ASEAN Roundtable Series on ASEAN Vision 2040: The imperative of collective leadership, ASEAN integration and centrality in uncertain times

Published on 17 September 2019

SPEAKERS

Dr. Donald Hanna

Chief Economist, CIMB Group

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Dr. Donald Hanna has an insightful blend of both global perspective and local ASEAN experience in analyzing global macroeconomic and policy developments, having done his first work on ASEAN while still in graduate school. He began his professional career with the World Bank working in Washington DC and Jakarta, Indonesia. He has managed macroeconomic teams for Goldman Sachs and Citigroup, ending his stint with Citi as their Deputy Chief Economist. In addition to sell-side experience, Dr. Hanna has worked on the buy-side providing macro and market views to risk takers at two hedge funds. He has also set up and managed an independent, Asian-focused macro research office.

Dr. Hanna is a Fulbright Scholar, and has a PhD in Economics from Harvard University and a BA, summa cum laude, in Economics and Spanish from the University of California at Berkeley. He is also a member of the Advisory Board of the Centre for Applied Macroeconomic Analysis at Australia National University and the Asian Development Bank’s International Advisory Group. He is fluent in both Spanish and Bahasa Indonesia.

Prof. Fukunari Kimura

Chief Economist, Economic Research Institute for ASEAN and East Asia

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Fukunari Kimura is the Chief Economist for Economic Research Institute for ASEAN and East Asia (ERIA) and Professor, Faculty of Economics, Keio University. He was born in Tokyo in 1958. He received his Bachelor of Laws from the Faculty of Law, University of Tokyo in 1982. He then received Master of Science and PhD titles from the Department of Economics, University of Wisconsin-Madison in 1990 and 1991, respectively. He worked for the Department of Economics, State University of New York at Albany as Assistant Professor in 1991-1994, and in the Faculty of Economics of Keio University as Associate Professor in 1994-2000. In particular, he has recently been active in writing academic/semi-academic books and articles on international production networks and economic integration in East Asia.

Lydia K. Ruddy

Director of Communications, Economic Research Institute for ASEAN and East Asia

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Lydia Ruddy is the Director of Communications for the Economic Research Institute for ASEAN and East Asia (ERIA), an international organization based in Jakarta. With over 20 years of experience, she has worked at the nexus of the public and private sectors focused on development from the local to the international level. Fluent in Indonesian, she has spent over 10 years advising Indonesian and International businesses and organizations on strategic planning, communications, sustainability and policy issues. Prior to ERIA, she served as Advisor to the Chairman of the Indonesian Chamber of Commerce and Industry where she managed public relations, hosted foreign delegations, researched special topics, and wrote the Chairman’s speeches. Trained in Law (J.D.) at Georgetown University and Urban Planning and Geography (M.U.P, A.B.D.) at the University of Washington, Ms. Ruddy has lived and worked in Indonesia since 2006 when she came as a Fulbright scholar to research private investment during Aceh tsunami reconstruction. Clients and employers have included USAID, ADB, Save the Children, private equity firms, forest products (paper and timber) companies, and business advisory consultants. Before coming to Indonesia, Ms. Ruddy’s career focused on legal practice, real-estate development and land conservation on the West Coast of the United States.

Tan Sri Dr. Munir Majid

Chairman, CIMB ASEAN Research Institute President, ASEAN Business Club

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Tan Sri Dr. Munir is currently Chairman of CIMB ASEAN Research Institute, of Bank Muamalat Malaysia Berhad, of the Financial Services Professional Board, of ASEAN Business Advisory Council, Malaysia, as well as President of the ASEAN Business Club. He is a member of the Economic Action Council chaired by the Prime Minister of Malaysia. He also sits on the board of the Institute of Strategic and International Studies (ISIS) Malaysia. He is an active advocate of deeper ASEAN economic integration.

He has an extensive experience and is well known in the Malaysian corporate world. He had been the Group Editor of the New Straits Times, first executive chairman of CIMB and founding chairman of the Malaysian Securities Commission. After stepping down from the Securities Commission, he became Independent Non-Executive Director of Telekom Malaysia Berhad, Chairman of Celcom (Malaysia) Berhad and Non-Executive Chairman of Malaysian Airline System Berhad. He was Founder President of the Kuala Lumpur Business Club, established in 2003 and is a member of the Court of Fellows of the Malaysian Institute of Management.

Tan Sri Dr. Munir obtained a B.Sc (Econ) and Ph.D in International Relations from the London School of Economic and Political Science (LSE) in 1971 and 1978. He is an Honorary Fellow of LSE and continues the long association with his alma mater as Visiting Senior Fellow at the Centre of International Affairs, Diplomacy and Strategy. Tan Sri Dr. Munir is an associate of Southeast Asia Centre (SEAC) at LSE.

