ASEAN Economic Cooperation Agenda for the 1990s 9789814414340

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ASEAN ECONOMIC CO-OPERATION Agenda for the 1990s

The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the multifaceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer. The ASEAN Economic Research Unit is an integral part of the Institute, coming under the overall supervision of the Director who is also the Chairman of its Management Committee. The Unit was formed in 1979 in response to the need to deepen understanding of economic change and political developments in ASEAN. The day-to-day operations of the Unit are the responsibility of the Co-ordinator. A Regional Advisory Board, consisting of a senior economist from each of the ASEAN countries, guides the work of the Unit.

ASEAN ECONOMIC CO-OPERATION

Agenda for the 1990s

Daim Zainuddin

ASEAN Economic Research Unit Institute of Southeast Asian Studies

This paper was delivered at the Official Opening of the ASEAN Roundtable on an Agenda for ASEAN in the 1990s, organized by the Institute of Southeast Asian Studies on 29 March 1990.

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 0511 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies.

© 1990 Institute of Southeast Asian Studies The responsibility for facts and opinions expressed in this publication rests exclusively with the author, and his interpretations do not necessarily reflect the views or the policy of the Institute or its supporters.

Cataloguing in Publication Data

Daim Zainuddin, Dato' Paduka. ASEAN economic co-operation: agenda for the 1990s. 1. ASEAN countries - Economic integration. 2. ASEAN countries - Economic conditions. I. Institute of Southeast Asian Studies (Singapore) II. Title. HC441 Dl3 1990 sls90-16442 ISBN 981-3035-59-5

Contents

Introduction ............................................................................. . K.S. Sandhu

ASEAN Economic Co-operation: Agenda for the 1990s ..................... Daim Zainuddin

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Closing Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K.S. Sandhu

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Introduction K. S. Sandhu Director Institute of Southeast Asian Studies

Excellencies, Ladies and Gentlemen Good morning and welcome to the Opening Address by The Honourable Dato' Paduka Daim Zainuddin, Minister for Finance, Malaysia, on the occasion of the Institute's Roundtable on an Agenda for ASEAN in the 1990s. As many of you know, the Institute's interest in ASEAN is almost as old as ASEAN itself. Our initial efforts led to the establishment of AERU or the ASEAN Economic Research Unit at the Institute in 1979, and five years later to the launching of the Institute's journal, the ASEAN Economic Bulletin. In addition to research and publications, the Institute regularly brings senior ASEAN officials, businessmen, and scholars together to review major developments in ASEAN as well as to explore new directions for the organization. Of late, these discussions have been in the form of annual Roundtables, with this year's Roundtable being of particular significance in view of the dramatic changes in the region and the wider international environment, in which ASEAN must now find a role - that is, a niche and worthwhile meaning beyond Cambodia. Towards this end, we thought it imperative that we have the guidance and perspectives of someone who had firsthand knowledge of the issues and realities involved in such a new role for ASEAN - someone who had his feet firmly on the ground and fully knew the difference between the ideal and the achievable. Thinking along these lines our thoughts quite naturally turned to Dato' Paduka Daim. A lawyer and urban planner by training, Dato' Paduka Daim is not only a thoughtful and shrewd politician, but a pioneering and self-made entrepreneur and businessman of substance as well. Thus, when he talks about economics and economic co-operation and management, he is talking about a subject of

which he has hands-on practical experience. Thus, Ladies and Gentlemen, it gives me all the greater pleasure to introduce Dato' Paduka Daim and to invite him to deliver his Opening Address.

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ASEAN ECONOMIC CO-OPERATION Agenda for the 1990s Daim Zainuddin

Mr Chairman, Professor Sandhu; Your Excellencies; Ladies and Gentlemen. Mr Chairman, thank you for your warm welcome and kind words of introduction. I followed closely developments in Singapore during the late 1950s and was a frequent visitor to Singapore in the early 1960s. I need only mention that the tremendous changes and progress that have taken place are testimony to the excellent economic and political stewardship of this country. It is indeed a great privilege to be invited to address this distinguished audience. I congratulate the organizers of the ASEAN Roundtable for taking the initiative to hold the "Agenda for the 1990s", at a time when the world's political and economic environment is undergoing such rapid changes. These events provide an appropriate backdrop for your discussions today. I would therefore like to take this opportunity to thank the conveners of this forum for according me this honour.

