How ASEAN countries can benefit from a dynamic Asia

Goh Chok Tong, Jakarta

We must admit that ASEAN has lost some shine. Perceptions of Southeast Asia are affected by the series of bad news -- in particular, the overhanging sword of terrorism. Bilateral disputes, highlighted in the media, also appear to threaten ASEAN's cohesiveness. No wonder analysts perceive ASEAN to be in drift, an organization mired in mid-life crisis.

Moreover, a gap is developing between Southeast and Northeast Asia. For the decade before the 1997 financial crisis, the growth of ASEAN matched that of China and surpassed India's. But since then, China has streaked ahead and India has caught up with ASEAN. China and India, not ASEAN, are now dominating the radar screen of international investors. They are the flying steeds of Asia.

How should ASEAN respond? I believe ASEAN should respond in three ways:

(1)First, by hitching ourselves to the two flying steeds.

(2)Second, by constructing a chariot together to do so.

(3)Third, by pressing on with reforms at the national level to produce strong riders.

We are living in an era of rapid global change. In the next 20 years, we are likely to see a new global economic architecture. Globalization has intensified competition and is reshaping the world. Asia will be the most dynamic growth region in the world, led primarily by China and India. As a sign of things to come, it was reported that the two countries may start negotiations on a Free Trade Agreement (FTA) soon.

ASEAN must position itself to ride on the dynamism of China and India. By hitching ASEAN to these two powerful steeds, we can fly together to greater prosperity.

India, China and ASEAN are natural partners for trade and commerce. We are linked through geography, culture and history. Our economies are also at different stages of development, and hence complement one another. ASEAN's total trade with China and India has grown significantly over the last 10 years and in 2003 amounted to US$55 billion and $12 billion respectively. I expect this trend to continue.

ASEAN should speed up its negotiations to establish FTAs with China, India, Japan, South Korea, Australia and New Zealand. We mist ensure that FTAs signed are WTO-plus and of high quality. Once China and India sign an FTA, they may need ASEAN less. ASEAN must therefore work hard to ensure that FTAs with China and India are completed and fully implemented by 2010 and 2001 respectively. When these FTAs are completed, it requires little imagination and effort to move on to the next stage -- the construction of an Asian economic community.

Individually, ASEAN countries do not have the same economic pull of either India or China. Even Indonesia with its 240 million people, cannot at this stage of its development, be considered an economic giant. To enhance ASEAN's attraction as a market and an investment destination, ASEAN must band together to maximize our strengths and attractiveness or what I call constructing a common chariot.

Individual ASEAN economies are too small or weak to achieve economies of scale. But through market allocation of resources and specialization within ASEAN, efficiency and synergy can be achieved. Take television production. It is an example of how production chains have formed across the ASEAN region to the benefit of all.

Semiconductor parts for televisions are manufactured in Malaysia, the Philippines and Singapore, while cathode ray tubes are produced in Malaysia, Thailand and Singapore. Other television components are sourced from Indonesia and Thailand.The assembly and testing of TV sets are then done in most ASEAN countries. This has enabled ASEAN to be a major global exporter of television sets.

Another example of ASEAN working together is Singapore's agreement with Vietnam to connect our two economies. Vietnam and Singapore are at two different stages of development and our economies are complementary. We are enhancing links in sectors like finance, aviation, tourism and telecommunications. The idea is for Vietnam to take advantage of Singapore's strengths. Singapore is a base for 7,000 MNCs. It is well-connected to other parts of the world in terms of trade, communications and transportation. Moreover, Singapore has capital, technology, and business expertise.

By connecting our economies, Vietnam takes a short cut in plugging itself into the global economy, attracting investments and enhancing economic growth. It will develop faster than by going it alone. Singapore too will benefit. Our trade and investments will benefit from Vietnam's growth.

One major outcome of the Asian Financial Crisis was to force governments in the region to clean up their acts, tackle weaknesses in their financial and corporate sectors and implement much-needed structural reforms. The balance sheets of the financial and corporate sectors have generally shown solid improvement.

ASEAN countries should press on with structural reforms to strengthen their economies and continue with development plans to achieve sustainable growth.

ASEAN is at the heart of Singapore's foreign policy. It is in Singapore's interests to have a strong ASEAN. To have a strong ASEAN, we need Indonesia to play an active leadership role. Over the past few years, Indonesia has been preoccupied internally. Unless the largest member in ASEAN is able to play an active part in coalescing the other members towards achieving common goals, it will be difficult for ASEAN to regain its vibrancy and dynamism.

As the largest country in ASEAN, Indonesia is the key to reinvigorating ASEAN.

But Indonesia faces some challenges. Investors remain concerned about unclear and inconsistent regulations and labor laws. Security is also a major concern. President Susilo Bambang Yudhoyono wants to develop pro-business policies and reduce corruption. His government has shown that it is prepared to implement difficult but necessary measures such as reducing fuel subsidies. Such policies and measures will build investor confidence.

The writer is Senior Minister of Singapore. The article was abridged from a speech he delivered at the launch of the CEO Circle in Jakarta on Tuesday.