Despite painful lessons from Europe, integration should generate more opportunities than risks to East Asian countries if they are pursuing growth to spur domestic economies, agreed panellists at World Economic Forum on East Asia 2012.
During the opening plenary on May 31 on "East Asian Models for Transforming the Global Economy", Gerard Mestrallet, chairman and executive officer of GDF Suez and co-chair of the forum, noted that even in Europe, the integration has helped sustain peace in the region for 50 years. Even when fiscal rules disrupt the process, he foresees deeper integration rather than disintegration.
Eswar Prasad, professor at Cornell University, noted that for a single currency, a better institution is necessary to ensure smooth integration. For Asean, integration is still an answer.
"The integration will not only draw capital but also strengthen domestic resilience," he said, adding that these countries may not strengthen integration for capital, but they still need to deal with what comes with the capital.
Indonesia's Trade Ministr Gita Wirjawan wished Europe show decisiveness like what Asian countries demonstrated during the 1998-1999 following the financial crisis. He also raised doubt whether the situation would be the same if the International Monetary Fund (IMF) is led by an Asian chief.
"We need a stronger Europe. We fear its weaknesses less than we fear its strengths," he said.
Thailand's Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong added that integration will strengthen Asean as a whole, "but we'd not go as far as a single currency".
While lauding the strengths of Asean nations, the panellists expressed grave concerns over the widespread corruption in the region.
To Kittiratt, there is a strong will of Asean leaders to deal with graft, aside from pressure from global investors.
Wirjawan of Indonesia is hopeful that reforms of the tax system, whereby only 10 million of 245 million population are paying taxes, would make Indonesia more attractive. Coupled with greater education, this will lead to more jobs and the less corrupted society.
"Corruption is a long-term game, as it took Hong Kong 30 years. In 5-10 years, there could be fewer corrupted people in Indonesia," he said.
Some government efforts bear fruits, as Indonesia which just adopted the democratic ruling 14 years ago is showing the low unemployment rate of only 6 per cent. Wirjawan expected that to fall to 4-5 per cent in the next few years. Meanwhile, the country has witnessed a sharp growth in investment in the last 2 years.
"Asean is still a low per capita region... (On integration), we'll get there, but not in a grandiose way as we thought 10 years ago," he noted.
To Kittiratt, integration is a way to achieved the necessary economic rebalancing given severe external shocks. Integration would boost the purchasing power of people in the region and then boost regional trade.
Mestrallet noted that Asean is one pillar of the world economy with capital, population, growth and resources. Yet, the region faces four challenges concerning economic sustainability, environment, energy and rural development.
He praised for the regional cooperation in energy but urged the countries to put in place stronger rules on water and air quality. Still, just as Europe is going green, Asean need not go too quickly. He noted that Europe is doing that at a price.
"(In dealing with the challenges), you have to avoid the European and US mistakes (given their excessive public debt)," he said.
The return of Asia to the global economic stage will define this century, but the region’s rising prominence and influence must be underscored by a willingness to avoid protectionism, eliminate trade barriers and deepen regional integration, Pascal Lamy, Director-General, World Trade Organisation (WTO), told participants.
“This region is doing better than the rest of the world, but it is not immune. Economic uncertainty in the United States and Europe and a slowing economy in China will impact this region. This biggest risk is protectionism; it is a serious risk and a growing risk,” warned Lamy.
With a combined GDP of US$3 trillion, a wealth of natural resources and a demographic dividend, the ASEAN region has all the assets to become a global economic pillar, but sustained regional growth hinges upon an increasingly intertwined ASEAN.
“The main action, which has been going on for several years, is ASEAN integration,” noted Lamy. “That is the strong comparative advantage of this region. The more this happens, the more resilient the region will be.”
In light of the goal to form a single ASEAN market by 2015, Kittiratt Na-Ranong said he was optimistic that a regional consensus would be achieved. He emphasised the need for countries to strike a balance between driving domestic, regional and global economic growth and creating a buffer for external shocks.
“East Asia and South-East Asia have for too long been focused on export-led growth and we forget that we have room for improvement in our own economies,” said the Thai Deputy Prime Minister. “These days, the key word is balance. It is our job to help ourselves so we can help other economies, too.”
Focusing on domestic growth in combination with an openness to deepen regional integration, argued Kittiratt, would be advantageous to individual economies, the broader region and the ailing markets in the US and Europe. He also called for lower logistical costs within the region to better facilitate trade ties and ensure logistical connectivity.
Acknowledging the logistical challenges of an archipelagic nation, Wirjawan, Minister of Trade of Indonesia, concurred that an intra-economic ASEAN economy would bolster the region from externalities despite tendencies to resort to protectionist policies in times of economic turmoil.
In the context of an increasingly volatile external market, deeper trade integration not only boosts growth but also increases vulnerability. Key to ensuring broad support for increased intraregional connectivity, argued Eswar Prasad, Professor, Cornell University, USA, is to eradicate the “toxic combination” of corruption and inequality.
“ASEAN has to make sure that greater openness is not only benefiting the elite, as inequality and corruption will erode broader support for future reform,” he told participants.
Empowering ASEAN’s population by increasing purchasing power and productivity and moving up the value chain was perceived as the best way to spread the economic benefits more broadly.
Taking note of beleaguered Western economies, avoiding currency integration and embracing decisive actions were viewed as the key lessons for ASEAN nations.
More than a decade after Asia faced an economic crisis of its own, Wirjawan called for patience and long-term commitment to a united ASEAN, a region comprised of countries of greatly varying levels of wealth and development.
“The point of connectivity is that we are getting there,” he explained. “It may not be as ambitious and grandiose as we want it to be, but we will get there. We are clear where the problems are and they can’t be fixed overnight, but it is happening.”