Southeast Asia’s dream of raising living standards to equal advanced economies will stretch for decades and the road will be paved with tough reforms that promise to test policymakers’ resolve.
A senior International Monetary Fund (IMF) official said these countries faced several challenges to raising incomes, among them the need to sustain high levels of infrastructure spending amid funding constraints, and the modernization of job-generating industries.
“No doubt, the process of convergence is a long one; it extends over several decades,” said David Lipton, IMF first deputy managing director, in a speech in Kuala Lumpur.
He said that while some, such as Malaysia and Singapore, were nearing the high-income threshold, most countries in the region were still behind the curve in terms of so-called “convergence” with advanced markets.
Twenty years ago, Malaysia’s per capita income was about $3,500. Now it has risen to $11,000 or near the $15,000 gross domestic product (GDP) per capita required for a country to be called rich. The Philippines’ GDP per capita stands at around $1,600, according to research group Trading Economics.
“Full convergence with advanced economies is a more distant goal for some other Southeast Asian countries,” he said.
Economies in the region are mostly stable and governments have comfortable fiscal buffers. Lipton said countries should use this space to sustain high infrastructure spending.
The Asian Development Bank (ADB) has estimated Asia’s infrastructure needs at $8 trillion over 10 years, of which about $1 trillion was needed by the Association of Southeast Asian Nations (Asean).
“Infrastructure investment can raise potential output and be self-financing when there is substantial slack in the economy. Many countries have the fiscal space to scale up infrastructure investment,” he said.
Another area deserving of policymakers’ focus is the restructuring of economies toward manufacturing away from agriculture. Malaysia, for instance, has 80 percent of its population living in cities and other urban areas.
Thailand, meanwhile, despite its recent manufacturing boom, has a labor share that has been “largely unchanged” in the last decade and a half. At the end of 2012, about a third of the Philippines’ workforce was in agriculture, unchanged since 2010, World Bank data showed. Paolo G. Montecillo