In a recent online session, experts
from the Asian Development Bank (ADB) suggested
that economic integration in Asia will continue
despite short-term political challenges such as
the geopolitical tensions in the South China Sea.
[1]
According to their analysis, the key
question regarding the expansion of intra-regional
trade and economic integration is not their
feasibility but the ramifications of such
developments on inequality and long-term economic
sustainability in the region.
Southeast
Asia is at the center of this endeavor. While this
gradual integration of distant and diverse
economies will undoubtedly show improvements in
certain economic indices, it
also carries the hazards
of widening pre-existing intra and inter-regional
disparities.
Thus, as states move towards
a more intimate coexistence with one another,
Southeast Asian countries must keep their sights
on protecting basic entitlements, in particular
that of ensuring food security.
Long-term
growth will be heavily dependent on this basic
socio-economic precondition. Furthermore, the
success or failure of this endeavor will not only
impact the Association of Southeast Asian Nations
(ASEAN), but also Japan, China and the four Asian
tigers - Hong Kong, Singapore, South Korea and
Taiwan - as their long-term economic health is
also increasingly linked to the growth in the
historically peripheral market.
Opportunities in Southeast Asia appear
abundant. The 10 ASEAN economies - ranging from
Cambodia, Myanmar, Laos, Thailand, Malaysia and
Vietnam to the Philippines, Indonesia, Singapore
and Brunei - are home to key natural resources and
the states control strategically significant
territories and waterways. Considering Southeast
Asian economies' combined gross domestic product
(GDP) of US$1.9 trillion with an annual growth
rate of more than 5% in the past decade, the
region has the foundations for becoming a major
destination for trade and source of manufacturing.
Investments in ASEAN from South Korea and
Japan have been significant in the last few years
as manufacturing in Indonesia and Vietnam are
expected to skyrocket, replacing the BRIC
economies - Brazil, Russia, India and China - as
the new high-growth zone of this decade.
Pursuant of the goal of becoming a more
prominent economic player in the world, ASEAN is
on its way to forming the ASEAN Economic Community
(AEC) to establish the foundations of a single
market and production base.
Furthermore,
ADB has raised the topic of developing a coherent
exchange rate policy to facilitate intra-regional
trade. Expectations for this economic union are
running high; Malaysia's International Trade and
Industry Minister Datuk Seri Mustapa Mohamed
predicted that when the AEC is ready in 2015, the
region's growth rate will match that of China and
India. [2]
However, all this can be
seriously constrained by external pressures. In
pursuit of sustainable growth and development,
Asian economies face three interconnected economic
realities that will continue to influence the
regional economy in the immediate future: first,
the intrinsic connection between regional economic
growth and China's industry; second, the slowdown
of China's rapid growth; and third, the increasing
ecological and political pressure on the prices of
foodstuffs.
Since the turn of the
millennium, the People's Republic of China
replaced Japan as the main destination of
intermediate inputs from Southeast Asia while
South Korea and Japan became increasingly
dependent on China's industry for their own
economic growth. Exports to and imports from
China's titanic industry and market had become a
staple of the region's growth.
However,
recent indicators have begun to show signs of what
has always been feared: a slowdown of China's
astronomical economic ascent to the top. While
Beijing reported 7.6% GDP growth in the second
quarter of 2012, supposedly the trough of the
economic deceleration, inconsistencies in official
statistics have led some economists to reevaluate
China's growth at somewhere between 7% and 7.3%.
[3]
This is not to suggest that China will
suffer an immediate economic decline; however,
harnessing its potential and sustaining long-term
growth will require massive restructuring, which
seems unlikely in the near future considering the
inflexibility of the Chinese Communist Party.
China's worsening economic performance has
serious implications for the future of Southeast
Asia's economic growth. The intimate connection
that once promoted growth and development has left
several economies overly reliant on China and made
the market more vulnerable to external shocks.
This is particularly troubling as the eurozone and
United States economies are still struggling to
get back on their feet.
More urgently, the
slowdown in China will reduce trade and income,
which will cause the rising cost of grain imports
to be more burdensome.The ADB noted that rising
food prices significantly contributed to inflation
in the region and that the nature of the current
spike in prices, a supply-side issue caused by
recent droughts, made it difficult for states to
intervene. In fact, misdirected subsidies or
flawed government intervention to counter external
pressures may not only hinder economic integration
but also worsen the living standard of the people
in desperate conditions.
Rising cost of
food has been limiting regional growth over the
past decade. In April 2011, the combined surge in
the cost of fuel and food elicited concern from
the ADB, which estimated that the regional economy
may be reduced by up to 1.5% and push 64 million
people into extreme poverty. [4]
With 600
million people in Southeast Asia, the ability to
ensure food security and tap into the vast human
resource is not just a prerequisite for economic
development but also a social, pathological and
moral necessity.
Asia is facing a similar
challenge this year. Although the situation is not
nearly as bad as the crisis in 2008 when rice
prices tripled, fuel prices have also been rising
since January because of the ongoing political
standoff over Iran's nuclear program (See "US
faces sanctions dilemma in East Asia", July
21, 2012) and the rising cost of oil inevitably
influences food prices.
In addition,
short-term shocks to markets when exposed to the
economic environment beyond their historic borders
may reduce individual income in certain sectors,
aggravating existing burdens imposed by rising
food costs.
While talks are underway to
create a regional grain reserve to combat sudden
shocks to the market, ASEAN economies currently
remain under the mercy of vicious changes in the
global grain prices.
This will hinder the
development of a consumer market and in turn
affect the overall development of the region.
Therefore, food security in Southeast Asia is
paramount for the future growth of ASEAN and Asia
as a whole.
Notes: Special thanks to
Avram Ramage, Washington-based analyst of
International Affairs, for a constructive
discussion.
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