ASEAN - New 'brics' in ASEAN's wall

With the 10-member Association of Southeast Asian Nations (ASEAN) working toward the creation of a single market by 2015, the region's governments may well be pondering which country from their ranks could be the next to join the fast-growing, large emerging economies of Brazil, Russia, India, China and now South Africa, known collectively as BRICS. [1]

For this to happen, though, policymakers and development experts must first focus on a lower-case "bric" - namely the threat of bureaucracy, regulation, interventionism and corruption - that continues to impede the region's sustained growth.

While the Asia-Pacific region has so far proven resilient to the US and Europe-led global financial crisis, this new "bric" may in the long run stymie the sustainable rise of Asia's BRIC and other emerging economies. Already we see the continued slowing of China's economy and rising constraints on India's growth. The two BRIC economies have until now been key drivers of the region's fast growth and resilience to crisis.

The Asian Development Bank's (ADB's) economists project China's and India's gross domestic product (GDP) growth rates respectively at 8.5% and 7.0% this year, well below each country's recent highs. Overall 2012 growth for developing Asia is projected at 6.9%, with tremendous variation across the region.

When it comes to the new "bric", government leaders on both sides of the Pacific have not set the best example for the rest of the developed and developing world, including ASEAN. In these uncertain economic times, the region's citizens should ask their business and civic leaders four simple questions:

1. Is government bureaucracy hindering or fostering economic growth?

From highly paid civil servants in Singapore to legions of relatively poorly paid officials in ASEAN's poorest nations, the track record of regional governments is mixed. There are rightly continued calls for the dismantling of large government bureaucracies that hinder rather than enhance trade and investment.

Yet, whether in Asia or outside the region, the real fight against bureaucracy is less about new organization charts and more about assessing what works and what does not, and then getting rid of the latter. It's not just about size, but also the quality of the bureaucracy that matters.

2. How are regulations impacting job creation?

Businesses and investors in Asia are often challenged by not just too many or too few regulations, but more critically by unequally applied and unevenly enforced regulations. Clearly, not all regulation is bad. But policymakers must ask if ill-timed or excessive regulations are imposing too high an economic cost.

A recent report argued that the US economy has been hindered by some 32 regulations imposing more than US$10 billion in annual costs and $6.6 billion in one-time implementation costs last year. Is near-term job creation and growth in Asia also losing out to red tape and regulatory excess?

3. When is government intervention appropriate?

Governments in Asia have long been both praised and criticized for seeking to pick economic winners and losers, and often in the process distorting the market in favor of national players. US and European bailouts in industries from automobiles to banking also have helped to make government involvement in business increasingly accepted as par for the course.

Yet too often government interventions and inefficiency go hand in hand. Policymakers need to ask how to ensure such interventions, if any, are limited and a matter of last resort.

4. What more can be done to root out corruption?

Throughout the Asia-Pacific region, corruption and cronyism go hand in hand. Perpetrators often benefit from relatively weak judicial systems and limited transparency. The Occupy Wall Street movement, for all its detractors, brought needed attention to the US's own version of crony capitalism.

Hunger strikes by Indian activists and anti-corruption efforts by the leaders in Indonesia and the Philippines have likewise brought attention to Asia's shortcomings. Allegations of favoritism or leniency must be investigated, checking and balancing institutions strengthened, and people held accountable if the region's citizens are to regain confidence in their systems of governance.

At the heart of these four simple questions is the notion that nations throughout the region, including in ASEAN, must take steps to tear down domestic "bric" walls - built of bureaucracy, regulation, interventionism and corruption - even as they take steps to build infrastructure and strengthen competitiveness in preparation for the move towards a common market.

During a recent meeting of ASEAN finance ministers on the sidelines of the annual meeting of the ADB in Manila, there was understandable pride in a new US$485 million ASEAN Infrastructure Fund - ASEAN's largest financing initiative to date. The fund will help to finance the development of road, rail, power, water and other critical infrastructure, needs across the region that have been estimated at some $60 billion per annum.

Raising financing, however, is not the only challenge for Asia's developing economies. As funds become increasingly available, government and development leaders must also focus on how that money will be spent, including by applying lessons learned from past infrastructure projects and development programs that went awry.

Putting an end to capital misallocations driven by the new "bric" would do more than anything else to spur business innovation, increase the inflow of investment and help position ASEAN - both individually and collectively - to better compete in 2015 and beyond.

Note

1. Members of the Association of Southeast Asian Nations are: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

Curtis S Chin

Curtis S Chin served as the US ambassador to the Asian Development Bank under presidents George W Bush and Barack Obama (2007-2010). He is now a senior fellow and executive-in-residence with the Asian Institute of Technology and a managing director with RiverPeak Group.

Asia Times

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