Roles and Challenges of ASEAN in the Digital Economy

In the last two years, we have witnessed an increasing trend of protectionism and possible full-blown trade wars in other parts of the world. Beyond Association of Southeast Asian Nations (ASEAN), the threat of a full-blown trade war between the United States and China will have ramifications in this region and potentially damage the socioeconomic progress made to date. In 2015, when all nations collectively came up with the Sustainable Development Goals (SDGs), the world was very optimistic that poverty can be reduced to almost zero in our lifetime. But with the current environment, this kind of optimism is going to be very difficult to be sustained.

The current global economic environment is quite volatile. Developed countries have been implementing policies without taking into account potential negative impacts on emerging and developing countries. This was marked by the unilateral implementation of the tariff policy by the US government which then triggered a trade war. This condition is exacerbated by changes in fundamental US monetary policy. The US normalization and fiscal expansion tightens global liquidity and encourages a strengthening trend in the US dollar. This situation has triggered a crisis in several developing countries.

Shocks to global economic conditions due to trade policies in the US are expected to continue until next year. The US will continue to burden tariffs on imports from China that make trade wars increasingly heated. The impact is not only on the two countries, but also globally. The US trade war was not only against China, but also with Canada, Europe and Japan. These conditions create challenging dynamics throughout 2018. This will certainly have a risk effect on the economic outlook for 2018 and is expected to continue in 2019.

A trade war could sow distrust and damage progress being made to combat poverty. Unilateralism and trade wars do not increase the world’s wealth, but it only makes nations and people poorer. In this regard, many global leaders, especially in the G20, are expected to lead the global economy in the right direction. It should not be a zero-sum game where one country is going to gain at the cost of others. Trade in our understanding is a win-win situation whether you are exporter or importer, it should not be seen that one gains and the other loses.

ASEAN amidst the Global Economic Volatility

As Finance Minister of ASEAN’s largest economy, it is my bread and butter to follow these global economic developments. Furthermore, we need to anticipate them with the right policy mix to ensure that our economy remains resilient and our fundamentals remain strong amidst the external volatility.

ASEAN has been enjoying the benefit of international trade for many years. The threat of trade wars could potentially affect the socioeconomic achievements thus far. The ASEAN region will most likely bear loses from uncertainties arising from such trade policies. ASEAN needs to also capture the lessons learned from current developments in advanced economies and be cognizant of the plight of the “losers” arising from trade openness. This region can still be making more progress, but be extremely mindful about the consequences for those who are left behind. Failure to address this aspect could potentially set ASEAN back.

Policymakers in the region must remain vigilant and constantly attune themselves with the latest global economic situation to anticipate any potential spillover effects in ASEAN. Learning from the 1997-1998 Asian financial crisis, ASEAN countries are now better prepared to face any potential global economic turmoil.

Twenty years ago, the economic fundamentals of most ASEAN countries make them vulnerable and more susceptible of catching a flu when faced with external shocks. Policymakers in ASEAN certainly understands that they do not want to fall into the same hole. ASEAN economic cooperation has been and will continue to be improved to anticipate the effects of global economic volatilities.

But on a positive note, fifty years since its establishment, ASEAN has made remarkable achievements in fostering regional stability and cooperation. These are important contributing factors for socioeconomic growth that have translated to impressive poverty reduction and prosperity boost for hundreds of millions of people. Across its 10-member nations, ASEAN is now home to 636 million people, more than 400 million work force, around 300 million internet users, and an ever growing middle-class.

The ASEAN region has benefited from regional stability, sound macroeconomic policies, and ongoing efforts to minimize trade barriers. However, the ten economies that makes up this regional grouping remain at different stages of progress. This is despite the fast-increasing exchanges of people, goods, technology and ideas amongst them. ASEAN needs to create a framework that can be seen by each member country to be a good platform for everybody to participate and make the same progress towards prosperity. This is the challenge we must face together as one region.

ASEAN and the Fourth Industrial Revolution

ASEAN needs to face and adapt to the emergence of technological disruption. This trend is creating opportunities and uncertainties on the social structures and disrupting jobs in the region. In light of these technological advancements, ASEAN urgently needs to identify priorities and craft relevant policies, governance approaches, geopolitical relationships, and new strategy to open new pathways to prosperity and promote inclusive growth. These highly disruptive technologies, which includes artificial intelligence, automation, and robotics innovation, is undeniably distressing the social-economic and political realm. This technological transformation is commonly known as “The Fourth Industrial Revolution”.

These disruptions generate the necessity for society to push policy-makers to respond simultaneously. I was recently in Hanoi for the World Economic Forum on ASEAN to discuss this very issue. Country-level policies set by national governments are critical. However, these technological changes are borderless in nature and revolutionizing economic interaction. Therefore, this growing and rapid challenge forces ASEAN member countries to find regional approaches to accelerate governance and policy making in a faster, more dexterous, iterative and innovative ways.

The ten ASEAN member countries are politically, economically and socially diverse.They will be required not only to think about a national response towards the transformation, but also to shape a cohesive regional strategy and policy which will significantly impact countries in the region as a whole. Beyond its success in promoting regional stability and security, ASEAN needs to redesign the way the organization manage regional governance, specifically to counter the radical transformation of technology.

ASEAN must look beyond the horizon to find innovative solutions in addressing key concerns brought by technological advancements. It is necessary to define key opportunities and challenges of the Fourth Industrial Revolution for ASEAN nations. The key opportunities include increased wealth, economic inclusion, empowered SMEs, better connectivity, agricultural transformation, improved health and healthcare, as well as better disaster preparedness. Meanwhile, the challenges come in form of job loss, increased inequality, political instability, concentration of market power by global multinational companies, as well as increased exposure and vulnerability to cyber-attacks.

With the Fourth Industrial Revolution, the need for regional cooperation within ASEAN becomes even more relevant. These include regional approaches to managing the risk in data sharing, harmonizing business environment, rethinking fiscal policy, reshaping trade and manufacturing industries, as well as reducing barriers to labor mobility. Answering these key concerns will require regional leaders to assess the common values shared by a highly diverse group of cultures, and to craft protocols that ensure these shared values are collectively applied in an ASEAN context.

Embracing the Fourth Industrial Revolution requires whole-hearted participation, expertise, and experience of various stakeholders in the region. Therefore, policymakers should also promote direct engagement using new tools of technology in the policy and regulation making process by involving more stakeholders, such as SMEs, startup companies, civil society groups, and academia. We are already seeing many start-up companies within ASEAN become unicorns with valuations in the billions of dollars. There are many opportunities to be reaped in the digital economy.

This is an excerpt from Sri Mulyani’s keynote speech at the 21th ASEAN Valuers Association Congress, Yogyakarta-Indonesia, 25 September 2018.

Penilaian.id oleh Asti Widyahari

Property Valuer & Advisor