August 9, 2017 10:00 am JST
ASEAN AT 50: Frederic Neumann

At 50, ASEAN is still punching below its weight

A stronger secretariat would help group build on its stability achievements

It is easy to dismiss the Association of Southeast Asian Nations as another international talking shop. But that would be a mistake. Over the last five decades, the organization has brought stability to a region all too often riven by tension and strife. Few parts of the world are as disparate as Southeast Asia -- a mosaic of religions and ethnicities, fortunes and identities. Yet, for half a century, peace has broadly prevailed and prosperity taken hold. Neither would have been possible without the unique brand of diplomacy that ASEAN has learned to finesse. The journey, however, is far from over. For the region to fully reach its potential, institutions will need to evolve further and hard decisions must be made.

First, consider how far ASEAN has come. It was on a sweltering day in August 1967 when five diplomats, dressed casually in sport shirts and exhausted from three days of talks at the Thai resort town of Bang Saen, signed a 750-word document. The ASEAN Declaration boldly promised the creation of a "prosperous and peaceful community of Southeast Asian Nations".

At the time, these were daunting ambitions. The region, after all, could hardly be called prosperous. True, pockets of development existed even then, but most of Southeast Asia was rural and agricultural, with little industry to speak of. More importantly, conflicts were brewing within and among nations. With the Vietnam War raging, and plenty of local communist insurgencies  across the region, peace seemed a distant prospect. At the height of the Cold War, moreover, Southeast Asians feared being caught up in the rivalry between global superpowers.

The "community," too, was limited, comprising only ASEAN's five founding members: Thailand, Malaysia, Singapore, Indonesia and the Philippines. And that was a bold enough start: Even among the original signatories, some border disputes remained unsettled, and suspicions lingered about the true motivations of neighboring governments. Expanding membership to all of Southeast Asia must have been unthinkable at the time.

Fifty years on, a true community has been built. Membership now includes Myanmar, Laos, Cambodia, Vietnam and Brunei. Armed conflict between individual countries now seems nearly beyond possibility, and governments even assist each other to resolve internal conflicts. The "ASEAN way" of informal diplomacy, featuring meetings and understandings rather than rigorous institutions and wordy treaties, has brought a degree of peace and stability to much of Southeast Asia unimaginable five decades ago.

Aspirations and achievements

Most of ASEAN's economies have prospered beyond expectations. Over the last half-century, despite the occasional stumble, such as during the Asian financial crisis 20 years ago, more people have been able to lift themselves out of poverty in Southeast Asia than anywhere else in the world, barring China. Even today, for all the grumbling about disappointing economic performance, ASEAN remains among the fastest-growing regions on the planet.

Take the Philippines. After decades of stagnation, the economy is roaring again, driven by services exports and, more recently, by a jump in investment. This has lifted growth above 6% without the increase in debt seen elsewhere in Asia. Vietnam, too, is on a roll, having emerged as a manufacturing hub that is starting to resemble China's growth path. Thailand, meanwhile, had has its share of travails over the years, but growth has ticked up of late, buoyed by soaring tourist arrivals. Next door, Malaysia has withstood last year's currency wobble remarkably well, with rebounding investment driving growth above 5% so far this year. Indonesia, the region's largest economy, has also bounced back after the air went out of the commodity super cycle. Singapore has been surprisingly resilient, given that it is more exposed to the global trade malaise than most.

But all this still falls short of potential as well as ambition. The combined gross domestic product of ASEAN, at $2.5tn in 2016 and estimated to reach $2.7tn in 2017 according to HSBC estimates, puts it on track to reach $2.7tn this year. Going by recent growth rates, its size will double in the next 15 years. And ASEAN can reach higher: Full and rigorous implementation of the ASEAN Economic Community agreement would accelerate trade and investment. Freer migration of skilled workers within ASEAN would also help reduce bottlenecks in expertise that is often a major growth hurdle in poorer members with the biggest potential for expansion. After all, Cambodia, Laos, and Myanmar are at the threshold where the right policy mix and neighborly support could unleash a spurt of prosperity.