Ladies and Gentlemen, the theme of my address, which is the need for ASEAN to re-orientate its strategy for the 1990s, is I am sure very familiar to you, as it has been the subject of numerous studies and discussions in the past. My choice has been influenced by the recent political and economic changes in the global environment. With these changes, it is imperative that ASEAN adopt a more cohesive, long-term and forward-looking stance, if it is to maintain its credibility and relevance in the 1990s. I would like to suggest that one of the critical issues in the 1990s will be how governments adjust and orientate themselves to meet the demands of their peoples for development and growth. People do not mind hard choices and sacrifices being made - but at the end of the day, they want to see results 3

and how they have benefited by the policies and strategies of their governments. This concern for development has a longer history than most of us tend to believe. It did not come about with Gorbachev, or the changes in Eastern Europe. We can trace its roots to the aftermath of the Great Depression. It became abundantly clear then, that political and social stability within national borders could only be guaranteed through economic progress and prosperity. Very often, hard choices and sacrifices have to be made, to achieve long-term growth and development. Those who did not foresee this are paying a heavy price for their folly. The clamour for change in Eastern Europe today is the direct and immediate result of frustration with an antiquated economic system that has, literally speaking, "failed to deliver the goods", nor has it met the rising expectations of the general population. People in Eastern Europe have seen others prosper while they stagnate. After waiting patiently for so long, and hearing only empty promises of filling empty stomachs, they still have to queue for essentials. Their money has very limited value. If we were in their shoes, our reaction would have been no different. It is not a crime to want to better ourselves. People want change for the better. Nothing more and nothing less. The political changes in the past few months are a result of the need to replace those who have failed to deliver even the basic needs of the people. It is a legacy of the dismal failure of past policies. What are the effects of these changes? Politically these developments have resulted in people demanding a say in the decision-making process and the right to plan and determine their own future and that of their children. The events that are unfolding in Eastern Europe today are a stark reminder of this fact, whereas in many countries, elections and the right to a free choice are taken to be the norm. In the economic arena, the impact of these changes has been translated into the demand to enjoy a standard of living that would not make them envious of more well-off neighbours. The widely differing levels of economic performance have fuelled the demand for access to services and goods at reasonable costs. This is now being touted as a basic right. Besides developments in Eastern Europe, another phenomenon is the further blurring of national economic boundaries. As world trade and resource flows increase, there has been a corresponding intensified search for new markets and capital both by the established major players as well as the emerging economic powerhouses. Hence, there is unrelenting pressure to stay competitive in the market place, either through continuous product refinement or new instruments of investments and through the pursuit of appropriate 4

marketing arrangements. Insofar as the latter is concerned, the establishment of regional trading blocs seems to be one of the marketing strategies that is being increasingly resorted to, in order to safeguard market niches. The widespread cross border effect of currency realignments and interest rate adjustments, which have affected the pattern of resource flows and location of industries, represent yet another manifestation of the subtle dismantling of national boundaries. Given these momentous changes, the 1990s will pose major challenges to ASEAN. It is obvious that ASEAN, as one of the fastest growing regions in the world, cannot hope to remain insulated or unaffected by them - not if it wants to stay competitive and strive towards a higher level of development. ASEAN risks being overwhelmed by the sheer magnitude of the changes, and being left behind by the others, if it does not frame an adequate response to these challenges. In many cases, ASEAN faces a situation which is not of its own making and hence its reactions represent more a response to developments over which it has little control or influence. But certainly we can and must influence our own future as a result of all this. This begs the question - what direction of economic co-operation should ASEAN assume and pursue in the 1990s? To begin with, a cursory perusal of the per capita income levels of ASEAN member countries will immediately highlight the disparate levels of economic development that exist within ASEAN. I believe that this very disparity is the source of some of the unproductive competition and friction that occasionally surfaces. History has taught us that co-operative endeavours become that more difficult in a situation of unequal standing. Hence, it is in our own interest that we initiate policies and programmes that will ultimately lead to a convergence of economic standards. Improvements in the quality of life and national capacities concomitantly lead to a higher degree of national resilience, and a lesser tendency to view things in a suspicious light. Hence, there is a need to further enhance the level of economic cooperation. It would not do if the individual member nations of ASEAN were to attempt to ride these changes on their own. While I am not advocating an EC type of approach, there is a definite need for ASEAN member countries to harness their combined strength to deal with these issues. As we all know, individually there is a wide gap in the strength and ability of the ASEAN members to influence the course of future events 5

