The 36th ASEAN Summit will take place on June 23 in Vietnam against the backdrop of severely damaged business and investor confidence as an impact of the COVID-19 pandemic. Containing and mitigating the spread of the pandemic is the current priority of all ASEAN member states, along with a concerted effort to shore up public health systems.
As countries around the world debate how quickly they might reopen their economies after lockdown, some ASEAN countries like Vietnam are largely ahead of the curve. Vietnam ended on April 22 its nationwide social distancing campaign that shut down nonessential businesses and life has returned to a striking level of normalcy within a month, with no reported infections.
Other ASEAN countries are taking up similar containment and recovery strategies as they unveil economic stimulus packages of unprecedented size, scale and scope. But these actions also come with a huge and unavoidable economic cost.
While many people face the risk of loss of life, a great many may face a loss of livelihood. Companies are facing a loss of income across all sectors. Many of them are downsizing and laying off workers.
A deep recession is unavoidable. Economists predict that this pandemic presents a systemic economic challenge of much greater gravity than either the 1997 or 2008 financial crises, and its impacts are expected to last longer.
While individual countries are making strenuous efforts to successfully contain their outbreaks, there are serious flaws in international cooperation strategies. Since the emergence of COVID-19 in December 2019, countries have been acting in almost complete isolation from one another. It was not until March 25, 2020, that the United Nations launched a US$2 billion global response plan to fund the fight against the pandemic.
It is unclear how ASEAN, as a regional block, either endorsed the UN plan or is benefitting from it. On April 14, the ASEAN Plus Three leaders meeting committed to establishing an ASEAN COVID-19 Response Fund, but the details and composition of individual contributions have yet to be defined.
COVID-19 containment measures like lockdowns, social distancing, international travel bans and freight transport restrictions were imposed based on the contagion rates of individual ASEAN countries and the capacity of their healthcare infrastructure. Planned unemployment subsidies vary from country to country depending on their fiscal space, as with the export ban on important commodities. Migrant workers living in heavily infected countries have been banned from traveling.
In the last two months, epidemic-defined borders replaced the physical borders between ASEAN countries, resulting in economic silos. This scenario represents the collapse of the grouping’s “One Community, One Response” vision. Given the range of developmental stages and infrastructure gaps across the region, the adoption of these country-specific measures is understandable. However, it is myopic, unsustainable and potentially counterproductive. All will lose if the virus is not eradicated in every member country, because sooner or later, the disease will reappear and thus prolong the economic meltdown.
An economic crisis caused by a virus that ignores national borders cannot be tackled successfully in this way. ASEAN works when individual countries think about each other.
ASEAN can defeat this invisible adversary and lessen the adverse economic impacts with sound, regionally coordinated actions and strong leadership. To succeed, the forthcoming ASEAN Summit needs to achieve at least three important goals.
First, ASEAN leaders must show that they can work together to implement the well-coordinated regional plan that was announced during the special summit on April 14. While deepseated differences remain among member countries, it is important for their leaders to focus on coordinated actions to save lives and jobs. Such actions include sharing successful test results of any candidate drug treatment or vaccine so that their production and supply can be scaled up quickly to meet regional and global demands.
Second, ASEAN can show leadership in stimulating the global economy by quickly rolling back the trade restrictions imposed during the pandemic and concluding the Regional Comprehensive Economic Partnership (RCEP).
Experience in the past three years shows that tariffs can slow global economic growth. On the other hand, concluding the RCEP negotiations will help revive business confidence and stimulate growth – a much-needed shot in the arm for the global economy at this juncture of the pandemic.
Last but not least, ASEAN leaders need to offer a coordinated and synchronized fiscal stimulation plan that is substantially bigger than what the 10 countries have announced. Both monetary and fiscal stimulus measures should be designed to fight prolonged worldwide recession and to keep ASEAN production networks alive. Stimulus measures can also be an opportunity to invest in economic transformation and technological innovations that are necessary to deliver sustainable development.
The commitments described above will certainly improve business and investor confidence in ASEAN’s ability to navigate through the unprecedented economic challenges induced by the pandemic.
While ASEAN countries have varying industrial and financial structures, the only effective way toward recovery at national levels is for member countries to fully mobilize their entire financial system: bond markets, banking systems and in some countries, even pension systems.
The use of support measures such as preferential loans, loan guarantees and tax abatements could support the transition to a low-carbon circular economy and enhance the resilience of production systems. Recovery-related trade and investment plans will be crucial for ASEAN member states to achieve global commitments by 2030, such as the Sustainable Development Goals and the Paris Climate Agreement.
Building on their announced plans, member states should strengthen the functional effectiveness of the ASEAN Agreement on Disaster Management and Emergency Response by enhancing budgetary support.
ASEAN leaders need to offer a coordinated and synchronized fiscal stimulation plan that is substantially bigger than what the 10 countries have announced.
Senior energy economist, the Economic Research Institute for ASEAN and East Asia (ERIA). The views expressed are personal.
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.