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New Vision Needed

Looking beyond 2015, ASEAN needs to rework its agenda to master the challenges of a
changing world economy
By Sanchita Basu Das
As ASEAN moves closer to 2015 and strives to build an economic community as envisioned
in its first Blueprint, there would be increasing discussion on ASEANs action going beyond
2015. Does ASEAN need another vision that will build on its earlier 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 involves countries from varied developmental
stages and sizes, which needs a judicious but steady approach to deepen its economic
cooperation.
Global Challenges of the Next Decade
The next vision statement of ASEAN needs to address five key global challenges in the
coming decades. First, since the 2007-08 crisis, the world economy is expanding at a subdued
pace and is facing multiple downside risks. While earlier uncertainties like worsening of the
euro area crisis; the United States falling off the fiscal cliff; and a hard landing of China 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 with high unemployment and inadequate investment has also led to a new
normal of lower potential output globally. These factors and other non-economic risks, such
as geopolitical risks and natural disasters, have the potential to derail the still nascent global
recovery.
Ageing is the second issue. According to a report by the World Economic Forum in 2012, in
the next four decades, the share of people aged 60 and over is expected to rise from 10 to 22
percent of the total population (a jump from 800 million to 2 billion people), having
significant implications for public health and national income. Third, infrastructure
development is yet another major challenge of the 21st century. Both developing and
developed economies require a major increase in infrastructure investment to alleviate growth
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constraints, respond to urbanization pressures and meet their crucial development plans,
inclusion and environmental goals. The OECD estimates an enormous investment of over
US$40 trillion that might be spent worldwide on infrastructure projects before 2030.
Fourth, lately international trade is not governed by the theory of comparative advantage.
There is a rapid development of cross-border production networks with each country
specializing in a particular stage of the production sequence. These are rapidly getting
developed in the machinery industry, as it incorporates large numbers of parts and
components produced by diversified inputs and technology. These developmental changes
are more significant in the Asian countries as the growth dynamics shifted from the advanced
countries of the West to emerging, relatively fast-growing economies of the East.
Fifth, food insecurity is a growing concern throughout the developing world. Estimates
suggest that in 2010, approximately 925 million individuals were undernourished and it is
unlikely that the Millennium Development Goal to halve the proportion of people suffering
from hunger by 2015 will be met. 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 the coming years.

Policy Recommendations: The Next Vision of AEC


ASEAN policy-makers 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 as
its deadline. This is because the global economy is rapidly changing. ICT 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 time to realise its next vision statement.
With increasing global uncertainties post 2008 crisis, the main priority for ASEAN policy
makers should be to support a sustainable economic recovery, with a focus on promoting job
creation. In order to help the middle-income countries (Malaysia, Thailand, the Philippines,
Indonesia and Vietnam) and raise productivity, ASEAN needs to invest in knowledge,
innovation and human resources. It needs to address some of the 21st century issues, like
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climate change, environment protection, use of green technology and food security. To lower
its vulnerability from external financial risks, it is worthwhile for ASEAN to look for higher
cooperation in monetary and financial sector. Although ASEAN will not look for financial
and monetary integration anytime soon, it has discussed an ASEAN Bond Market Initiative to
promote long term investment and financial stability. More recently in 2012, ASEAN has set
up the ASEAN Trading Link, connecting Bursa Malaysia, Singapore Exchange and Stock
Exchange of Thailand, thereby creating a virtual market of over 2,200 listed companies and
US$1.4trillion combined market capitalisation (as of October 2012). Empirical studies have
shown that higher financial cooperation also has strong effects on trade and investment flows
in a region.
Enhancing regional connectivity through physical, institutional and people-to-people
exchanges should occupy centrepiece in ASEAN policy making. This is expected to reduce
business time, travel and transaction costs, and connects the core and the periphery in
ASEAN. Moreover, better connectivity within ASEAN is essential for further connectivity
with other regions, such as East and South Asia, which will help ASEAN to maintain its
centrality in the evolving regional architecture. The policy makers of the region should align
ASEAN connectivity initiatives with national projects to facilitate resource mobilization. In
order to promote the Public-Private-Partnership (PPP) model of funding for big cross border
infrastructure projects, it is in best interest 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 at- and behind-the-border
policies, designed to ease the movement of goods across borders and hence reduce
transaction costs for developing a robust production network in the region. As ASEAN trades
more with the broader Asian nations, it should extend its facilitation and connectivity
measures to countries like China, Japan, South Korea India, Australia and New Zealand.
ASEAN should continue with its efforts to promote the SMEs of the region and 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, an innovative environment, financial engineering and technology transfer, as well as
the creation of networks and clusters. In order to narrow the developmental gap in the region,
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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. Another drastic possibility is for ASEAN to explore ideas on establishing a
regional development bank as it will help to nourish regional identity and solidarity. This
bank can channel its lending to areas that are lagging behind in their development.
In the next phase of ASEAN community building, effective implementation of AEC
measures should be given a priority. Effectiveness here means that the ASEAN citizen should
be able to benefit from the regions objective of single market and production base. While
producers must enjoy the economies of scale, consumers must have the pleasure of more
choices and lower prices domestically. The AEC scorecard should be strengthened for better
understanding of businesses and people. Regional and domestic policies must be aligned. In
order to achieve these, thus, regular consultation with key stakeholders of ASEAN should be
an imperative. ASEAN may also have to review and restructure some of its existing
institutions. All these together will increase transparency for ASEANs regional integration
and thus credibility for ASEAN in the broader international space.

Sanchita Basu Das is an ISEAS Fellow and Lead Researcher (Economic Affairs) at the
ASEAN Studies Centre, ISEAS, Singapore. She is also the coordinator of the Singapore
APEC Study Centre.

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