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How fast will 'Baht Economic Zone' expand?

A vendor offers baht bills as change in Luang Prabang, Laos.

LUANG PRABANG, Laos -- Peddlers of the Hmong, a mountainous ethnic group, gather in Luang Prabang, an ancient city in northern Laos, at dusk to sell handmade garments and ornaments at a night market.

     The official currency of Laos is the kip, but the Thai baht is more welcome in the market. I had baht brought from Thailand and negotiated the price of an apron decorated with an embroidered image of mountain life from an 81-year-old female vendor. "Why don't you give me that 20 baht (57 cent) bill, too?" she said cheerfully. And I did, ending up paying more than I expected.

     In addition to Laos, the baht is accepted in Cambodia as well as in parts of Myanmar and Vietnam.

     The stability of the baht is attractive to people in Thailand's neighbors, which have repeatedly devalued their currencies. As neighboring countries import a large number of goods from Thailand, a major manufacturer in the region, many local importers use the Thai currency for account settlements.

     Manufacturers are moving plants from Thailand to its neighbors to capitalize on the abundance of inexpensive labor. At the same time, an estimated 4 million people work in Thailand as migrant laborers.

     While economic ties between Thailand and its neighbors have been strengthened, the baht is serving as a common currency for them.

Varying ties

The economic zone spreading out from Thailand, the so-called Baht Economic Zone, is a scheme proposed by the Thai government in the early 1990s. Without the concept of market integration at that time, Thailand sought to achieve economic unity with its neighbors little by little on the back of its strong economy.

     But trust in the baht vanished at a stroke as the Asian currency crisis struck in Thailand in 1997.

     The Baht Economic Zone ran out of conversation topics. But Thailand, which has recuperated from the crisis, is gradually expanding the baht zone.

     While Thailand bans Thais from taking more than 50,000 baht out of the country, the limit is 500,000 baht as far as its five neighbors are concerned. The greater limit is aimed at promoting the use of the baht in neighboring countries.

     The Association of Southeast Asian Nations will launch the ASEAN Economic Community by the end of this year. The move will favorably affect the Baht Economic Zone scheme because Laos, Cambodia, Myanmar and Vietnam, which have lagged behind other regional countries in removing tariffs, will lift almost all of them in two to three years, contributing to their market integration with Thailand.

     But it is premature to expect that an integrated ASEAN market, with a population of 600 million, will be promptly created after increased use of the baht and the establishment of the AEC. The cautious view is warranted, as ASEAN is an extensive organization that stretches from the Indochinese Peninsula to Indonesia in the south to the Philippines in the east. Economic ties between member states vary.

     According to data compiled by the Japan External Trade Organization, Cambodia and Myanmar have strong economic ties with Thailand. For example, imports from Thailand accounted for 12% of Cambodia's total imports in 2013 and 11% of Myanmar's in 2010.

     In contrast, less than 5% of Vietnam's total imports in 2013 came from Thailand, while 28% were from China. Vietnam has stronger economic ties with China and East Asian nations than with other ASEAN members.

     Imports from the Philippines accounted for a meager 0.4% of Indonesia's total imports in 2014.

     The combined population of Thailand, Laos and Cambodia, which are advancing their economic integration, is less than 100 million. Even if the eastern and southern parts of Myanmar and the southern sector of Vietnam, where the baht is accepted, are included, the population is about 150 million.

     Although the Baht Economic Zone is expanding, it still only covers up to a quarter of ASEAN's population of 600 million.

     The AEC appears likely to expand, with the Baht Economic Zone effectively acting as its core for the time being. But unless the AEC overcomes and reaches beyond such a framework, it will be unable to exercise its huge potential power.

     The AEC can exercise its own merits if its internal alliance is allowed t go beyond a land-based economic zone and across the sea to the Philippines and Indonesia.

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