against the likes of the EC, Japan, or the United States. Simply put, if ASEAN is to have any credible economic clout it must act in greater concert and greater harmony. In this context ASEAN cannot continue to function as before. There has to be a reorientation of the way in which it views the issues at hand. Presently this is dictated by the need to safeguard national interests. Similarly, there appears at times, a tendency to focus on bilateral relationships at the expense of the wider ASEAN co-operative framework. Much as the need to protect national interests is appreciated, it is also important to distinguish short-term narrow interests from long-term regional interests. Co-operation, and this cannot be over-emphasized, is a more effective method of promoting our individual national interests in a world where closer co-operation and integration seem to be the order of the day. There is no better example of short-term narrow interests than in the economic sector, where the emphasis has been on carving market niches and then jealously guarding the hard won turf to prevent encroachment by other member nations. This is evident in the drive by the ASEAN nations to garner foreign investments. There has been a continuous and competitive refinement of fiscal and financial incentives, which each member nation offers prospective investors, at great cost to national coffers. It cannot be denied that individually ASEAN members have benefited from inflows of foreign capital, but collectively we can gain more. However, I regret to say that such progressive thinking has been conspicuous by its absence, insofar as regional efforts to promote the group as an investment centre is concerned. There is a basically flawed line of thinking that capital inflow is solely decided on the basis of attractive incentives. While it would be naive of me to discount the "pull effect" of incentives, it should be stressed that of more concern to investors are questions relating to political stability, availability of resources, labour costs, inflation, long-term direction of the economy, and public policies. In this context, the success achieved by ASEAN countries is unrivalled. One will observe that the economic fundamentals are in place in all the ASEAN countries. Most of our economies are experiencing good growth. Ironically the booming bourses of all member countries thanks to the infusion of foreign capital - indicates that the foreigners have long appreciated this view. Unfortunately in the case of the share market, it is the foreigners who lead the way. We just become followers. The complexity and magnitude of current developments require that individual member countries adopt a wider perspective, and approach them in an ASEAN context. While this has been relatively easy to obtain on the 6

political front, regional economic co-operation has been more a recipient of platitudes. No one is suggesting that national governments abdicate their sovereign responsibilities. What is needed is a more conscious effort to arrive at an ASEAN-centric approach when dealing with international or regional economic issues. Otherwise, in my view, meetings of Economic Ministers are more ceremonial, and perhaps even a waste of time and money. Secondly, the pace of regional integration has to be stepped up. As we look at our past achievements, the one point which stands out clearly in ASEAN's score-sheet is that it has been more successful in forging political co-operation and enhancing its political role, both in the region and outside, than it has in the socio-economic fields. I do not have to produce evidence of these achievements to substantiate this claim, but suffice it to say that the high esteem with which the outside world regards ASEAN today has been a result of our political cohesiveness. It is, however, essential that ASEAN stands for more than being an acronym. It has to be seen as being able to progressively propel the level of regional economic co-operation to a higher plane. I admit that this will be a long-term process, but a start has to be made. That is, now.

