2011 Sep 27
September 27, 2011

Narrowing the gaps in Asean

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After more than four decades of conscious efforts for greater integration of their economies, the five original members of the Association of South East Asian Nations (Asean)—Indonesia, Malaysia, Philippines, Singapore and Thailand—find their economies no closer to each other than they were when they first formally got together in 1967. It was hoped then that by banding together, they could pull each other along on the road to development, thereby narrowing the disparities that existed among them at the start of the union.

Income disparities were large when the association began. In 1970, three years after the association’s birth, the richest member country then (Singapore) had an average income (measured in US dollars at prevailing exchange rates) more than 11 times that of the poorest member (Indonesia). Twenty years later (in 1990), this ratio had grown to almost 19 times, and in another 10 years (2000) had further ballooned to 29 times. Fortunately, this gap between the richest and poorest of the first five members (also known as Asean-5) dramatically narrowed back to 14 times by 2010—although it was still worse than when the group started. By this time, the Philippines was already the poorest among the five; Indonesia managed to overtake us in recent years. Obviously, part of the reason for the relative changes through time was differences in the countries’ exchange rate movements versus the US dollar. Still, the general picture that emerges is that of an income gap that has not improved in four decades of Asean’s existence.

The disparity is more glaring when reckoned across all 10 present members (Asean-10). In 1990, the richest of the group (Brunei) had an average income 201 times that of the poorest (Myanmar). By 2000, Singapore, which had retaken the lead from Brunei, had 129 times the average income of Myanmar, still the poorest. This gap further narrowed to 62 times by 2010. Comparing between the first six members (Asean-5 plus Brunei) and the last four (Cambodia, Laos, Myanmar and Vietnam or CLMV), the absolute income gap between the two groups continuously widened through the decades since 1970. This gap had also widened in relative terms (i.e., as a ratio) up to 1990, but has since narrowed. This suggests that the CLMV countries’ entry into Asean in the 1990s helped reduce their relative income gap with the richer Asean-6. Still, the relative gap remains wider than it was in 1970.

There is similar wide variation in the poverty situation across the region. In Cambodia and Laos, more than 25 percent of the population lives on less than $1.25 per day. This sharply contrasts with Malaysia, Thailand, Singapore and Brunei, where absolute poverty by this measure is now either non-existent or very slight. Interestingly, despite higher average income in the Philippines compared to Vietnam, we have much higher poverty than the latter, indicating that our income distribution is worse than Vietnam’s. Indonesia, as mentioned above, recently surpassed the Philippines in average income, and enjoys lower poverty incidence and better income distribution as well.

The wide income disparities in the region translate directly into similar disparities in infrastructure. The Asean member countries may be divided into three groups according to level of infrastructure development. The first group, possessing the most developed infrastructure, includes Brunei, Singapore and Malaysia. The second group, with fairly developed infrastructure, would include Thailand, the Philippines and Indonesia. The last group whose members possess poorly developed infrastructure are the CLMV countries, although Vietnam has made rapid progress in recent years. A good indication of the wide infrastructure gaps is the wide variation in access to telecommunications and the Internet. In 2008, cellular phone density ranged from a low of 9 to a high of 1,404 units per 1,000 persons, corresponding to Myanmar and Singapore respectively (the Philippines had 810). Internet access ranged from 2 to 750 per 1,000 persons, also for Myanmar and Singapore (the Philippines had only 62). Energy and transport facilities likewise vary widely across the region.

Income gaps within the Asean countries have also been wide. Interestingly, the data show that the richer countries of Singapore, Malaysia and Thailand now show the worst income distributions in the region, while the poorer countries like Laos, Vietnam and Indonesia show superior income distribution. All this points to economic growth that benefits few, particularly in the more advanced and more dynamic economies in the region. This highlights the need for more deliberate efforts to ensure that economic growth proceeds on a broader economic base and with more widely dispersed benefits than has occurred so far.

What needs to be done? Pushing for wider small and medium enterprise sectors is a key strategy. Strong competition policies—i.e., policy environments that outlaw or limit anti-competitive practices and exercise of monopoly power—also need to be in place; only Indonesia, Singapore, Thailand and Vietnam have it so far. More government spending on health and education are proven to help bring about more equitable growth. Across Asean, the need is to interconnect the economies more closely through more complementary economic relations, infrastructure and institutional linkages, and people-to-people contacts such as through tourism and academic exchange programs. If Asean is to be the strong force it aspires to be in the global community in the years ahead, it must work on narrowing the gaps that persist among and within its members. –Cielito F. Habito, Philippine Daily Inquirer