Geopolitical stability and reducing inequality essential for ASEAN economic growth

Participants at the World Economic Forum on East Asia were told that the fundamentals for growth in ASEAN are strong. Its young population, natural resources, rising consumption, and proximity to China, among other factors, have positioned it to be an engine of growth in the future. However, there are a number of barriers to unlocking this economic future: disagreements related to the South China Sea, as well as political unrest in Thailand, demonstrate the potential fragility of this outlook.

“We need regional stability and peace. From an investor’s point of view, that is number one”, said Victor L. L. Chu, Chairman and Chief Executive Officer, First Eastern Investment Group.

Many ASEAN nations face a similar set of challenges, including improving infrastructure, investing in education and streamlining regulations. Developing both hard infrastructure – such as ports, roads and airports – as well as “soft” infrastructure of developing the region’s labor market could increase economic connectivity within ASEAN. According to Anthony F. Fernandes, Group Chief Executive Officer of AirAsia, Malaysia, “the potential of the ASEAN economic community is massive”.

Unlocking this potential requires reducing not only formal regulatory obstacles to free trade but also “invisible” barriers, Fernandes noted. Recently, the Philippines has focused on reducing corruption and improving good governance as one strategy for improving its economic outlook and connectivity within the region. “The story of the past four years is a comeback story,” said Cesar V. Purisima, Secretary of Finance of the Philippines. “Governance is the most important ingredient.”

Indonesia has also undergone challenging political and economic reforms, such as reducing fuel subsidies and increasing interest rates. Muhamad Chatib Basri, Minister of Finance of Indonesia, said: “The first thing we need to do is ensure the political stability.” Next, he argued, the nation’s focus has been infrastructure.

A lingering challenge to long-term growth is persistent income inequality. “Income inequality has been getting worse across the world for the past 30 years,” said Lee Il-Houng, G20 Sherpa, Ambassador for International Cooperation, Ministry of Foreign Affairs of the Republic of Korea. He noted that these structural problems demand major systemic reforms. On the supply side, there is a need for innovations in improving energy efficiency, and on the demand side, Lee referred to the need to strengthen the region’s middle-income populations.

The recent unrest in Thailand raised questions about the risks of investing in the region. Participants noted that this instability suggests the need for greater ASEAN integration so that companies and communities alike can relocate more easily and access resources to withstand shocks.

The 23rd World Economic Forum on East Asia, hosted with the support of the Government of the Philippines, will take place in Manila on May 21-23, 2014. The theme of the meeting is Leveraging Growth for Equitable Progress.

The Co-chairs of the World Economic Forum on East Asia are: Yolanda Kakabadse Navarro, President, World Wide Fund for Nature (WWF), Switzerland; Takeshi Niinami, Chief Executive Officer and Representative Director, Lawson, Japan; Atsutoshi Nishida, Chairman of the Board, Toshiba Corporation, Japan and James T. Riady, Chief Executive Officer, Lippo Group, Indonesia.