In order to insulate their economies from the continuing financial uncertainty in Europe, the Association of Southeast Asian Nations along with China, Japan, and South Korea, known as ASEAN+3, announced steps last Thursday to enhance economic cooperation between Asian states.
The countries will double the size of a liquidity fund that member states can tap into to $240 billion. They also increased the quota of unconditional funds each country can access from 20 to 30 percent before triggering an International Monetary Fund program as well as an extension of the maturity of currency swaps from ninety days to twelve months.
Officials are particularly optimistic about the economic prospects for ASEAN. At the Asian Development Bank’s board of governors meeting in Manila last week, chief economist Rhee Changyong was extolling on the future of ASEAN, stating that “a new growth force is coming in Asia, one that would come to match the economic growth seen in China and India.”
Rhee’s confidence was reflective of the widespread enthusiasm over the expected beginning of the ASEAN economic bloc in 2015. If all goes as planned, the bloc will eliminate most tariffs and promote the free flow of labor and goods within its borders. There is even talk of a common currency. ASEAN, with an area encompassing six hundred million people, will be the next frontier for economic growth.
Many economists have predicted that as China’s competitive advantage in labor costs recedes relative to other developing countries, there will be a gradual migration of manufacturing plants to lower cost countries like Indonesia and Vietnam in addition to other areas in Southeast Asia. Recent developments in China seem to bear this out.
A few months ago, Chinese officials were pressured into raising wages by striking workers at Apple supplier Foxconn in addition to other factories in the country.
However, ASEAN must proceed cautiously on economic integration because, as seen in the eurozone, a step toward monetary union without the concurrent fiscal agreements in place is a recipe for instability.
The European Union is grappling with member countries stricken with slow or negative growth. Unemployment is increasing and production declining but countries cannot take the sort of measures they likely would have had if they still controlled their currencies.
For now, ASEAN’s plans for an economic bloc that encourages trade by reducing barriers, such as tariffs and quotas, is materializing. The adoption of a common ASEAN currency is still very much a long-term vision.