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Masahiro Kawai Dean and CEO

Asian Development Bank Institute

ERIA-Harvard-ASEAN Secretariat Symposium: Realizing a more Integrated, Competitive, Equitable, and Resilient ASEAN Community

30 October 2012, Phnom Penh, Cambodia

ASEAN 2030 Toward a Borderless Economic Community

Outline Key Messages SWOT Analysis Aspirations Challenges and Enabling Factors Policy Options Conclusions: Toward a Borderless

Economic Community

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Economic issues have assumed central stage in ASEAN since its creation 45 years ago => An ASEAN Economic Community will be created in 2015

Economic slowdown in the West and rising competition from the PRC and India bring ASEAN at a crossroads => A RICH ASEAN by 2030: Tripling per capita incomes and people’s increasing quality of life to OECD levels; or Losing Centrality: Slowdown to 3% growth and a rise in security and political tensions–depends on right policy mix

Need for deep structural reforms and bold initiatives for regional cooperation: ASEAN must evolve beyond the AEC toward a truly borderless economic community

Key Messages

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Strong macroeconomic fundamentals

Abundant natural resources

Young, growing population and expanding middle class

Strong FDI record and regional production networks

Ability to manage diversity and solidify ASEAN institutionalization

Huge development gaps within and across countries

Low education attainments and large unskilled workforce

Lack of regional strategy to promote investment in R&D

Incomplete achievement of the AEC by 2015 and lack of vision for integration beyond 2015

Weak ASEAN Secretariat and need for an efficiency update of ASEAN’s governance principles

Main Strengths Main Weaknesses ASEAN SWOT Analysis

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Central, strategic location in expanding Asia with huge market potential

Deep manufacturing and technology links with Northeast Asian economies

Strong financial cooperation initiatives to build on

Potential to develop regional hubs in various new areas

Convener of Japan, PRC, Korea & India, and regional groupings

Loss of regional centrality due to the rise of PRC and India

Vulnerability to external shocks due to high degree of economic openness and trade dependence on US and EU

Loss of internal cohesion due to competition with PRC and India

Unresolved territorial disputes

Inability to collectively manage climate change, energy security, disaster management

Main Opportunities Main Threats

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Ambitious yet pragmatic 2030 targets Triple average per-capital GDP, with higher

growth in CLMV countries than elsewhere to help close development gaps

Increase average people’s quality of life to reach today’s OECD levels

Realize a Resilient, Inclusive, Competitive, and Harmonious region – A RICH ASEAN

ASEAN 2030 Aspirations

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2030 GDP Projections & Aspirations

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Quality of Life: Dimensions & Indicators

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Reaching OECD Levels (2 examples)

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A “RICH” ASEAN by 2030

Challenges and Enabling Factors

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Singapore Brunei Dar. Malaysia Thailand Indonesia

Overcome Land & Demographic

Constraints

Diversify the Economy

Improve the Business and Investment

Climate

Foster Human Capital

Strengthen Macroeconomic Management

Increase Labor Productivity

Improve the Business and Investment

Climate

Foster Human Capital

Narrow Inequalities and Foster

Social Cohesion

Develop Economic

Infrastructure

Improve the Business and Investment

Climate

Foster Human Capital

Cultivate Technology

and Innovation Capabilities

Diversify the Economy

Improve the Management

of Natural Resources

Primary Challenges by Country - I

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Philippines Viet Nam Lao PDR Cambodia Myanmar

Improve the Business and Investment

Climate

Strengthen Governance

and Institutions

Diversify the Economy

Foster Human Capital

Strengthen Governance

and Institutions

Develop Economic

Infrastructure

Develop Economic

Infrastructure

Foster Human Capital

Diversify the Economy and Develop the Agricultural

Sector

Strengthen Macroeconomic

Management

Strengthen Governance

and Institutions

Foster Human Capital

Improve the Management

of Natural Resources

Reduce Poverty

Diversify the Economy and Develop the Agricultural

Sector

Primary Challenges by Country - II

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2030 Challenges by Income Group

ASEAN-Wide Challenges and Enabling Factors

Key 2030 Challenges

Enhancing macroeconomic and financial stability

Promoting economic convergence and equitable growth

Forging a competitive and innovative region

Managing natural resources and sustaining the environment

Enabling Factors

Broadening and deepening financial markets

Harnessing human capital

Building seamless connectivity

Strengthening governance

Enhancing ASEAN's institutional framework and empowering the Secretariat

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Beyond the realization of the AEC by 2015 Toward a borderless economic community by 2030