CARI Viewpoints: Changing externalities including great power rivalries, regional competition, and technological developments means ASEAN must chart a new vision to guide the bloc towards 2040

The CIMB ASEAN Research Institute (CARI) in collaboration with the Economic Research Institute for ASEAN and East Asia (ERIA) organised an ASEAN Roundtable Series (ARS) on 26th July 2019 in Kuala Lumpur. The ARS was held in conjunction with the launch of the ASEAN Vision 2040 report by ERIA, which looks at strategies to guide ASEAN for the coming decade in light of major external issues including the US-Sino tensions, rising competition from economies such as China and India, and rapid technological development.

Titled ‘ASEAN 2040: The imperative of collective leadership, integration and centrality in uncertain times’, the roundtable looked into how ASEAN can enhance policy capacity and coordination, implement internal institutional changes, and engage with outside partners to ensure ASEAN’s growth and regional centrality. To bring clarity to such complex issues, the roundtable featured eminent speakers such as Professor Mari Elka Pangestu, former Minister of Trade for Indonesia and currently Professor of International Economics at the University of Indonesia; Dr. Donald Hanna, Chief Economist of CIMB; and Professor Fukunari Kimura, Chief Economist for ERIA.

Moderating the roundtable was Tan Sri Dr. Munir Majid, Chairman of CIMB ASEAN Research Institute (CARI), President of the ASEAN Business Club, and member of Malaysia’s Economic Action Council chaired by the Prime Minister.

Presentation of ASEAN Vision 2040

Lydia Ruddy, Director of Communications at ERIA first presented the key messages put forth in the ASEAN Vision 2040 report. Lydia referenced guiding themes of the research namely: 1) striving for an inclusive ASEAN, 2) making ASEAN vital to the lives and livelihoods of its peoples, and 3) ASEAN’s future may be diminished if the bloc fails to deliver.

Lydia noted that ASEAN is facing numerous challenges including a realignment of geopolitics, the Fourth Industrial Revolution, and rapid digital transformation. More than ever, ASEAN should strive towards a plural global order characterised by free trade. With this in mind, the ASEAN Vision 2040 is built upon seven foundations:

With these in mind, Lydia laid out the three areas which ASEAN should prioritise for the coming decade:

1. Collective Leadership: since no single Asian country can lead due to diverging interests, stability in Asia must come through multilateralism and collective leadership. This could be achieved through:
   • Shared commitment to multilateral principles.
   • Consensus-based decision-making.
   • International norms and rules.
2. ASEAN Integration and RCEP: integration will strengthen ASEAN’s regional influence and global voice. The Regional Comprehensive Economic Partnership (RCEP) is key to deepening the integration process, and remains the only multilateral pushback against the present rise of protectionism. RCEP has significant political-security payoff and provides a mechanism through which ASEAN can manage relations with larger powers.
3. ASEAN Centrality: ASEAN serves as a platform for regional cooperation and the buffer to managing great power relations. In order to achieve regional centrality, ASEAN must work towards a single market and production base, implement the Code of Conduct on the South China Sea, and partner with middle powers like Australia and the Republic of Korea.

In conclusion, enhancing policy capacity and cooperation on these three strategic priorities can help ASEAN manage the rapid changes underway. There is now a need for greater creativity, complementarity and connectivity on the part of the bloc.

Taking advantage of new technologies for economic development in ASEAN

Professor Fukunari Kimura, Chief Economist of ERIA presented on the impact of new technological developments on ASEAN’s future economic growth.

• He believes that technological development will allow ASEAN countries to capture more value add within global value chains and expedite their involvement in the international division of labour. New technologies will allow ASEAN countries to deepen their involvement in regional production networks, while also involving themselves in the development of cross-border outsourcing of the services industry.
• According to Professor Kimura, new technologies should be embraced for economic development without fear of backlash. ASEAN Member States (AMS) should seek a good combination of information technology (IT) and communications technology (CT) to promote sustainable and inclusive growth. He points out that perceptions of new technologies differ between developed and developing economies.

• He states that the digital revolution can be broken down into Information Technology (IT) and Communications Technology (CT):

• As Professor Kimura notes, the free flow of data should be utilised as a benchmark with supporting policies implemented, while also addressing issues around personal privacy.

• Discussing the implications of new technologies for developing inclusive growth, Professor Kimura notes that IT affect middle-range human capital firstly over low and high human capital. With regards to CT, he argues that CT platforms can be utilised by almost everyone, including MSMEs.

Trade and development amidst disruptions: implications for ASEAN

Professor Mari Pengestu, former Minister of Trade for Indonesia and currently Professor of International Economics at the University of Indonesia, presented on trade and economic development for ASEAN amidst an external environment characterised by rising protectionism and a drawback from globalisation.

