Plenary Session VII: The Future of ASEAN: Opportunities and

Challenges

Comments by

Jayant MenonOffice of Regional Economic Integration

Asian Development Bank

The 8th Asia Economic ForumPhnom Penh, 17-18 March 2012

 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- Centrality of ASEAN- Development divide

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

Not only for new but also original members

Critical issue of labor mob remains 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

Beyond 2015–centrality of ASEAN Much is made about preserving

“centrality” of ASEAN – economic and political – now and beyond 2015

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

Maybe worth conceding ground to ASEAN+3, for eg., to avoid duplication

- Why ASEAN Surveillance process when CMIM and AMRO in place? Pragmatism over symbolism

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%.

Significant inter-country income inequalities within Southeast Asia

Theil T and L Indices of Inequality in Southeast Asia Source: Chongvilaivan (2011)

Beyond 2015 – development divide

Cannot rely on transfers alone – either intra or extra regional

Trade and investment liberalization and facilitation, and freeing up labor flows-> sharp increases in flows -> rapid increase in growth -> narrowing of development divide

But within country income inequality could rise even further

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 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

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

Current pattern of rapid growth will do this - eg. Laos

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

Beyond 2015 – development divide

Pro-poor growth + addressing access and opportunity to increase participation in growth process

No longer growth first, and deal with consequences (inequality) later.

Context in which growth occurs matters – ‘Land grabbing’ in Cambodia good example of how growth and prosperity (for some) can leave the vulnerable worse off when governance fails

Conclusions To survive and indeed thrive in the future,

ASEAN should avoid mistakes or failures by setting unrealistic goals

ASEAN should not emulate Europe, but pursue its own type of open, market-driven, institution-light, regionalism

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

Means to increase global connectedness – CLMV should follow original members and pursue multilateralization of preferences

Conclusions Instead of single currency being a long-

term objective, should it be an objective at all, if conditions cannot be met?

Solution couched in terms of “more integration” – may be true, but avoids the underlying issue of why there isn’t “more integration”

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

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