The speedy implementation of the ASEAN Banking Integration Framework would also spur growth, delivering funding more efficiently to companies and projects with the best prospects, which under ASEAN's still-fragmented financial landscape might otherwise be starved of capital.

 The bloc's large internal market -- imperfectly integrated, perhaps, but nevertheless the third largest in Asia after China and Japan -- is tightly linked with others through a web of agreements and forms the center of a pan-Asian free trade area, the Regional Comprehensive Economic Partnership, now being negotiated. Meanwhile, the ASEAN Economic Community, barely two years old, will over time further dismantle internal barriers to trade and investment, offering scale to local businesses to better take on global rivals while attracting more investment from overseas.

It is an impressive record by any measure. And yet, ASEAN can and should do more. While the organization has accomplished many of its goals over 50 years, it continues to punch below its weight. Economic development is still uneven, markets are not sufficiently connected physically to allow cross-border trade to thrive, progress on regulatory harmonization is halting, and many obstacles remain to realizing the potential of Asia's third-biggest economy. Despite all the initiatives to spur economic integration, the share of intra-ASEAN trade in the region's total shipments has barely changed in more than a decade, stuck below a ceiling of 25%.

More administrative muscle

The challenges the region is facing today differ from those in the past. With peace assured, spurring growth and spreading prosperity have become more pressing tasks. However, for this, the "ASEAN-way" of consensus-driven diplomacy, so effective over the decades in forging the community, may no longer be entirely suitable. Economic integration and development requires a more involved and formal policy process, one that affects every aspect of public life and is no longer the exclusive preserve of diplomats who can quietly come to terms on high matters of geopolitics.

Many countries, however, lack the resources or expertise to engage in sweeping negotiations, let alone swift implementation of issues agreed. Here, the ASEAN Secretariat could play a bigger role. Alas, it remains, by global bureaucratic standards, puny. Its staff, by some counts, numbers less than 500, tasked primarily with channeling information, preparing meetings between officials from member states, and overseeing the implementation of various ambitious agreements, including on the free flow of skilled labor, banking integration, and investment. By contrast, the European Commission in Brussels, though perhaps at the other extreme of bureaucratic generosity and servicing a much larger economy, employs well over 30,000 people.

This is not to argue that the ASEAN Secretariat should evolve into a standard-setting body, with the region developing a set of supra-national laws that supersede domestic ones. ASEAN is not the European Union, nor may it ever wish to be. But more administrative muscle at the region's center could help accelerate economic integration. For one thing, less developed members could draw on the expertise of a deeper bench of technocrats at the secretariat, aiding both negotiation and implementation of common standards needed to unify the region's markets.

In addition, a bigger secretariat would help monitor the progress on policy implementation in various member states, helping to turn promises into reality. Admittedly, the "ASEAN way" may be too deeply ingrained to allow a formal enforcement mechanism: an ASEAN Court of Justice is unlikely to open its doors any time soon, if ever. Still, a secretariat with greater heft and larger offices could offer impartial views on whether commitments have been met, provide a permanent forum to iron out differences, and devise policy proposals that best serve the community.

ASEAN has long looked abroad for economic opportunity. And its embrace of globalization has served it well over the decades. But the external landscape may become more challenging. China's economy, Asia's growth engine, may slow in coming years. Exports to the West, too, are not growing as briskly as they used to. Yet, there is plenty of economic potential to be reaped back home while the global economy heals itself. ASEAN boasts 600 million consumers, has abundant natural resources, its industries span from bioengineering to apparel fabrication, and many services are world class. A bounty of opportunities lies within the region.

ASEAN's challenge is not about lack of vision. It lies in the tedious and complicated task of turning existing templates and treaties into reality. A dedicated, amply staffed and impartial secretariat at the heart of the region is thus needed, as Southeast Asia steps into the next half-century. Only then will ASEAN be truly ready for the title fight.

Frederic Neumann is co-head of Asia economics research at HSBC.

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