Looking beyond 2015, Asean needs to rework its agenda to master the challenges of a changing world economy – a guest comment by Sanchita Basu Das (ISEAS)
By Sanchita Basu Das
As Asean moves closer to 2015 and strives to build an economic community as envisioned in its first Blueprint, there will be increasing discussion the bloc’s path beyond 2015. Does Asean need a new vision to build on its previous 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 and economic landscape. Moreover, Asean is made up of countries in varied developmental stages and sizes. Therefore it needs a judicious but steady approach to deepen its economic cooperation.
Asean’s economic vision statement needs to address five key global challenges:
First, since the 2007–08 crisis, the world economy is expanding at a subdued pace and is facing multiple downside risks. While earlier uncertainties 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 and inadequate investment has also led to a ‘new normal’ of lower potential output globally.
Ageing is the second issue. During the next four decades the share of people aged 60 and over is expected to rise from 10% to 22% of the total population. This has significant implications for public health and national income.
Third, infrastructure development is another major challenge for the 21st century. Both developing and developed economies require a major increase in infrastructure investment to alleviate growth constraints, respond to urbanisation pressures and meet their crucial development plans, inclusion and environmental goals.
Fourth, international trade has not been governed by the theory of comparative advantage of late. There is a rapid development of cross-border production networks with each country specialising in a particular stage of the production sequence. These developmental changes are more significant in Asian countries as growth dynamics have shifted from the West to the East.
Fifth, food insecurity is a growing concern throughout the developing world. Estimates suggest that in 2010, approximately 925 million individuals were undernourished. 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 coming years.
Asean policymakers 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. This is because the global economy is rapidly changing. Information and communication technology 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 to realise its next vision statement.
With increasing global uncertainties post the 2008 crisis, the main priority for Asean policymakers should be to support a sustainable economic recovery, with a focus on promoting job creation. In order to help the middle-income member countries and to raise productivity, Asean needs to invest in knowledge, innovation and human resources. It needs to address some of the 21st-century issues, such as climate change, environmental protection, the use of green technology and food security.
To lower its vulnerability to external financial risks, it is worthwhile for Asean to look for higher cooperation in the monetary and financial sector. However, it has to be noted that Asean will not look for financial and monetary integration any time soon.
Enhancing regional connectivity through physical, institutional and people-to-people exchanges should be the centrepiece in Asean policy making. This is expected to reduce business time, travel and transaction costs, and is expected to connect the ‘core’ and the ‘periphery’ in Asean. The policymakers of the region should align Asean connectivity initiatives with national projects to facilitate resource mobilisation. In order to promote the Public-Private-Partnership (PPP) model of funding for big cross-border infrastructure projects, it is in the best interests 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 policies, designed to ease the movement of goods across borders and hence reduce transaction costs. As Asean trades more with the broader Asian nations, it should extend its facilitation and connectivity measures to those countries.
Asean should continue with its efforts to promote the small- and medium-sized enterprises of the region. It 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, as well as the creation of networks and clusters.
In order to narrow the developmental gap in the region, 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.
In the next phase of Asean community-building, effective implementation of AEC measures should be given priority. Effectiveness here means Asean citizens will be able to benefit from the region’s objective of a single market and production base. The AEC scorecard should be bolstered for better understanding of businesses and people. Regional and domestic policies must
In order to achieve these, thus, regular consultation with key stakeholders of Asean should be 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.