Looking beyond AEC 2015

Forward-looking thinkers are already looking to 2030 even as people anticipate the coming of the Asean Economic Community (AEC) next year. Last week saw the launch in Singapore of the book “Asean 2030: Toward a Borderless Economic Community.” That came with a 2-day policy dialogue conference among scholars and policymakers. I’ve been privileged to be among dozens of researchers and analysts from around the region that the Asian Development Bank Institute had brought together over the last three years to undertake this visionary study.

At the outset, the group articulated its long-term aspiration of achieving by 2030 a “RICH” Asean—resilient, inclusive, competitive and harmonious. “AEC is taking shape just as the center of global economic gravity is shifting toward Asia, with China and India catalyzing the region’s dynamism,” the book observes. Even as few expect full realization of the envisioned AEC next year, getting to “RICH” Asean in 2030 would require far bolder steps in the economic, social, political, environmental and institutional realms than the region has been willing to take so far.

The study team saw early on that the Asean economies could conceivably follow two alternative paths beyond 2015, depending on how they act jointly and individually. On one hand, they could collectively enter a high-growth scenario leading to a tripling of per capita (average) incomes by 2030 and raising quality of life to levels enjoyed by today’s developed economies. On the other hand, they could slow down to no more than 3-percent economic growth per year as they fall into the “middle income trap” and fail to narrow social gaps, manage natural disasters and climate change, or resolve political tensions. Overcoming these threats and challenges and building a borderless economic region by 2030 would entail (1) practicing sound economic management, (2) pursuing inclusive and “green” growth and development, (3) strengthening connectivity across the region in its various dimensions, and (4) strengthening the regional institutional framework. The Asean 2030 study tackled each of these imperatives with a mix of hindsight (analysis of experience and data trends) and strategic foresight (including some out-of-the-box direction-setting).

Strengthening and widening connectivity among the Asean member countries, economies and peoples (i.e., in the physical, economic and social dimensions) is primordial in building a cohesive and “RICH” Asean community. Physical connectivity entails hiked investments and decisive policy reforms in land, water and air transport, and in information and communication technology links. The Philippines, lacking the land links that the mainland member states have, is championing easier maritime linkages through an Asean Roll On-Roll Off (Ro-Ro) system; a regular Mindanao-Manado Ro-Ro line is soon forthcoming. But the country has yet to ratify the Multilateral Agreement on Air Services on the long-standing but lame excuse that our airports and other facilities are not equipped for open skies.

Economic connectivity has advanced with the pursuit of the AEC, with liberalized trade and investment having widened and deepened regional production networks or cross-border value chains in various manufacturing industries. With the proliferation of such cross-border value chains, trade in Asean is now more complementary rather than competitive in nature, where trade protectionism becomes irrelevant and even self-penalizing. The data show that closer economic integration has indeed happened: Asean-to-Asean exports grew from $27.4 billion (18.9 percent of all Asean exports) in 1990 to $98.1 billion (23 percent) in 2000, and $262.2 billion (25 percent) in 2010. Foreign direct investments across Asean economies amounted to $4.26 billion in 1990, $3.52 billion in 2005 and $20.04 billion in 2012. Meanwhile, people-to-people connectivity would be served by widening intra-Asean tourism, academic faculty and student exchange programs, and active cross-cultural exchanges.

Is Asean headed in the direction of European-style integration? Not quite, the study asserts; it in fact admonishes against “copying” Europe. The “Asean Way” has been marked by flexibility, pragmatism and consensus. While some have seen this as a drawback and source of occasional frustration, it has so far largely served the region well. Asean countries and economies are much more diverse than those of the European Union (EU), and achieving the latter’s level of integration is extremely difficult if not impossible. In fact, recent difficulties with some EU members suggest that it may not even be desirable.

Adopting a single currency, for example, is not an agenda that the region’s financial managers are in any mood to pursue in the foreseeable future. This would require close synchronization of the member-economies’ monetary (money supply) and fiscal (revenue and expenditure) policies, something even the less-diverse European economies have found virtually impossible to do. Still, Asean’s widening economic agenda calls for greater efficiency and timeliness than has been achieved under its current institutional and governance structures. Major institutional strengthening and reform is thus in order. The book pushes for a regional institutional infrastructure that goes well beyond AEC but stops short of establishing an EU-style regional government, to whose authority the national governments would submit.

All told, AEC is but an initial step in yet another new, bolder phase as the nearly half century-old grouping marches on to assert its standing as a major force in the world economy.

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