Officials at the World Economic Forum on Asean in Phnom Penh, Cambodia. Asean is moving towards forming an economic union to enhance ties among member states. EPA PIC

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, The Euro (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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