies and hence should not take too long time to realise its next vision statement.

With increasing global uncertainties post 2008 crisis, the main priority for ASEAN policy

makers should be to support a sustainable economic recovery, with a focus on promoting job

creation. In order to help the middle-income countries (Malaysia, Thailand, the Philippines,

Indonesia and Vietnam) and raise productivity, ASEAN needs to invest in knowledge,

innovation and human resources. It needs to address some of the 21st century issues, like


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climate change, environment protection, use of green technology and food security. To lower

its vulnerability from external financial risks, it is worthwhile for ASEAN to look for higher

cooperation in monetary and financial sector. Although ASEAN will not look for financial

and monetary integration anytime soon, it has discussed an ASEAN Bond Market Initiative to

promote long term investment and financial stability. More recently in 2012, ASEAN has set

up the ASEAN Trading Link, connecting Bursa Malaysia, Singapore Exchange and Stock

Exchange of Thailand, thereby creating a virtual market of over 2,200 listed companies and

US$1.4trillion combined market capitalisation (as of October 2012). Empirical studies have

shown that higher financial cooperation also has strong effects on trade and investment flows

in a region.

Enhancing regional connectivity through physical, institutional and people-to-people

exchanges should occupy centrepiece in ASEAN policy making. This is expected to reduce

business time, travel and transaction costs, and connects the “core” and the “periphery” in

ASEAN. Moreover, better connectivity within ASEAN is essential for further connectivity

with other regions, such as East and South Asia, which will help ASEAN to maintain its

centrality in the evolving regional architecture. The policy makers of the region should align

ASEAN connectivity initiatives with national projects to facilitate resource mobilization. In

order to promote the Public-Private-Partnership (PPP) model of funding for big cross borderinfrastructure projects, it is in best interest of ASEAN to deliver on a regional PPP investment

document.

ASEAN should continue working on curbing protectionism in the region, while enhancing

efforts in facilitation. Facilitation, here, refers to a full set of at- and behind-the-border

policies, designed to ease the movement of goods across borders and hence reduce

transaction costs for developing a robust production network in the region. As ASEAN trades

more with the broader Asian nations, it should extend its facilitation and connectivity

measures to countries like China, Japan, South Korea India, Australia and New Zealand.

ASEAN should continue with its efforts to promote the SMEs of the region and should tackle

the difficulties of capital and knowledge through a combination of ‘hard’ measures, such as

direct investment, and ‘soft’ ones, notably the provision of business support services,

training, an innovative environment, financial engineering and technology transfer, as well as

the creation of networks and clusters. In order to narrow the developmental gap in the region,


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ASEAN should look for new modalities. One possible way is to take a nationalistic approach

where funding and necessary support would be provided to targeted countries and to targeted

industries. Another drastic possibility is for ASEAN to explore ideas on establishing a

regional development bank as it will help to nourish regional identity and solidarity. This

bank can channel its lending to areas that are lagging behind in their development.

In the next phase of ASEAN community building, effective implementation of AEC

measures should be given a priority. Effectiveness here means that the ASEAN citizen should

be able to benefit from the region’s objective of ‘single market and production base’. While

producers must enjoy the economies of scale, consumers must have the pleasure of more

choices and lower prices domestically. The AEC scorecard should be strengthened for better

understanding of businesses and people. Regional and domestic policies must be aligned. In

order to achieve these, thus, regular consultation with key stakeholders of ASEAN should be

an imperative. ASEAN may also have to review and restructure some of its existing

institutions. All these together will increase transparency for ASEAN’s regional integration

and thus credibility for ASEAN in the broader international space.

Sanchita Basu Das is an ISEAS Fellow and Lead Researcher (Economic Affairs) at the

ASEAN Studies Centre, ISEAS, Singapore. She is also the coordinator of the Singapore

APEC Study Centre.

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