Region already a power but successful integration a challenge

The 10 countries in Southeast Asia, if successfully integrated into a single unit, can emerge as the next major political and economic powerhouse, attracting investments from around the world and lifting millions of citizens out of poverty.

The region, known as the Association of Southeast Asian Nations (Asean), led the world in attracting foreign direct investments (FDI) last year.

As a whole, it gets more tourists than France, and exports more electronics than China, which is known as the “world’s factory.”

“Asean as a whole is already a major power,” International Monetary Fund (IMF) deputy managing director Naoyuki Shinohara said in an interview this week. “The potential is huge.”

In an interview with the Inquirer, Shinohara said the region still has a long to-do list. He likewise admitted that Asean’s ambition to form a single economic bloc—where goods, investments, and people can move freely across national borders—would be hard to achieve given the big differences in individual members’ level of development.

However, if successful, economic integration would pay off handsomely, Shinohara said.

“When integration started in Europe, all countries were at similar stages of development. Religions were similar. Cultural backgrounds were the same,” Shinohara said. “Here, income levels are different but that means the gains would be huge.”

Shinohara said the economic growth brought by integration would help raise income levels in all countries in the region.

An integrated Asean also improves its attractiveness to foreign investors, helping create more jobs and closing the gap between the rich and the poor.

Integrating the region of 10 countries, which include high- and middle-income members like Singapore and Malaysia, and countries like the Philippines where a quarter of the population remains poor, would be difficult, Shinohara said.

Inevitably, there would be some losers, Shinohara said, noting that companies that were previously in protected industries would be unable to compete once markets are opened up.

The first order of business for governments would be to strengthen social safety nets that would soften the blow on people, particularly those who stand to lose their jobs.

Shinohara said the Philippines would also need to address “behind-the-border” barriers to investments and trade, most notably, the poor state of the country’s transportation and energy infrastructure.

Although gains have been made in recent years, the Philippines and the rest of Asean should also make cutting red tape and improving customs procedures top priorities.

Aligning customs procedures in all 10 countries would also be necessary if the region wants goods to truly move across borders smoothly.

The liberalization of air travel through a multilateral “open skies” for all major Asean cities, and the implementation of a common visa for the region would also make it easier for businesses to set up offices in several countries.

In the Philippines, Shinohara said Congress should push for the opening up of protected industries.

Under the Constitution, foreigners are not allowed to own more than 40 percent of companies in public utilities such as power distributors and telecommunications firms.

He said while local companies’ profits may suffer, the entry of foreign investors would create more jobs and make industries more competitive—leading to lower prices and better services for consumers.
An integrated Asean, whose members’ economic fates are tied to each other, would also help in keeping the peace in the South China Sea amid a more assertive China, Shinohara said.

“If economic linkages are stronger, it usually means you can’t fight against each other. Asean as a whole will also have a bigger voice on various issues, including geopolitical risks,” he said. –Paolo G. Montecillo, Philippine Daily Inquirer

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