From Covid-19 containment to economic cure: An action agenda for Asean

THE 36th Association of Southeast Asian Nations (Asean) Summit will take place in Vietnam on June 23 against the backdrop of severely damaged business and investor confidence caused by the coronavirus disease 2019 (Covid-19). Containing and mitigating the spread of the pandemic is the current priority of all Asean member-states, with concerted efforts to shore up public health systems.

As countries around the world debate how quickly they should reopen their economies after lockdown, some Asean countries, like Vietnam, are largely ahead of the curve. A nationwide physical distancing campaign that shut down non-essential businesses ended on April 22 in Vietnam, and life has returned to a striking normalcy within a month, with no reported coronavirus infections in that period. Domestic tourism is slowly picking up, as authorities ease physical distancing regulations on planes, trains and buses. As a result of decisive actions on timely travel bans, cluster testing and prolonged quarantines, Vietnam has seen a tiny number of confirmed Covid-19 infections. In early April, the Vietnamese government also announced a $2.6-billion relief package aimed at 20 million people, which included cash transfers to those considered poor or vulnerable.

Similar containment and recovery strategies are being taken up by other countries, as they are unveiling economic stimulus packages of unprecedented size, scale and scope. But these actions also come with a huge and unavoidable economic cost. While many face loss of life, a great many face a loss of livelihood. Companies face a loss of income across all sectors. Many of them are already downsizing and laying off workers. A deep recession is unavoidable. Economists predict that this pandemic is a systemic economic challenge of much greater gravity than the 1997 and 2008 financial crises, and the impact is expected to last longer.

Serious flaws

While the individual countries are making strenuous efforts to successfully contain the pandemic, there are serious flaws in international cooperation strategies. Since the discovery of Covid-19 in December 2019, countries have acted in almost complete isolation from one another. It was not until March 25 that the United Nations (UN) launched a $2-billion global response plan to fund the fight against the pandemic. It is unclear how the Asean as a bloc either endorsed the UN plan or is benefiting from it. On April 14, the Asean Plus 3 leaders’ meeting committed to establish an Asean Covid-19 Response Fund, but the details and composition of individual contributions have yet to be defined. Global financial institutions like the International Monetary Fund, World Bank and Asian Development Bank have economic cooperation instruments, but they often include restrictive bilateral conditionalities to be dealt with by countries individually. It is hoped that more globally coordinated action by the Group of 20 will be undertaken as Covid containment strategies become successful.

Covid-19 containment measures like lockdowns, physical distancing, international air travel bans and limited freight transport are enacted based on contagion rates of individual Asean countries and the capacity of their health care infrastructure. The announced unemployment subsidies vary from country to country depending upon their fiscal space, as with the export ban on important commodities. Migrant laborers living in heavily infected countries are banned from traveling.

In the past two months, epidemic borders replaced physical borders between Asean countries, resulting in economic silos. This scenario represents the collapse of the “One Community, One Response” vision. Given the range of developmental stages and infrastructure gaps, adoption of these country-specific measures is understandable. However, it is myopic, unsustainable and potentially counterproductive. If the virus is not eradicated in every country, all will lose, because sooner or later, the disease will reappear and thus prolong the economic meltdown. An economic crisis caused by a virus that ignores borders cannot be tackled successfully like this. Asean works when individual countries think about each other.

Three goals

Asean can defeat this invisible adversary and lessen the adverse economic impacts with sound regionally coordinated actions and strong leadership. To succeed, the forthcoming Asean Summit in Vietnam needs to a achieve at least three important goals.

First, Asean leaders must show that they can work together to implement a well-coordinated regional plan announced during the Special Summit held on April 14. While deep-seated differences among the countries remain, it is important for the leaders to focus on coordinating actions to save lives and jobs. Such actions include sharing successful test results of any drug and vaccine so that their production and supply can be scaled up quickly to meet the regional and global demands.

Second, Asean can show leadership in stimulating the global economy by quickly rolling back trade restrictions imposed during the pandemic and concluding the Regional Comprehensive Economic Partnership (RCEP). Experience in the past three years shows that tariffs can slow global economic growth. On the other hand, concluding RCEP negotiations will help revive business confidence and stimulate growth — a needed shot in the arm for the global economy at this juncture of the pandemic.

Last but not least, Asean leaders need to offer a coordinated and synchronized fiscal stimulation plan, substantially bigger than what the 10 member-countries have already announced. Both monetary and fiscal stimulus should be designed to fight long-lasting worldwide recession and to keep Asean production networks alive. Stimulus measures can also be an opportunity to invest in economic transformation and technological innovations that are necessary to deliver sustainable development. Both the short-term and long-term stimulus measures should aim at achieving the multiple purposes of delivering economic prosperity, increasing well-being, enhancing resilience, strengthening digital economy and decarbonizing growth.

Environmental impact

The commitments described above will certainly improve business and investor confidence in Asean’s ability to navigate through the unprecedented pandemicinduced economic challenges. While different Asean countries have varying industrial and financial structures, the only effective way for the recovery at national levels is to fully mobilize their entire financial system: bond markets, banking systems and in some countries even the pension systems. In developing immediate, short-term, sector-specific and macroeconomic policy responses to Covid-19, Asean member states should systematically evaluate possible negative environmental impacts of new shortterm fiscal and tax provisions.

The use of financial support measures such as preferential loans, loan guarantees and tax abatements could support the transition to a low-carbon circular economy and enhance the resilience of production systems. The trade and investment plans associated with recovery will be crucial for Asean member states to achieve global commitments such as the UN Sustainable Development Goals and the Paris Climate Agreement by 2030. Building on what has been announced, member states should strengthen the functional effectiveness of the Asean Agreement on Disaster Management and Emergency Response by enhancing budgetary support.

At the same time, the Vietnam summit should also ensure that all Asean dialogue partners are committed to the above goals and their development aid budgets remain dedicated, but enlarged, and not diverted to domestic priorities. This is where true humanity and solidarity must be demonstrated. If an enhanced regional cooperation and strong leadership were ever necessary in Asean, it is now more than ever before.