Asia Economics Blog

The 'new fiscal consensus' holds that major advanced economies have the fiscal space to go big on stimulus and should do so in response to the pandemic. In a recent webinar sponsored by the Ashoka Centre for Economic Policy in Haryana, India, Olivier Blanchard made the case for the new fiscal consensus and Arvind Subramanian then responded on the relevance for emerging market economies such as India. This post extends elements of their analysis to the major emerging economies of Southeast Asia: Indonesia; Malaysia; the Philippines; Thailand; and Vietnam.

Blanchard explained that to preserve a stable debt/GDP ratio, the following condition must hold:

Co-Authors: Peter A. Petri; Fan Zhai    

In December 2015 the ASEAN Economic Community (AEC) went into effect. It was the culmination of a process that began with the Bangkok Declaration in 1967 and represents the most significant economic integration initiative among developing economies in the world. A notable milestone to be sure, but the region has a long way to go before it will be able to attain its original goal of creating a 21st century single market and production base. Meanwhile, ASEAN needs to nest the next stage of its cooperation program in the context of emerging megaregional trade arrangements, namely, the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), and the future expansions of both. In addition, it has to do this at a challenging time for the global trading system upon which it depends; the US-China trade war continues with no clear resolution on the horizon, the World Trade Organisation is at an impasse, and the Covid-19 pandemic has decimated global trade in the short run and may have long-term implications (UNCTAD 2020).

As we stumble out of the global COVID-19 pandemic, we need to examine how our economies have changed. In East Asia, the pandemic may result in higher costs for travel. In addition, the well-publicized disruptions to supply chains may not prove transitory. As a result, the East Asian development model of manufacturing goods for export may be less reliable.

This suggests a need to review contemporary economic policy. This piece looks at the shortcomings of exchange rate policy in Southeast Asia. A longer paper is available that provides full references to the relevant literature.

Introduction

ASEAN countries are characterized by considerable diversity but share an outward-oriented development strategy. While intra-regional economic cooperation over the past two decades has been important, global, not regional, interaction has been the key to ASEAN’s success story. Hence, the strong policy headwinds facing globalization in the post-Covid period threaten continued growth and prosperity in the region. Proposals in major markets to protect domestic industries by raising obstacles to trade vary from sectoral protection to more comprehensive “geopolitical” or “geoeconomic” approaches, such as: (1) re-shoring to encourage local production; (2) near-shoring to encourage trade with regional partners; and (3) friend-shoring to support trade with political and diplomatic allies at the expense of others. The result could be “geoeconomic fragmentation” (Aiyar, et. al., 2023).

Co-authors: Souleima El Achkar Hilal; Ian Nicole Generalao; and Rosa Mia Arao

This post draws from a paper presented in the ACAES session at the 2022 Allied Social Science Association Annual Meeting, program here. Youtube recording here.

When: 23 February 2022, 10:00am Philippine time (GMT+8)

Speaker: Hall Hill, Australian National University