Plenary Session VII: The Future of ASEAN: Opportunities and Challenges Comments by Jayant Menon Office of Regional Economic Integration Asian Development Bank The 8th Asia Economic Forum Phnom Penh, 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 AEC – how likely? Beyond 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 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 %.  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 PRC Philippines Viet Nam Pakistan Indonesia Mongolia India Thailand Sri Lanka Cambodia Bangladesh Lao PDR Nepal

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! For inquiry or comments, please contact: Jayant Menon Telephone: (63-2)