Roadmap to an ASEAN Economic Community

11. ASEAN Economic Community: Implications for Poverty Reduction in Southeast Asia

218 Abuzar Asra, Gemma Esther Estrada, and Ernesto M. Pernia 11 ASEAN Economic Community: Implications for Poverty Reduction in Southeast Asia Abuzar Asra, Gemma Esther Estrada, and Ernesto M. Pernia 1. Introduction The rapid pace of globalization is exerting pressure on both developed and developing countries to devise strategies to be competitive. One such strategy being adopted by an increasing number of countries is the formation of regional integration agreements (RIAs). Since the 1950s at least thirty-five RIAs have been established, taking on various forms, ranging from a free trade area to an economic union.1 In 1992 six Southeast Asian countries agreed to establish an RIA through the creation of the ASEAN Free Trade Area (AFTA). Years later, they were joined by four other countries and the scope of trade agreements was expanded from merchandise trade to include liberalization of trade in services and investment flows within the region. Owing to recent developments, the ASEAN leaders have recognized the need for deeper regional economic 11 Roadmap2AEC Ch 11 7/9/05, 3:46 PM 218 Implications for Poverty Reduction in Southeast Asia 219 integration. In November 2002 it was agreed that this was to be realized through the formation of an ASEAN Economic Community (AEC) by 2020. The ASEAN Vision of 2020 (Hanoi Plan of Action) specifically highlights a vision of free flow of goods, services, and investments, along with reduced poverty and socio-economic disparities in the region. This chapter aims to explore how fostering wider economic openness through the AEC would impact on poverty and inequality in the ASEAN region, as well as mull over strategies and policies that could be adopted to address likely adverse effects on the poor. The next section discusses the variation in growth, level of development, poverty, and other measures of well-being among the member countries in the region. The third section examines the rationale for deeper economic integration and explores the possible negative impacts of trade openness and economic integration on poverty reduction and income inequality. The chapter ends with some key challenges and strategies for poverty reduction. 2. Growth, Poverty, and Well-being Since initial conditions matter to the success of economic integration, it is important to examine how countries covered in the AEC have performed in terms of economic growth, poverty, and other measures of well-being. Differences in initial conditions have both advantages and disadvantages in the formation of the AEC. 2.1. Economic Growth There was a wide variation in the income per capita levels of ASEAN countries in 2001 (Table 11.1). At the extreme high end is Singapore, with income per capita of more than fifty times that of Cambodia at only about US$300 per year. Like Singapore, Brunei Darussalam is another relatively high-income country, followed in descending order by the four other original member countries, namely Malaysia,Thailand, the Philippines, and Indonesia. At the low end of the income range are Cambodia, Lao People’s Democratic Republic (Lao PDR), and Vietnam.2, 3 Such income ranking among the countries has practically prevailed since the mid-1970s (Figure 11.1). The 1970s and 1980s witnessed dramatic GDP per capita growth for Singapore and, to a lesser extent, Indonesia, Malaysia, and Thailand (Table 11.1). By the 1990s economic growth in most ASEAN countries began to slow. In the case of low-income countries, while they started with lower growth in the 1970s, macroeconomic reforms and investments in human 11 Roadmap2AEC Ch 11 7/9/05, 3:46 PM 219 220 Abuzar Asra, Gemma Esther Estrada, and Ernesto M. Pernia Table 11.1 ASEAN: Real GDP Per Capita Growth Rates and Levels Real GDP Per Capita Growth GDP Per GDP Per Country (% Annual Average) Capita in US$ Capita at at 1995 Prices 1999 PPP 1970s 1980s 1990s 2000 2001 (2001) (2001) Brunei Darussalam 4.4 –5.2 –0.7 2.5 1.2 18,895 17,963 Cambodia – 4.4 1.7 5.3 4.2 317 1,362 Indonesia 5.3 5.8 3.3 3.5 2.0 1,034 3,598 Lao PDR 0.7 3.3 3.8 3.4 3.3 465 2,118 Malaysia 5.2 6.2 4.6 5.6 –1.9 4,708 8,709 Myanmar 2.0 –5.5 4.3 12.4 8.4 – – Philippines 2.9 4.0 0.5 1.6 1.2 1,165 4,401...