The World and a Borderless ASEAN: The Regional Perspective

Jayant MenonLead Economist (Trade and Regional Integration)

Office of Regional Economic Integration Asian Development Bank

11th MAP International CEO Conference 10 September 2013, Makati Shangri-La

 The views expressed in this presentation are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank, or its Board of Governors or the governments they represent.

Presentation Outline

Introduction Towards 2015 - AEC – how likely?Beyond 2015- Implementation- Development divide- Regionalism as a means, not an end

Introduction

ASEAN the most durable regional association in the developing world. Defining characteristics include:

a) Diversity – greater than any other major regional grouping. History, language, politics, and especially economics (50:1 GDP/cap), population, resource endowments.

b) Generally rapid economic development, with sharp reductions in extreme poverty

. - But ASEAN membership no guarantee (Myanmar)

Introduction

c) Avoidance of strong supra-national organization; deliberately under-powered secretariat; the ‘ASEAN Way’ – strengths & weaknesses. d) Model of ‘open regionalism’, among original members.

Major contribution has been non-economic – undervalued intangibles - increased regional harmony and understanding, while remaining globally connected.

Does it need to be more than that? If so, in what direction, to 2015 and beyond?

Towards 2015 - AEC

Increasingly being recognized that 2015 target for AEC is too ambitious

ASEAN’s own assessment- not only for new but also original members

Given diversity within ASEAN, and sensitivities regarding different issues\sectors, liberalization of goods, capital, and (skilled) labor flows would proceed at different speeds

Towards 2015 with Increased Vulnerability

ASEAN today is more regionally integrated and globally connected than ever.

These features deliver significant benefits, but also carry risks. Increased vulnerability to external shocks, as well as contagion that spreads rapidly across the region

Rising vulnerability can impact AEC AFC lead to increased integration, but initial

reaction to GFC was inward-looking, increased protectionist sentiment

Current Account of ASEAN4, 2011- 2013 (quarterly, as a share of GDP)

Beyond 2015 Whatever happens, bound to be declared

a success come 2015! ASEAN way of admitting this is to start

talk about “beyond 2015” Process rather than destination Much is made about preserving “centrality”

of ASEAN – economic and political – now and beyond 2015

ASEAN+3, +6 (RCEP), +8, TPP, ASEAN+1 and other bilateral FTAs etc – pulling in different directions?

Beyond 2015

Will depend on implementation: member countries’ readiness, national policy objectives, and levels of economic and financial development.

Domestic laws may have to be changed to facilitate implementation.

Thus, despite the blueprint and the various priority actions and schedules, it remains to be seen to what extent concrete liberalization initiatives will be implemented, or whether it will remain essentially a vision statement.

Beyond 2015 – development divide

Future survival of ASEAN will depend on cohesiveness - bridging the “Development Divide”, especially between original and new members

One measure is narrowing gaps in income per capita (economic convergence)

Currently, CLV countries per capita incomes as a share of Thailand’s ranges around 20-25% -catch-up but huge gaps remain.

Significant inter-country income inequalities within Southeast Asia

CLMV GDP per capita, PPP (constant 2005 $) as % of Thailand’s GDP per capita, 2000-2011

0%

5%

10%

15%

20%

25%

30%

35%

40%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Cambodia Lao PDR Myanmar Vietnam

Initial Year

Final Year

% Change

Malaysia 47.7 1992 46.2 2009 -3

PRC 40.7 1993 41.6 2005 2Philippines 42.9 1994 44.0 2006 3

Viet Nam 35.7 1993 37.6 2008 5Pakistan 30.3 1993 32.7 2006 8Indonesia 34.4 1993 37.6 2007 9

Mongolia 33.2 1995 36.6 2008 10India 32.9 1993 36.8 2005 12Thailand 46.2 1992 52.5 2004 14Sri Lanka 35.4 1996 40.3 2007 14Cambodia 38.3 1994 44.4 2007 16

Bangladesh 28.3 1989 33.2 2005 17Lao PDR 30.4 1992 36.7 2008 21Nepal 37.7 1996 47.3 2004 26

Beyond 2015 – development divide

Cannot rely on transfers alone – either intra or extra regional

Will depend on domestic growth, but quality matters

Must avoid replacing inter-country differences by increasing intra-country inequality

To avoid rising inequality and domestic social instability, future growth must be more inclusive.

Beyond 2015 – Means vs Ends

Regionalism should be a means, not an end, in and of itself

Means to increase global connectedness

Even if AEC and RCEP succeed, as well as TPP, T-TIP, FTAAP etc, we end up with a fragmented world trade system

With or without Doha, multilateralization required

Conclusions To survive, ASEAN should avoid failure

by setting unrealistic goals Forget Europe, but pursue its own type

of open, market-driven, institution-light, regionalism

No real political appetite to give up sovereignty, nor economic basis

Rising vulnerability- avoid protection while strengthening CMIM

ASEAN has shown that sometimes less is more, and this should continue!

Thank you!Thank you!For inquiry or comments, please

contact:

Jayant Menon Telephone: (63-2) 632-6205Email: jmenon@adb.org