• She started by contextualising ASEAN’s present economic situation, noting that ASEAN countries are at different levels of economic development and demographic composition. For instance, while Singapore is an ageing nation, Indonesia is still a very young nation which can still tap into its demographic bonus. Nonetheless, all ASEAN countries must address these challenges for the next stage of development:
  1. Least developed economies: is an export-oriented industrialisation strategy still an option at this point? Or is there a possibility of leapfrogging to the digital economy?
  2. Countries at the middle level of development: have they hit the limits with regards to export-oriented industrialisation? They will have to deal with the maturation of the global value chains (GVCs), disruptions caused by the trade war, and the rapid development of the digital economy.
  3. More developed countries: how to get out of the middle-income trap, as well as find new sources of growth (looking beyond GVCs and into the services sector, new technology etc).
      

• ASEAN countries will be encountering these challenges at a time of great disruption and uncertainty, namely with present issues including trade and geopolitical tensions, technological disruptions and development, and climate change.
   
• In what Professor Mari describes as ‘The New Normal’, she discusses how 2016 was a watershed year with the Brexit vote in June and the election of Donald Trump later in November. We have observed increased protectionism and nationalistic policies being implemented in many major economies due to concerns over inequality and its supposed ties to globalisation, as well as notions of ‘unfair’ trade vis-a-vis China.
   
• Washington’s current disinterest in defending the public good of the present global economic order has been a major disruptor. This was seen in Washington’s decision to exit the TPP and the ongoing US-China trade war. Professor Mari pointed to Japan as a possible alternative in championing the public good in the stead of the US.
   
• Professor Mari believes the ongoing trade war will not be resolved anytime soon, due to both bipartisan support for Trump’s current policies toward China and the emergence of nationalists and reformers factions within China itself. The causes of the current trade tensions can be summarised as such:

• Professor Mari notes that for many Pacific economies, protectionism and trade tensions were ranked the highest risks for their economies over the next two to three years:

• A Mckinsey survey from September 2018 also found that uncertainty in trade policy is the largest concern facing business executives over the next twelve years:

• Although Professor Mari acknowledges that certain ASEAN countries such as Thailand, Malaysia, and Vietnam may benefit from the trade war in terms of providing substitute exports to the US in lieu of China, she believes these gains will be short term. GVC linkages to China will put downward risks to ASEAN countries due to slower Chinese exports.
• Professor Mari believes that ASEAN must respond by seizing the opportunities. ASEAN countries should seek to exploit the immediate opportunities for export diversification and investment relocation, and pro-actively invite investments into their countries. They should also seek to implement domestic reforms, including labour policies, trade facilitation, and investment policies. ASEAN will also need to find a way to balance China and the United States without having to ally with either. Mari warns of the ‘double-edged sword’ of increasing exports to the US; using examples of Vietnam and Indonesia of how the US views the concept of trade deficits and ‘unfair’ trade.
• Professor Mari ultimately advocates a ‘three-pronged approach’ for ASEAN to navigate the current external environment.

• Professor Mari also pointed out that regional agreements are still important in ensuring stability and predictability of trade policies in countries involved, continued market expansion, and openness. She notes that past experiences in unilateral reforms have been done in the framework of regional and unilateral commitments. Regional agreements can also provide a forum to discuss issues not yet mentioned in the WTO.
• Professor Mari notes there are presently different pathways for broadening and deepening regional integration and with major trading partners outside ASEAN, including the RCEP, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Belt and Road Initiative.

Cybersecurity and China’s slowdown

Dr. Hanna opened his speech by admitting that the rise of protectionism around the world was in part because economists were for too long focused on the power of the market to the detriment of the responsibility of the state to address inequality.

• Discussing the current trade war, he believes the current course being pursued by the Trump administration makes little sense as they are focusing on bilateral indicators like the imbalance in the current account deficit without accounting for the fact that the US is not saving enough. As such, he doesn’t think that current contractionary policies being pursued by the Federal Reserve will be effective.

 

• Touching on Professor Mari’s previous points about the US-Sino rivalry over technology, Dr. Hanna believes that there are real national security concerns associated with the Chinese telecom company Huawei from Washington’s perspective. He points to China’s 2017 cybersecurity law, which requires Chinese companies to submit data to state authorities on demand. In the US, in contrast, access to data requires approval from a court.

 

• He challenges Professor Mari’s argument that the biggest risk to the growth of Pacific economies will be increased protectionism. Instead, he posits the inevitable slowdown in China’s economy will present a larger challenge to the region’s growth. While a slowdown will have political implications for China owing to the country’s unique social contract, he also believes it might push Beijing to be more cooperative with the US.

CONCLUSION

In conclusion, ASEAN is entering an era where global norms are being disrupted due to the rise of populism, shifts in the global economy, and rapid technological development. As such, it is incumbent on ASEAN to reconceptualise its vision to guide the bloc over the next two decades. This will include adopting new technologies without fear to further deepen the bloc’s involvement in regional supply chains, as well as promote inclusive and sustainable growth. ASEAN will need to reemphasise its centrality in regional architectures in light of the ongoing US-Sino tensions to maintain the bloc’s integrity and maintain regional stability.