I think with the rapid economic growth in member nations, it would make economic sense for ASEAN to promote itself to prospective investors, in terms of the larger regional market. ASEAN should be more aggressive in promoting itself as an investment and tourist centre. In the process we may earn the image of an ugly ASEAN. Unless we are more aggressive, we may face certain decline in a more competitive world. In this context, I am of the opinion that there is a strong need for more joint promotion efforts, with the fullest backing and commitment by every member country. A common phenomenon that is in vogue throughout the world today is privatization. The gradual withdrawal of the public sector from participating directly in economic activities has led to a more pronounced role for the private sector. This is a development, which I feel augurs well for ASEAN co-operation. The private sector has always displayed an inherent flexibility to adapt and respond quickly to changing situations. It does not suffer from the bureaucratic red tape that afflicts public administration. As we live in an era of fast paced changes, it is essential that mechanisms are in place to take advantage speedily of opportunities when and where they arise. In this connection, we should all share our experiences, in order to ensure that the privatization process is smoothly implemented and that our economies become more efficient. My urging for greater private sector endeavours is, however, framed with a view to overcoming one of the most important deficiencies that exists in 7

the present ASEAN set-up. To put it more precisely, a wide cross-section of the ASEAN populace remains untouched and unaffected by the concept of regional co-operation, as it is widely perceived as being the domain of national governments. This lack of participation has been a major constraining factor in promoting intra-ASEAN co-operation to progressively higher planes. In my view, our leaders have to formulate strategies to obtain greater involvement and commitment by the general population in creating a more meaningful ASEAN. The greater involvement of the private sector in domestic economies provides an ideal opportunity and basis for encouraging greater cross-border interaction among the peoples of ASEAN. The robust economic growth enjoyed by individual member nations can act as a catalyst to this process. ASEAN should encourage its private sector to invest within ASEAN. While we yearn for the yen, it is ASEAN's investment within ASEAN that will create and ensure stable growth. Our investors have a better view of the ASEAN situation and their stay is more permanent. Apart from this, the expected diversion of private foreign capital to Eastern Europe would also necessitate that ASEAN lay greater stress on the intra-regional flow of capital, to lessen the dependence on external sources to maintain the momentum of growth. In this connection, I am happy to note that Malaysia and Singapore have already established a very strong relationship with the quite substantial flow of investments from Singapore, especially in the last couple of years. But then, Malaysia and Singapore have always had a special relationship, and perhaps we could take advantage of this to expand into other areas of co-operation as well. On the external front, I urge the ASEAN private sector to jointly tap the potential of the deregulated East European market. In anticipation of 1992, American money is flowing into the European countries. We can therefore expect the flow of American investments to ASEAN to be somewhat affected, unless we remain competitive. At the regional level, as the political foci of the Indochina equation recede into the background with its imminent resolution, I believe from my own observation during my visit to these countries recently, that the immediate pre-occupation of the Indochinese countries to rehabilitate their war battered economies, offers yet another opportunity for an ASEAN-based co-operative endeavour. I also venture to add that as we become more integrated into the world economy and grow more interdependent, it would be timely that ASEAN in the 1990s address the question of economic and industrial specialization. While it would be premature to suggest specific areas of specialization for member nations, nevertheless the concept itself merits attention, to take 8

advantage of emerging economies of scale, and to enhance the complementarity of national economies. This requires a great deal of sacrifice but I am sure it is worth the effort. Ladies and Gentlemen, allow me now to briefly touch on external developments that will need an ASEAN response in the 1990s. In the recent past, we have witnessed an increasing concentration of decision-making powers that have implications beyond national jurisdictions in the hands of the industrial countries, and more specifically the G-7. Interest rates have been lowered and raised, and exchange rates adjusted, with little consultation with regard to their impact on developing countries, international competitiveness, debt burden, or resource flows. Malaysia itself did not escape from these problems. The engineered rise of the yen saw our yen-denominated external debt ballooning overnight. I as Finance Minister bore the brunt of public backlash, as the government undertook a drastic cutback in development expenditure in particular, and an austerity drive in general, in order to keep the national debt at a prudent level. These painful domestic adjustment measures are not without their adverse social and political implications. The cosmetic changes undertaken in the industrial countries were perceived to be the right measures to correct existing trade and fiscal imbalances amongst them. However, it has now become patently clear that it was done purely to avoid the more painful costs associated with structural adjustment. Hence, while the industrial countries have never failed to take every opportunity to champion the cause and the need for structural adjustment, a different prescription applies when it comes to treating their own malaise. The privilege to adopt this dualistic approach is, undoubtedly, a reflection of their economic strength. There is little I as an individual can do. I tried to be heard, but nobody wanted to hear me. Alone, I am just a voice in the wilderness. This is precisely why we need to get together. Then we will be heard. ASEAN, in view of its economic strength, has also been constantly urged to undertake and contribute more to the multilateral process. Some of us have been approached to enter into a dialogue with the OECD. As the focus of growth shifts towards the Pacific Region, ASEAN will inevitably have to play a larger role in the 1990s. It will also have to undertake greater international responsibilities. It is only natural therefore that ASEAN should also seek to have a say in shaping international economic policies. In this context, I am of the opinion that ASEAN should, together with other likeminded countries, seek to forge a common approach and position on relevant international economic issues in the 1990s. 9