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Macroeconomic & financial stability Maintain macroeconomic and financial stability Avoid future crises and contagion Economic convergence & equitable growth Narrow development gaps within & across

countries Smoothen intra-ASEAN labor movements and

reduce inequalities, social tensions, and discrimination

Challenges - I:

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Competitiveness and innovation Reduce cost of doing business across ASEAN countries Accelerate technological diffusion & absorption Capture synergies between science & industry Exploit comparative advantage in tropical agriculture Capitalize on the increasing inflow of tourists Natural resources and the environment Protect the environment and manage climate change Ensure energy supply & security Manage natural resources and avoid their depletion

Challenges - II

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Develop efficient markets in support of the real sector

Increase effectiveness of financial intermediation

Improve the recycling of regional savings for regional investment

Cope with the aging population and slowing work force growth

Invest in higher quality education systems, including tertiary education and science & maths in basic education

Financial markets Human capital Enabling Factors - I

Connectivity Foster ability to trade, travel,

& transit Update existing facilities in

transport & communication Harmonize rules, standards,

& regulations

Governance Promote use of transparent

rules & regulations Manage national institutions

effectively Strengthen national civil

services

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ASEAN’s institutional framework, governance and the Secretariat Power of the ASEAN Secretariat ASEAN’s decision-making processes National sovereignty and ASEAN

ASEAN’s regional and global roles

Enabling Factors - II

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Enhancing macroeconomic & financial stability Strengthen ASEAN mechanisms to participate in wider regional initiatives and create an ASEAN Financial Stability Dialogue Start a dialogue and establish regional guidelines on fiscal sustainability Introduce a flexible coordination mechanism to maintain intraregional exchange rate stability in normal times while allowing for flexibility in times of stress

Promoting economic convergence & equitable growth Improve coordination to channel external assistance to CLMV countries through the Framework for Equitable Economic Development Introduce an ASEAN-wide system for freer, managed movement of unskilled labor Establish an ASEAN Convergence Fund by enlarging the ADF, entrusting professionals for its administration

Policy Options - I

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Forging a competitive & innovative region Create an ASEAN Competitiveness Institute to promote region-wide

yet country-specific R&D strategy and innovation policy Establish an ASEAN agency for the certification & standardization of

Made-in-ASEAN products Form an ASEAN Tourism Council to promote multi-country tours and

adopt a single ASEAN Visa for qualified tourists

Managing natural resources and sustaining the environment

Adopt long-term development strategies that mainstream green growth, reflecting regional priorities to protect the environment

Harmonize countries’ environmental laws & standards and promote green products’ development using common standards

Adopt national policies to tax environmental “public bads” and eliminate harmful subsidies that encourage inefficient use of natural resources, especially fissile-based

Policy Options - II

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Create an ASEAN College of Financial Supervisors

Invest in scientific & technical skills Expand scholarships and

student exchanges and credit transfer system

Financial markets Human capital

Policy Options - III

Connectivity Strengthen private sector

links and operationalize the ASEAN Infrastructure Fund Expedite the

implementation of the ASEAN Connectivity Master Plan

Governance Adopt an ASEAN-wide

competition policy & legal framework

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Empower the ASEAN Secretariat Enhance its legal capability to attain trust & respect in enforcing

commitments by member countries Increase its financial & human resources (to match the operational

costs expected to rise to $200M by 2030) Revisit the equal budget contribution principle based on contributing

capacity & expected benefits

Improve decision-making processes & efficiency Adopt a more flexible decision-making system to allow operational

issues to be decided through qualified majority, while maintaining consensus for fundamental issues

Enhance ASEAN’s institutional framework Shift more responsibilities from national to ASEAN Create new functional institutions based on members’ interest to

serve as regional champions, with the Secretariat’s coordinating role Raise ASEAN’s global role Speak with a louder voice in international forums by entrusting the

ASEAN Chair and the Secretary General more

Policy Options - IV

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The path beyond AEC 2015—to realize the aspirations of a RICH ASEAN by 2030—requires a solid vision of a truly borderless economic community ASEAN leaders need to make the best commitments

possible today for meeting the aspirations of a RICH ASEAN tomorrow A right mix of deep domestic structural reforms and bold

cooperation initiatives is needed Different country-specific solutions reflect the diversity of

ASEAN economies as part of a region-wide strategy ASEAN leaders, policymakers and businesses need to think

globally, coordinate regionally, and act nationally

Conclusions: Toward a Borderless Economic Community by 2030

Thank you! For more information:

Dr. Masahiro Kawai

Dean & CEO Asian Development Bank Institute

mkawai@adbi.org +81 3 3593 5527 www.adbi.org