Purisima: No big bang for ‘One Asean’ in 2015

Last of two parts

MANILA, Philippines—The year 2015 is something many people are looking forward to with both fear and excitement. It is the year when members of the Association of Southeast Asian Nations (Asean) become a single bloc—the Asean Economic Community (AEC).

The AEC is envisioned to be a region where goods, services, investments, skilled labor as well as capital may freely flow, turning the community into an economic powerhouse of 600 million people and with a combined gross domestic product (GDP) of close to $2 trillion.

“One Asean” will become the third-most populous region, and the seventh-largest economy in the world. It was a key theme of last week’s World Economic Forum (WEF) on East Asia hosted by the Philippines.

“We’re excited about the future of the Asean … but there isn’t going to be a big bang [in 2015],” Finance Secretary Cesar Purisima said during a WEF luncheon hosted by Indonesia’s Lippo group on Friday.

The members of the Asean “must not lose sight of the potential, but also be aware of the challenges, and make sure that in our respective domestic policies, we must not go for the easy solutions.”

In integration, there will be winners and losers,” Purisima said. “But I would like to take the view that there would be more winners than losers, therefore, we must not create policies that would benefit the few at the expense of the many.”

Single market

If the AEC road map were to go as planned, the 10-member Asean would have formed a single market and production base by next, becoming a “highly competitive” region marked by “equitable” economic development and fully integrated into the global economy.

There are 12 “priority” sectors identified in the road map: agro-based products, air travel, automotive, “e-Asean,” electronics, fisheries, healthcare, rubber-based products, textiles and apparel, tourism, wood-based products and logistics, as well as the food, agriculture and forestry sectors.

The so-called “e-Asean” is a framework that will allow the AEC to function using the latest in digital technology. The framework contains six elements: connectivity, local content, a seamless environment for electronic commerce, a common marketplace for ICT (information, communication and technology) goods and services, human resource development, and e-governance.

“The key takeaway is that the forum validates the fact that Asia-Pacific will lead global growth in the next 100 years,” said David Leechiu, international director and country head of property consulting firm Jones Lang Lasalle in the Philippines.

But Leechiu, one of the business leaders who attended the WEF summit, went on to ask the more pertinent questions concerning the AEC: “Will our country evolve, adapt, to ensure we maximize the opportunities available? Will we have the political will to effect change to open up the Philippines to the global market? Will [President Aquino] make this happen? Will the next president?”

Disparity

The task at hand is how to get more out of the unification, said Jaspal Singh Bindra, group executive director for Asia at Standard Chartered Bank.

“I think the intent is there, but given such a disparity between the constituents of the Asean, it is very difficult to get the same resource and commitment,” he said in an interview.

While it’s not going to be easy, Bindra said, the Asean would at least benefit from the hindsight provided by the European Union experience.

“So clearly they are not chasing the dream of the currency and monetary union. But I think there’s clear intent [to integrate] and that’s important,” he added.

Among the Asean members, Singapore and Brunei are way ahead of the others in terms of per capita GDP. Then there are the middle-income economies like Indonesia, Thailand, Malaysia and the Philippines. There are also the newly opening economies of Burma (Myanmar), Laos and Cambodia, as well as Vietnam, which is fast catching up with its middle-income neighbors.

One challenge

“I think one challenge is managing expectations about what One Asean is going to deliver by 2015. The wrong thing would be to expect a big bang,” said John Pang, a visiting scholar from New York University Stern School of Business and former chief of CIMB Asean Research Institute.

Pang, who has spent a lot of time working on the Asean integration agenda, said that what could be feasible by 2015 would be some acceleration of pace.

“The challenge is to find a project that will really set it off—some sort of a low-hanging fruit, some sort of beachhead that will really give people an opportunity to say ‘this is really what integration means,’” Pang said.

A potential catalyst may be a simple common electronic card system to facilitate the immigration process among Southeast Asians, Pang said.

“Once people start to feel that, then we’ll make progress because the Asean doesn’t have the institutional muscle, and the governments don’t have the appetite to [exert] … that muscle. What they need to do is to rely on informal means, on initiatives, on smart ideas,” he explained.

Imperatives

But all the talk about the looming Asean integration only underscores the Philippines’ shortcomings—how much more work it needs to do to sustain its momentum in the face of a changing and more challenging regional structure.

“We may talk about the soft power of the Philippines but there’s no substitute for hard infrastructure. We have to build. We have to build fast. We have to build plenty,” said Guillermo Luz, cochair of the National Competitiveness Council representing the private sector.

Purisima acknowledged the need for the country to boost investments in infrastructure and build up financial markets, enabling the Philippines to tap sources outside the usual western capital markets.

The upcoming integration may also require huge investments in human capital. Purisima noted that education would be the key to making sure that hundreds of millions of people in the countries become productive participants in the integrated Asean market.

“I don’t think we will be able to harvest demographic dividend of faster growth, more vibrant labor market, without investing in the people,” Purisima said.

On the part of governments, Purisima said the Asean must create a common customs border to build trust and confidence among member-states. Like tariffs, cross-border processes are effective trade barriers.

Unifying standards

Purisima also cited the need for the Asean to further harmonize its standards, allowing for freer movement within the integrated market.

Purisima also urged the Asean economies to trade more among each other in order to reduce the region’s dependence on foreign export markets. Intra-Asean trade is now estimated at only 25 percent of the region’s total volume, comprising mostly intermediate goods and raw materials.

Purisima said Asean economies must increase the trade of finished consumer goods, considered to be of higher value, across the region.

“Ours is a big enough market, especially if we empower our people,” he explained.

Also, there are many who advocate safety nets for the country’s small and medium enterprises (SMEs).

Small traders left out

While the local big boys like SM, Ayala, Alliance Global Group, San Miguel Corp., Universal Robina Corp. and the group of Lucio Tan have been preparing for the integration, and some may already be engaged in cross-border businesses, the small traders appear to be left out.

“The big companies have the advantage…. But I think they may not take all the boxes in 2015. As they move to common listing rules, freer movement of labor, open skies, common visa, a lot of these countries will benefit from things like tourism, which will be a huge positive for the smaller nations,” said Bindra of Standard Chartered.

“But SMEs, I think, will have to wait for more widespread inclusion for things to be implemented. They will take a little bit longer than the larger companies,” he said.

What is clear is that, even though obstacles still abound, this game-changing union will happen soon.

“The integration of Asean is not preordained. The [member] countries must make it happen,” Purisima said.

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