Mem­ber coun­tries must en­hance co­op­er­a­tion by strength­en­ing eco­nomic, fi­nan­cial in­te­gra­tion

New Straits Times - - Opinion - The writer is chair­man of the Malaysian In­sti­tute of Eco­nomic Re­search

MANY may not re­mem­ber that 50 years ago, in 1967, Asean, or the As­so­ci­a­tion of South­east Asian Na­tions, was formed with the aim of bring­ing about po­lit­i­cal sta­bil­ity and en­hanc­ing eco­nomic co­op­er­a­tion in the South­east Asian re­gion.

The re­gion was then quite un­sta­ble with dif­fer­ing po­lit­i­cal his­tory and po­lit­i­cal in­cli­na­tions, not to men­tion var­i­ous stages of eco­nomic devel­op­ment. In­done­sia and Malaysia ended their con­fronta­tion a few years ear­lier, while the Philip­pines had its claim on Sabah. North Viet­nam was at war with the South. Myanmar, or Burma then, was un­der a mil­i­tary junta fight­ing in­ter­nal dis­putes.

Un­doubt­edly, the or­gan­i­sa­tion has been able to en­dure and grow day by day de­spite its na­tional his­tor­i­cal, po­lit­i­cal and eco­nomic dif­fer­ences.

With its hum­ble be­gin­ning, Asean eco­nomic co­op­er­a­tion has evolved from es­tab­lish­ing Com­mon Ef­fec­tive Pref­er­en­tial Tar­iff Ar­range­ments to free trade ar­eas and is mov­ing to­wards an eco­nomic union in a few years’ time.

In­tra-Asean trade has grown sig­nif­i­cantly as a con­se­quence of lib­er­al­i­sa­tion mea­sures and cross-bor­der in­vest­ments.

That the or­gan­i­sa­tion has strength­ened, al­though some­what slowly, ini­tially, speaks of the wis­dom of the re­gional lead­ers. In mat­ters like this, cau­tion is ad­vis­able. Our lead­ers re­alised that as much as the mem­bers can ben­e­fit from greater eco­nomic co­op­er­a­tion, so­cial and po­lit­i­cal re­al­i­ties must be ap­pre­ci­ated. Af­ter all, there were still po­lit­i­cal and eco­nomic dif­fer­ences among mem­ber coun­tries then, and even now.

In­deed, Asean has be­come more in­te­grated and co­he­sive now, while other re­gional in­te­gra­tion schemes have ex­pe­ri­enced se­ri­ous set­backs. Bri­tan’s in­ten­tion to leave the Euro­pean Union (Brexit), and ear­lier not join­ing the Eu­ro­zone ar­range­ment of hav­ing one com­mon cur­rency, the euro, are clear ex­am­ples.

Even within the North Amer­i­can Free Trade Area (Nafta), con­sist­ing of the United States, Canada and Mex­ico, there are hic­cups af­ter the elec­tion of Don­ald Trump as the US pres­i­dent, par­tic­u­larly in the re­la­tion­ship be­tween the US and Mex­ico.

For Asean, there is a need for greater fi­nan­cial in­te­gra­tion and to trans­form into a stronger en­tity in the form of an eco­nomic union, like that of the eco­nomic union in Europe.

Europe sup­ported its eco­nomic union with a Eu­ro­zone in which coun­tries adopted, with the ex­cep­tion of the United King­dom, a com­mon cur­rency, the euro. That is, EU aims for a po­lit­i­cal union. Whether this will work has yet to be seen. As it is, the UK, through Brexit, has thrown a span­ner in the works.

Whether Asean can be­come a true eco­nomic union in the truest sense of the word re­mains to be seen. Cer­tainly, the mem­ber states of Asean can ex­am­ine and re­fer to sev­eral cases of re­gional in­te­gra­tion schemes as a guide be­fore they em­bark on in­te­grated eco­nomic or­gan­i­sa­tions.

Since we have real-life ex­am­ples of re­gional in­te­gra­tion or­gan­i­sa­tions such as the EU and Nafta, Asean can in­deed dis­cover a form and ar­range­ment that will be more en­dur­ing.

If Joseph Stiglitz’s view in his re­cent book, (pub­lished last year), is any guide, we need to be more cau­tious in es­tab­lish­ing a com­mon cur­rency like the EU’s.

Even Nafta does not have a com­mon cur­rency, thus al­low­ing mem­ber coun­tries to ad­dress eco­nomic crises that may arise from ex­ter­nal im­bal­ances.

Stiglitz says a com­mon cur­rency im­ple­mented with­out es­tab­lish­ing rel­e­vant in­sti­tu­tions, among other fun­da­men­tal rea­sons, may not be able to pro­vide full ben­e­fits of an in­te­gra­tion. Fur­ther, it will lead to in­ca­pa­bil­ity of mem­ber coun­tries to ad­just and over­come eco­nomic and fi­nan­cial crises, par­tic­u­larly if the source of such cri­sis arises from ex­ter­nal deficits given that ex­change rate ad­just­ment is one crit­i­cal in­stru­ment to re­duce ex­ter­nal im­bal­ances.

He says: “While there are many fac­tors con­tribut­ing to Europe’s tra­vails, there is one un­der­ly­ing mis­take: the cre­ation of one sin­gle cur­rency, the euro.

“Or more pre­cisely, the cre­ation of a sin­gle cur­rency with­out cre­at­ing a set of in­sti­tu­tions that en­abled a re­gion of Europe’s di­ver­sity to func­tion ef­fec­tively with a sin­gle cur­rency...”

He adds: “There was con­sen­sus among econ­o­mists that for the sin­gle cur­rency to work, what was re­quired is that there be suf­fi­cient sim­i­lar­ity among the coun­tries.”

This is an im­por­tant ob­ser­va­tion that Asean has to ex­am­ine and re­flect on be­fore think­ing of a com­mon cur­rency ar­range­ment in the event that Asean ma­tures into an eco­nomic union, and later down the road, into a closer po­lit­i­cal en­tity.

Cer­tainly, Asean has to strengthen its in­te­gra­tion by sig­nif­i­cantly re­duc­ing its non-tar­iff bar­ri­ers and en­hanc­ing other ar­eas of fi­nan­cial in­te­gra­tion. It ap­pears that non-tar­iff bar­ri­ers are still preva­lent.

Mov­ing for­ward, it is im­por­tant that Asean be ap­pre­ci­ated, recog­nised and “felt” at the level of the masses or peo­ple so that there is a greater feel­ing or sense of “Aseanness” among us all. As it is, there ap­pears to be lit­tle of this. A reawak­en­ing of that as­pi­ra­tion can be in­spir­ing to the younger gen­er­a­tion.

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