Economic convergence requires further reforms: IMF official

For economic convergence, the region is urged to enforce decades-long process by which Asean countries will raise their living standards to join the ranks of advanced economies, he said during his keynote address at a dinner organised by Bank Negara Malaysia in conjunction with the 19th Asean Finance Minister's Meeting.

He praised the region for the recent economic performance, with growth of 6.5 per cent annually since the 2008 crisis. The region also remains a magnet for foreign direct investment and portfolio flows, hitting a record high of US$125 billion in 2013 - 9 percent of the global total. Yet, for future growth, the region needs to do more. 

The first area lines in the employment structure. 

Lipton noted that while two-thirds of people in Malaysia live in urban areas, and services and industry represent about 80 per cent of the economy, other Asean countries still have large traditional farming economies. 

"Thailand has a disproportionately high labour share in agriculture, largely unchanged over the last 15 years," he noted. 

The second area where reforms can accelerate convergence is closely related: upgrading labor force skills and raising the level of participation in the labor force. In a global economy increasingly driven by technological innovation, a skilled work force is essential. That means that the educational system must keep pace with economic change. In this regard, ageing population present headwinds. 

The third lies in infrastructure gaps. 

"The ADB has estimated Asia’s infrastructure needs at $8 trillion over 10 years, of which about $1 trillion is here in Asean. Our World Economic Outlook examined this issue last year and found that infrastructure investment can raise potential output and be self-financing when there is substantial slack in the economy. Many countries have the fiscal space to scale up infrastructure investment. But they need public financial management systems to ensure efficient spending," he said.

Encouraging home-grown innovation is the fourth important element in accelerating convergence. Innovation requires talent, funding, and tolerance for risk taking. Also key are protection of intellectual property rights and a level playing field, he said. He also noted that despite relatively strong growth and increasingly sophisticated exports, Asean's total factor productivity lags Korea and Taiwan, both climbing toward high-income status. That partly reflects the success of Korean and Taiwanese firms in leapfrogging the frontiers of technology at an early stage of development.

"No doubt, the process of convergence is a long one; it extends over several decades. Convergence is about raising worker productivity and closing gaps in technology, infrastructure, education and financing. But that will require a range of reforms; for example, scaling up infrastructure investment, raising educational attainment, speeding up structural transformation, and removing impediments to trade and investment," he said.

 

 

On the sidelines 

The Asean ministers and central bank governors' meeting is in the run up to the December 31 implementation of the Asean Economic Community (AEC). Malaysia is the 2015 Asean Chair.

Tomorrow, the finance ministers will have working luncheon with the US-Asean Business Council's Financial Services Committee, where regional capital markets development, the digitization of financial services and data management, and financial inclusion will be among the issues to be discussed. 

“2015 is a critical year for Asean with the advent of the AEC on December 31,” said Council President & CEO, Alexander C. Feldman.  “Over the last decade and a half the Council’s financial services companies have played an important role in the discussion regarding AEC development and how it will be financed.  The regional financial integration that Asean offers will help to leverage the collective clout of the ten member nations, ensure that Asean’s connectivity goals are realized, and help play a crucial role in the ultimate success of the region. “

The delegation will recommend closer interagency collaboration and consultation across governments, including between finance and information technology & communications ministries, as well as central banks. Delegates seek to expand stakeholder consultation with all of these ministries with respect to digital data.

“We are honoured to be invited again this year to meet with the Asean finance ministers and central bank governors.  We plan to continue our discussions on our mutual interest in advancing financial inclusion throughout the region,” said Juan Luis Ortega of ACE.  “One topic we aim to highlight with the Ministers this year is micro-insurance.  Our plan is to discuss how the private sector can work together with key policymakers to effectively meet the increasing demands throughout Asean for micro-insurance.”

ACE and Citi will also lead the delegation in two days of bilateral meetings prior to the March 21 luncheon.  The delegation is convening these country-specific meetings with individual ministers of finance and central bank governors, as well as senior US Treasury officials and the Chairman of the Asean Capital Markets Forum.