Illustrative photo (Photo: AFP)Hanoi (VNA) – Member states of the Association of Southeast Asian Nations (ASEAN) shouldprioritise progress on regional initiatives to cope with major economicheadwinds in the context of increasing US-China trade tensions, according toeastasiaforum.org.
In the financial sector, the US Federal Reserve (FED) raised interest ratesfrom 2.25 to 2.5 percent in December 2018, and forecast the possibility offurther increases in 2019. Additional interest hikes could trigger capitalpull-outs from Southeast Asian countries as investors move funds to seek higheryields in the US.
Capital must be well managed, or else, the region may face financialinstability, the website wrote.
Regional economies must brace themselves for future economic and financialturbulence. They can cushion the impact through regional initiatives like theASEAN Economic Community (AEC) 2025, ASEAN-Hong Kong Free Trade and InvestmentAgreements (AHKFTA and AHKIA), Regional Comprehensive Economic Partnership(RCEP) and Chiang Mai Initiative Multilateralisation (CMIM).
Eastasiaforum.org said that policy-makersshould see the completion of the AEC 2015 as priority, which helps the tenmember states to achieve five objectives: a highlyintegrated and cohesive economy; a competitive, innovative and dynamic ASEAN;enhanced connectivity and sectoral cooperation; a resilient, inclusive,people-oriented and people-centred ASEAN; and a global ASEAN.
Advancing the AEC 2025 will enable businesses to tap into the integrated marketof over 600 million people, rendering regional economies more resilient to theincoming headwinds.
In addition, governments ofthe Southeast Asian countries are recommended to ratify the AHKFTA and AHKIA sothat the treaties can enter into force in early 2019 as expected. They willenhance cross-border flows of goods, services and investment between ASEAN andHong Kong.
The agreements will not onlyallow firms to enjoy greater access to goods and services markets and betterinvestment protection, but also enable the ASEAN nations to further tightentrade and investment ties with China. The latter will help the Southeast Asianeconomies to recuperate from any damage that future Washington–Beijing tradespats may inflict on them.
The ASEAN authorities shouldalso concentrate on wrapping up RCEP talks, making this 16-economy free tradebloc encompass a market of 3.6 billion people that contributes to a thirdof global GDP. It will cover 29 percent of global trade and 26 percent of theworld’s foreign direct investment flows.
Concluding the negotiation willcreate more opportunities for businesses to deepen their supply chains, andprovide RCEP economies with another means to diversify their economic relationsand cushion against the negative effects of future US–China trade war spats.
Finally, the ASEAN nationstogether with China, Japan and the Republic of Korea (ASEAN 3) should advancethe CMIM, a regional financial safety net under the ASEAN 3 framework.
Launchedin 2010, the scheme provides financial support through a network of currencyswaps to help the ASEAN 3 nations weather their balance-of-paymentsdifficulties.
Because future Fed rate hikescould trigger investor panic leading to financial instability and capitalflights in certain regional economies, the CMIM can provide financialassistance to alleviate such problems.
A major hurdle for implementingthe AEC 2025 is a lack of coordination among domestic ministries and agencies.Individual ASEAN countries must sort out how to improve coordination among theinvolved authorities. Certain domestic hurdles must also be cleared for asuccessful ratification of the ASEAN–Hong Kong treaties.
Planned elections in Australia,India, Indonesia and Thailand in 2019 may delay the conclusion of RCEPnegotiations in the first half of 2019. And if the momentum of RCEP talks picksup in the second-half of the year, the parties’ different positions andpreferences will still need to be reconciled to seal the deal.
Regarding the CMIM, while alaudable agreement was signed in December 2018 to create more favourableconditions that will enable the regional financial safety net to better assistin a crisis, efforts to advance other aspects of the CMIM have been lacklustrein recent years.
For one, its size has remainedthe same at 240 billion USD since 2012. With this amount, the scheme can atbest provide simultaneous lending support to a few small- and medium-sizedeconomies should they come under a crisis. The participants must push for anexpansion of the CMIM’s size.
US–China trade tensions and Fedrate hikes will likely generate undesired effects for the Southeast Asianeconomies this year. Despite the challenges of the above initiatives, the ASEANcountries must collectively pursue them to navigate through the coming economicheadwinds.-VNA
VNA