In this respect, ASEAN will also have to give serious thought to strengthening the institutional support to prepare for added responsibilities in future. There is a need to undertake more analytical studies and research into the issues and policy options for ASEAN in the 1990s, and at the same time strive to speed up the process of regional co-operation through the exchange of implementable ideas. However, the danger of a self-perpetuating bureaucracy arising from this suggestion should always be avoided. I would also urge closer consultation between the second echelon leaders in ASEAN who will form the leadership in time to come, as they lack the common background and experience that many of the older leaders shared, and which in many ways fostered and facilitated closer regional co-operation. Almost all the present leaders now in ASEAN will retire in the 1990s. Efforts thus far to promote greater interaction among the emerging leaders of ASEAN have been limited in their success. This then, Ladies and Gentlemen, represents my agenda for ASEAN in the 1990s. I would be the first to admit that it is not exhaustive, but it does reflect some of the major aspects of economic co-operation that ASEAN should concern itself with, in the 1990s. Whilst some of you might feel that my position as a Finance Minister may have influenced the decision to highlight economic issues, I believe to do otherwise would only mean an ASEAN functioning within self-imposed constraints and being unable to elicit an appropriate response to developments both internally and externally. As we enter a decade of momentous economic changes that are likely to affect aspects of our everyday life, pursuit of misplaced strategies and priorities can prove to be very costly. I believe in a prosperous ASEAN. We have the resources, size, and population to be prosperous. A prosperous ASEAN is a stable ASEAN. A stable ASEAN is a peaceful ASEAN. A week and poor ASEAN is of no use to its members. If we do not get our act together and work together, there will be outsiders who will take advantage and split us. The world does not owe us a living. We have to solve our problems, even when these problems are not of our own making. I thank you, Ladies and Gentlemen, for being a very attentive and appreciative audience. Thank you.

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Closing Remarks K. S. Sandhu Director Institute of Southeast Asian Studies

Stories have it in Kuala Lumpur that Dato' Paduka Daim's name perhaps evokes more popular images and meanings than that of any previous Finance Minister of Malaysia. Whatever the truth of such and other tales, one thing is abundantly clear. The Dato' has a rhythm and style of his own and can be as forthcoming and forthright as anyone else on an issue of concern to him. Moreover, he has today pointed us and ASEAN in a direction which has considerable potentialities. May I on behalf of the Institute and all present formally thank you, Sir, and say how much we value your setting the tone for the deliberations of the Roundtable itself later in the afternoon. In the same spirit, may I also thank all of you in the audience for your presence here today. Thank you again and goodbye.

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DAIM ZAINUDDIN The Honourable Dato' Paduka Daim Zainuddin was born in Kedah, Peninsular Malaysia and qualified as a Barrister-at-Law at Lincoln's Inn, London in 1959. He also studied urban planning at the University of California from 1977 to 1979. After serving initially in the Malaysian Legal Service, he left for private practice and achieved success in a number of business enterprises. He was, among others, Chairman of Peremba (the property development arm of the Urban Development Authority [UDA]), Fleet Holdings Sdn Bhd, and Syarikat Televisyen Malaysia Sdn Bhd (TV 3). In 1980 he was appointed to the Senate of the Malaysian Parliament and became a Member of the Dewan Rakyat in April 1982. He was appointed Malaysia's Minister for Finance on 14 July 1984.