Integration 'losers' to rely on domestic policies to help them

MANILA, Philippines - National policies would have to take care of sectors that would be adversely impacted by the economic integration in 10 countries that make up the Association of the Southeast Asian Nations.

At the launch of the Asian Economic Integration Monitor April 2014 in Makati on Tuesday, Iwan Aziz, Office of Regional Economic Integration (OREI) head of the Asian Development Bank, said governments know best how to help the most vulnerable of their population to cope with the effects of integration.

He noted that each of the member states of the ASEAN have been taking initiatives to ensure that their people would be able to manage the effects of integration.

"So there is  a process of integration that's taking place, but why is there inequality? My argument is that all these cases,  in each individual country, could be addressed by domestic policies. In each individual country, there are social safety nets in place such as...providing social security, health insurance, " Aziz said.

When European states started to undertake integration, it had put up a number of regional funds and initiatives to address inequality among them. 

The website of the European Commission showed  that it first created the European Social Fund (ESF)  and the European Agricultural Guidance and Guarantee Fund (EAGGF) in 1958 to "help implement the common policies".

In 1975, the European Regional Development Fund (ERDF) was put up in 1975 following the accession of Denmark, Ireland and the United Kingdom. The fund sought to "assist those regions affected by industrial decline, and to counterbalance the significant financial support allocated to the agricultural industries of the Member States."

The ERDF also "introduced...the notion of 'redistribution' between richer and poorer regions of the Community."

Between 1986 and 1987, the Integrated Mediterranean Programmes (IMP) was introduced to help the southern regions of France, Italy, and Greece overcome competition from Spain and Portugal, which entered the Union then.

"Of course, it would be more reassuring if there is a regional social safety net, but even with the regional financial safety net, there have been problems, and regional financial integration is not moving fast enough," Aziz added.

ASEAN+3 (China, Japan, and South Korea), has put up the $120-billion Chiang Mai Initiative Multilateralization (CMIM), a multilateral currency swap arrangement among them. The fund was set up following the Asian Financial Crisis in the late 90s and it seeks to "address the balance of payments and short-term liquidity difficulties in the region." and "to supplement existing international financial arrangements."

Other safety nets

Diwa Guinigundo, Deputy Governor of the Bangko Sentral ng Pilipinas, said that besides the CMIM, other safety nets include reciprocity, market access, and national treatment.

Guinigundo said that as of end 2013, about 72 percent of the ASEAN Economic Community measures have been adopted. ASEAN member states had accelerated the establishment of the ASEAN Economic Community at end 2015 for the five largest economies of the region - Indonesia, Singapore, Thailand, Malaysia, and the Philippines.

Other member states were given the option to join the AEC at a later date. The AEC envisions ASEAN members, with a combined population of 600 million,  forming a single market and production base.

Gilberto Llanto, president of the Philippine Institute for Development Studies, said a regional fund for social safety nets is something that should be thought about and considered.

"A social fund is something that can be raised. I am not aware of any social fund now. What we are seeing are infrastructure funds and financial safety nets. I think it is because they found it very difficult even to come up with these financial safety nets," he said.

"I think a regional social initiative would be good. It is in the realm of what we call regional public goods," he added. "At the back of our mind, we think that there are people who would be jobless [because of integration]. Fortunately for us, we have the CCT (Conditional Cash Transfer), and the government is improving the National Health Insurance Coverage." 

Llanto said integration would force the government and the private sector to take a hard look on how to boost the country's competitiveness.

"Competition is not bad, it would result in lower prices for the consumers and lower costs for producers. what is and is if you continue with protectionist sentiments among the business enterprises and one thing going for us is that this external development really forces us to look at ourselves. The alternative is autarky, you isolate yourself, and we can't do that."

Llanto also said that the government has been initiating measures to help our industries and businesses become competitive. These include reforming the regulatory framework and laws to better adapt to competition.

Unemployment

However, according to University of the Philippines economist Benjamin Diokno, the Philippines is ill prepared for competition and integration.

He noted that although the Philippines has posted better than expected growth rate in recent years, it has failed to create jobs for its population.

"Among the 'original' ASEAN-5, the Philippines has the worst unemployment record. While unemployment rates were falling in its ASEAN-5 neighbors, it has remained unchanged in the Philippines. Unemployment rate has worsened to 7.5 percent in January 2014," he said.

The Philippines also received the least FDIs among ASEAN-5 peers,  has the second poorest quality of overall infrastructure, and the poorest quality of port and air transport facilities, he said.

He cited other problem areas for the Philippines: corruption problems, poor protection of property rights, high taxes (corporate income and personal income).