THE Covid-19 pandemic has hit Asean hard. For a region that depends heavily on international trade and tourism, the pandemic has tested the resolve of Asean as a community. Businesses have to close and regional supply chains grind to a halt. A recession for Asean means many years of building up the business sector and consumer confidence again.
Among the challenges, weak macroeconomic fundamentals. Asean figures in 2018 show that many members have sizeable debts (more than 30 per cent) as a proportion to their gross domestic products, which makes them vulnerable to external shocks and less financial firepower to weather the Covid-19 storm.
Asean currencies are also depreciating rapidly against the dollar, and the capital outflow out of the region is a cause of serious concern. Some economists are even suggesting Asean countries should adopt Quantitative Easing (QE), just like what the United States did, and what the European Union and Japan are still currently doing.
But, just as it has done to economies in the EU and the US, QE has led to excessively low bond yields, spectacular falls in bank shares and severe income inequality in these countries, the latter of which has led to the rise of populism in Europe and the US that we see today.
Asean has progressed very well on many fronts; tariff barriers coming close to zero through the Asean Trade in Goods Agreement, the 10th and final package of services liberalisation under the Asean Framework Agreement on Services is finally being concluded, the utilisation of the Asean single window and many others.
But it is still far from achieving a single market. Its non-trade barriers (NTBs) are still a hindrance to intra-regional trade. While tariffs are reduced to almost zero, NTBs have spiked from around 2,000 in 2015 to about 9,000 last year, and in the absence of a customs union, it is difficult for international investors to treat the region as a single market.
So, can Asean prevail as a community in 2025? It has a very strong chance, but it needs to make up for lost time and steer in the most realistic direction. Here are four recommendations:
SUNSET law. Economic nationalism and infant industry protection are similar, but vastly different in intent and purpose. All policymakers need to do then is to implement a "sunset law" to enforce a period or milestone calendar on their protected industries and monitored closely by the Asean Secretariat. This should not be a punitive law, but towards encouragement.
INVESTMENT and financial integration. Since it is in the interest of Asean that members develop their economies to a certain agreed standard, the focus of the Asean secretariat should be on investment and financial integration as a matter of priority, rather than an overemphasis on goods, services and persons.
The Asean Trading Link must be revived for unfettered cross-border investments. And this is not just for Malaysia and Singapore, but for the whole of Asean. It is futile to expect integration of an economic community between countries with different economic destinies.
REVITALISE the Asean Swap Arrangement (ASA). Covid-19 and other pandemics will continue to test Asean's financial resilience as a community. But sole reliance on multilateral swap arrangements such as the Chiangmai Initiative Multilateralisation will greatly undermine Asean's own financial cooperation and expose it to the dictates of multilateral institutions, such as the International Monetary Fund, through Asean's +3 partners.
Asean should revitalise ASA, which was established in 1977, since members now have a combined international reserves position of more than US$900 billion. At least US$50 billion can be used to set up an emergency Covid-19 fund. QE should always be seen as a last resort when all else fails.
DEVELOPMENT over integration. Rather than textbook economic integration measures, Asean should focus instead on development road maps for each member. Asean secretariat therefore assumes a central role as coordinator of developmental progress, prompting members to shift their attention inwards into improving their own models and structures, before reaching outwards for integration.
The first step towards economic integration is always to realise that the whole is greater than the sum of its parts. Asean will only truly move forward as a strong community when it sheds its individual interests and embraces the collective, and the promising future it brings.
The writer is Executive Director, International Strategy Institute (ISI), a not-for-profit organisation that helps connect governments and businesses across Asia and the world
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times