At 40, ASEAN Turns to Economics
By John Feffer
WASHINGTON, May 25 (IPS Asia-Pacific) - South-east Asia’s key diplomatic grouping, the Association of South-east Asian Nations (ASEAN), has big plans for its 40th birthday this year.
After four decades of being largely a political and security alliance, the 10-nation ASEAN, created on August 1967, is accelerating its plans for economic integration. In fact, ASEAN leaders are so eager to pull together into an economic community that they have moved up economic benchmarks originally planned for 2020 up to 2015.
“The mission of this economic community is to develop a single market that is competitive, equitably developed, and well integrated in the global economy,” says Worapot Manupipatpong, the Thai principal economist and director of the secretary-general’s office of the ASEAN Secretariat, based in Jakarta. He was speaking at a May seminar of the Asian Voices seminar series here, sponsored by the Sasakawa Peace Foundation.
The single market of 2015 would encompass all 10 ASEAN members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Burma, the Philippines, Singapore, Thailand and Vietnam.
The single market will be accomplished by removing all barriers to the free flow of goods, services, capital, and skilled labour, according to the projections by the ASEAN Secretariat. Rules and regulations will be simplified and harmonised. Member countries will benefit from improved economies of scale.
Common investment projects, such as a highway network and the Singapore-Kunming Rail Link, will facilitate greater trade. Although there will not be a single currency like the European Union’s euro, ASEAN countries will aim for greater currency cooperation.
MARKET-DRIVEN INTEGRATION
“ASEAN’s process of economic integration was market-driven,” says former Bank of Indonesia governor Soedradjad Djiwandono, who explains that this trend was influenced by the ‘Washington Consensus’ that favoured increased liberalisation. “It is a very different framework from the closed regionalism of the Latin American model,” he continues.
With multilateral talks on trade liberalisation stalled, efforts have largely shifted to bilateral negotiations. “There has been a proliferation of bilateral agreements that developed countries use as a way to push a programme for liberalising different sectors,” Djiwandono concludes.
So far, an increase in intra-ASEAN trade appears to be an early sign of success. But, as Djiwandono points out, the overall trade share – 25 percent – still pales in comparison to the 46 percent share of the North American Free Trade Agreement countries or the 68 percent share of EU countries. Likewise, with intra-ASEAN foreign direct investment rather low – only 6 percent in 2005 – financial integration lags behind trade integration.
The ASEAN approach differs in several key respects from the EU model, which originated in a 1951 coal and steel agreement among six European nations.
ASEAN’s origins, in contrast, have been primarily political and security-oriented, observes Donald Emmerson, director of the South-east Asia Forum at the Shorenstein Asia Pacific Research Centre at Stanford University. “The success attributed to ASEAN is that it presided over an inter-state peace ever since it was formed. There’s never been a war fought between ASEAN members.”
Also distinguishing ASEAN from EU is the latter’s institutionalisation. “ASEAN is radically different,” Emmerson continues. “The much discussed ‘ASEAN Way’ is consultation, not even voting, since if they vote, someone will lose. Sometimes, the consultation goes on without result. Sometimes, decisions are reduced to the lowest common denominator. It also means that rhetoric predominates.”
This consultative process will be tested in November, when ASEAN leaders gather to adopt a charter, something that the EU has so far failed to accomplish.
Another difference with Europe is the enormous economic disparities among the ASEAN members, with Singapore and Brunei among the richest countries in the world and Laos among the poorest.
Worapot points to two ASEAN initiatives for closing this gap between what has been called the two tiers of the grouping.
There is help for small and medium-sized enterprises, and the Initiative for ASEAN Integration provides technical assistance to Cambodia, Laos, and Myanmar to help them catch up with the other ASEAN countries.
TWO-TIERED ASEAN
Then there are ASEAN’s efforts to address “public bads,” according to Djiwandono. “When there is a tsunami or a pandemic,” he argues, “the worst victims are the marginalised or the poor. Addressing that kind of issue has some positive impact on reducing inequality.”
“The gap between the early joiners and the later joiners will continue to be substantial because ASEAN has always been more of a forum and less of a problem-solving organisation,” observes Karl Jackson, director of the Asian Studies Programme at the School for Advanced International Studies at Johns Hopkins University. “As a result one would expect that these gaps would be closed only as individual countries increase their rates of growth.”
ASEAN is banking on financial and trade liberalisation increasing the overall regional pie. On paper, it is an ambitious project. But “the low-hanging fruit have been plucked,” says Emmerson. Tariffs on the “easy commodities” have already been reduced to less than 5 percent as part of a gradual process underway for years. But non-tariff barriers to trade remain, and member countries are very protective of certain sectors.
FINANCIAL CRISIS, A DECADE ON
Also tempering the region’s optimism is the memory of the Asian financial crisis, which marks a decade in July this year.
The crisis began in Thailand in 1997 and spread rapidly to other countries in East Asia. One school of thinking holds that capital mobility – “hot money” – either caused or considerably aggravated the crisis. Since the ASEAN integration promises greater mobility for capital, would the region be at greater risk of another such crisis?
“One consequence of the economic dynamism of the Asia-Pacific region,” notes Donald Emmerson, “is that the accumulation of vast foreign exchange reserves – obviously in China, but in other countries too – more than anything else represents an asset that can be brought into the equation as a stabilising factor in the event of a financial crisis”.
Also, he continues, as a result of the ‘ASEAN Plus Three’ network, which adds China, South Korea, and Japan to the mix, the 13 countries have “made serious headway toward establishing currency swap arrangements that would come into play in an emergency on the scale of an Asian financial crisis”.
Jackson also looks to currency reforms as a hedge against future crisis. The Thai baht and the Indonesian rupiah are now unpegged currencies. “You will not have a situation in which the Central Bank of Thailand loses 34 billion dollars defending the baht,” Jackson argues. “Instead, the baht will appreciate or depreciate according to market forces.”
But Jackson still remains cautious about the future. He points to the large number of non-performing loans in the Chinese banking sector. Also, there is “this anomaly of the United States absorbing two-thirds of the savings coming out of Asia, plugging it mostly into consumption rather than direct investment,” he observes. “Eventually there has to be some kind of readjustment. The real value of the dollar must fall.” (END/IPSAP/JF/JS/250507)
