BREXIT
need not lead to the complete disintegration of the European Union (EU). One
can be certain, though, that there will be a significant slowdown of growth in
most of the member nations of the EU, including Germany.
The incipient recovery in some of the
countries of the EU will be further delayed. The great economic powers of the
twentieth century, sometimes referred to as the American Century, can no longer
be expected to be engines of growth of the global economy.
The United States, Japan and the EU will have
to take a back seat to the three economic powers that will propel the Asian
Century, i.e. China, India, and the ASEAN Economic Community (AEC) which can
continue to grow at annual average rates of 5 to 6 percent as the advanced
countries of the West (cum Japan) will languish at less than 2 percent per
year.
Both
China and India have very large populations and can increasingly depend on
domestic consumption for their economic growth. At least two countries in the
AEC, Indonesia and the Philippines, are also achieving above-average rates of
GDP growth because of their large domestic markets which are increasingly
peopled by middle class families.
These
two emerging markets in the ASEAN are the least dependent on exports to grow
their GDP. Vietnam, the only other ASEAN
country included in the list of the Next Eleven among the emerging markets (the
first four used to be the BRIC countries), is still highly export dependent but
can also, like China, stimulate more its domestic consumption for attaining
high growth.
The seven other countries
in the ASEAN Economic Community (Thailand, Malaysia, Singapore, Brunei,
Myanmar, Cambodia and Laos) can shift more and more of their trade with their
fellow ASEAN economies and with China and India (without decoupling with the
rest of the world) in order to lessen the impact of the slowdown in the EU, the
US, and Japan as a result of BREXIT and the ensuing crisis in the EU.
Sometime
in 2012, the late Singaporean leader Lee Kuan Yew, already foresaw BREXIT when
he said in an interview that he expected the EU to face serious problems of
disunity because EU was growing too fast and was in too much of a hurry to
attain, not only economic integration but also socio-political unity. The way I would interpret the words of Lee
Kuan Yew is that because of sharing a common cultural background (Greco-Roman
civilization and the Christian religion), the leaders of the European nations
entertained an understandable dream of arriving one day at some sort of a
United States of Europe. They were not
satisfied with just having a common market and a economic free trade area. They had hopes of arriving at common policies
about fiscal discipline, human rights, immigration, climate change, and other
non-strictly economic objectives. In
fact, their deciding to have a common currency, the Euro, implied that they
could agree on such issues as the prudent limit to government deficit spending
and other politically charged decisions.
It was obvious during the Great Recession that it was very difficult to
have a common currency if, just to cite a concrete example, Germany and Greece
could not agree on what level of austerity is politically acceptable to their
respective constituencies. In other
words, a common monetary policy can only work in the long run if there is a common
fiscal policy, which in turn would depend on a common political philosophy.
The ASEAN
Economic Community (AEC), which is still a work in process, need not face the same obstacles
because from the very beginning the member nations have never entertained the
possibility of a United States of the ASEAN.
They have very different cultural and religious backgrounds. Just think of Indonesia being a predominantly
Muslim country, the Philippines a predominantly Christian country, Thailand a
Buddhist country, etc. From day one of
the AEC, the country’s leaders have focused exclusively on the economic
advantages of a free trade area, i.e. a larger consumer base and economies of
scale in production. The leaders will be
not be distracted with having to arrive at a
common approach to thorny issues
as human rights, the death penalty, how
to define democracy, limits to
government deficits or to military spending, etc. which had preoccupied
the European leaders to a great extent.
That is why in my opinion, the objective of the AEC in achieving a freer
flow of goods, services, capital, investment and people can be attained sooner
than in the EU.
I am not
suggesting, however, that it will be smooth sailing to a veritable common
market free of non-tariff barriers.
Nationalism dies hard. As in the
case of Indonesia, we have seen a two steps forward and one step backward
scenario as far as openness to foreign direct investment. In the last Administration of President SBY,
there were increasing restrictions on foreign investments in the form of larger
domestic equity requirements in strategic industries like mining and public
utilities. In the present Administration
of President Jokowi, a realization that these protectionist measures were
hurting the economy has led to a greater openness to foreign investment. As of June 22, 2016, the Indonesian
government opened 35 new sectors to foreign participation by revising its
Negative Investment List, especially in the services and trade sectors. With these reforms, the Widodo Administration
hopes to attract some $44 billion worth of FDIs in 2016. The same turn around can be happening in
the Philippines under the new Administration of President Rodrigo Duterte. Whereas the last Administration of former
President Benigno Aquino III refused to remove the restrictions against FDIs
contained in the Philippine Constitution, the Duterte Administration has
announced that it will favor the amendment to the Constitution to allow more
equity investments in public utilities, mass media, education, telecom and
transport. Vietnam is also known for
having liberalized its policies towards FDIs in 2015, including a more liberal
approach to the foreign ownership of land.
Of
course, the greater openness to FDIs will benefit not only the investors coming
from the ASEAN region but also those from outside the region, especially the
Japanese, the Koreans, the Taiwanese and the Chinese. One can, however, observe the trend of a more
rapid rise of intra-ASEAN investments in the last two years, especially in such
sectors as food manufacturing, banking, retailing and agribusiness. In the same way that American multinational
enterprises contributed to achieving the common market of the EU by integrating
their manufacturing operations across countries in the European continent,
Japanese firms, among others, will also contribute to the faster integration of
manufacturing operations across the ASEAN countries in such sectors as
automotive and other transport vehicles, electronics, appliances, and metals
manufactures. We can also expect faster
integration in E-commerce, logistics and health services, including medical
tourism, in which Thailand, Singapore and Malaysia have pioneered but whose
examples can be emulated by the countries that are still enjoying a demographic
dividend over the next thirty years, such as Indonesia, the Philippines and
Vietnam.
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