High Hopes, Separate Realities: Is ASEAN's Newfound Optimism Warranted?

By Jonathan Hopfner

Hot on the heels of a year of profit warnings and dire economic predictions, the current mood among the member states of the Association of Southeast Asian Nations (ASEAN) is one of unbridled optimism. At a recent meeting of ASEAN finance ministers in Rangoon, Burma, officials expressed a uniformly positive outlook for the months ahead. "I think we've seen the light at the end of the tunnel," Haji Abdul Aziz Umar of Brunei told reporters. His Indonesian counterpart, Finance Minister Boediono, echoed this opinion. "The overall mood is toward the better at the moment, so I think we all feel that positive sentiment." Even the normally cautious Asian Development Bank jumped on the bandwagon, releasing a statement that said the region was expected to witness a "moderate" economic rebound in 2002.

The driving force behind these new hopes is, of course, recent indications of an economic recovery in the United States and Europe. Major ASEAN players such as Thailand, Singapore, Malaysia and Indonesia are heavily dependent on Western nations as buyers for their products, with the U.S. alone representing 30 percent of Thailand's export market and accounting for almost half of the country's gross domestic product. Gains in the U.S. stock markets and consumer confidence levels have had a corresponding effect in Southeast Asian countries, with a mid-April Straits-Times poll showing Singaporeans are increasingly upbeat about the economy and their job prospects. Rating Agency Malaysia announced just weeks later that, thanks to a government stimulus package and an increase in electronics orders from the U.S. and Europe, the country was on the road to recovery. In Bangkok, Bank of Thailand governor Pridiyathorn Devakula recently claimed that economic growth for 2002 was likely to exceed earlier estimates of two to three percent, due to the turnaround in the U.S. and recent leaps in domestic consumer spending.

ASEAN's newfound self-assurance has been further boosted by steps forward in the organization's effort to present a united front to the world at large. At the finance ministers' summit in Rangoon, officials stated that a series of currency-swap agreements signed by Asian nations over the past year - among Japan, South Korea, China, Thailand, the Philippines and Malaysia - had set the stage for an Asian Monetary Fund. This would help support regional currencies in the event of a recurrence of a crisis like the one that rocked the continent in 1997. "It's a seed," said Philippine Finance Minister Jose Isidro Camacho, "that can evolve into something more formal." In addition, Indonesia and Thailand are poised to sign an agreement in which Bangkok will trade 200,000 tons of rice for fertilizer and top-dressing aircraft - one of the first transactions to take place under the trading account system first mooted by ASEAN nations last year.

But despite these recent advances, and an apparently brighter global economic picture, many of the problems that have dogged Southeast Asian governments since 1997 have yet to be resolved. ASEAN officials are increasingly willing to admit that the ascendance of China presents a formidable challenge to their markets. "We know that over the last two years FDI to the ASEAN region has gone down sharply compared to what is going into China . . . we have to work out schemes to try to re-attract FDI," Singapore's Second Finance Minister Lim Hng Kiang remarked at the Rangoon conference. Yet so far intra-ASEAN discussions on the China issue have produced no concrete initiatives to court foreign investment.

In addition, recent studies indicate that Southeast Asia is still viewed in a less than positive light by foreign investors. Commenting on Thailand's inability to achieve a sovereign credit rating upgrade, Thailand Rating Information Service President Warapatr Todhanakasem stated that the situation would not change as long as the country failed to address its significant public debt and reform its corporate, legal and financial systems. While Singapore took top honors in an Economist Intelligence Survey of the best places to do business in Asia, Vietnam and Indonesia languished in the bottom rankings. At an early April meeting grouping ASEAN economic officials and the U.S. Trade Representative, the U.S. said a bilateral free trade agreement with ASEAN was "unlikely," given the radical differences between the organization's members and the hindrances to U.S. trade and investment currently in place.

Also, as the recovery in the U.S. appears increasingly fragile - the weakness of the dollar, grim corporate earnings and volatile oil prices are all factors that could derail the progress seen thus far - ASEAN nations cannot count on their largest export market boosting their economic prospects. The Singaporean Trade Ministry's recent announcement that talks on a China-ASEAN free trade agreement would commence in Beijing in late May are an encouraging indication that ASEAN governments may be making efforts to diversify their export markets. But given that there is a ten-year time frame in place for the establishment of an FTA encompassing the two sides, and the bureaucratic tangling that characterizes intra-ASEAN negotiations, these efforts are unlikely to bear immediate fruit.

Nonetheless, this shows that Southeast Asian governments may have begun to realize what analysts and investors have told them for so long. They must simultaneously look within and not forget the rest of the world in courting the developed nations of the West if they are to achieve sustainable growth and attract the investment they so desperately need.