As ASEAN economies continue their path to safe reopening and returning to business, they must address growing economic challenges and identify how best to seize new opportunities for a resilient, inclusive and sustainable recovery.
The first challenge is Russia’s aggression in Ukraine, which has caused unprecedented suffering and sent shockwaves through the world economy.
ASEAN’s direct exposure to Russia and Ukraine through trade and investment seems to be limited. But inflation is rising as oil prices rise to their highest level since 2008. ASEAN net oil importers face considerable challenges with rising import bills. Food security and fragile supply chains are also at greater risk.
The second challenge is raising interest rates in the United States, which is complicating the battle for inflation amid higher uncertainty. Expanding the interest rate differential between the ASEAN economy and the United States and changing investor confidence can lead to abrupt changes in capital flows, currency devaluation and financial instability.
To maintain the momentum of recovery, the region must remain vigilant and be prepared for concerted action to avoid regional financial instability. In particular, authorities must deal with the combined effects of high oil prices, rising US interest rates, and revenue stimulus over time.
Against this background, ASEAN policymakers face three important policy priorities: strengthening regional cooperation to ensure a strong recovery; Increase domestic wealth consolidation; And increase investment for green and inclusive growth.
Regional cooperation can pave the way for a sustainable and resilient recovery.
Strong regional trade and investment have given ASEAN a buffer in trade and economic activity during the global recession. The Regional Comprehensive Economic Partnership Agreement, which went into effect earlier this year, is expected to expand this buffer. ADB will be a reliable partner for the regional economy by providing trade financing, technical assistance and knowledge solutions.
It is also important to deepen our local currency bonds and capital markets. ADB is supporting it through ASEAN + 3 Asian Bond Markets Initiative (ABMI). ABMI aims to develop the local currency bond market as an alternative source of funds for foreign exchange denominated bank loans to bridge the gap between currency and maturity in regional financing for investment and to reduce the risk of financial weakness. We also support the development and issue of green, social and sustainable bonds to help governments invest in environmental sustainability, climate change mitigation and adaptation, and resilience.
ASEAN’s efforts to strengthen food and energy security through regional cooperation, strengthen regional health security, and strengthen disease surveillance systems are critical to reducing risk and maintaining sustainability.
The second priority is the accumulation of skilled domestic resources. It is important to restore post-epidemic recovery and financial sustainability to sustain financial efforts to achieve sustainable development goals.
ASEAN has room for improvement here due to its relatively low tax revenue collection. Several ASEAN members have strengthened their tax administration through digital solutions. We are working with economics to make the process easier for taxpayers, which can increase voluntary compliance and improve tax policy formulation.
We know that international tax cooperation is the key to tax evasion and tax evasion. To promote this through exchange and coordination of knowledge on tax policy and administration, we have launched Asia Pacific Tax Hub.
The third priority is to increase investment in quality, climate-tolerant infrastructure.
Asia and the Pacific are at risk for the most devastating effects of climate change, and they are expected to get worse. At the same time, our region is the source of more than 50% of the annual global greenhouse gas emissions. We must recognize that the fight against climate change will win or lose in Asia and the Pacific.
ADB’s ambition is to provide $ 100 billion in integrated climate financing from 2019 to 2030, including $ 34 billion for adaptation projects to help the region respond to climate challenges.
ASEAN Catalytic Green Financing (ACGF) facility, owned and operated by all ASEAN members ADB is assisting in the development and financing of the green infrastructure project. It has raised $ 2 billion in public and private resources with the support of nine partners, including co-financing from the European Union, Italy, the United Kingdom and the Green Climate Fund under the Green Recovery Platform launched in COP26.
The ACGF helps reduce the risk of green investment and helps attract private capital by providing loans to cover high initial capital costs and by providing grants to the government to identify and prepare commercially viable green infrastructure projects.
The Energy Transition Mechanism, or ETM, is another innovative program launched last year by Indonesia, the Philippines and the ADB. ETM wants to catalyze private capital and accelerate the transition from coal to clean energy in ASEAN. Its goal is to shut down coal-fired power plants as soon as possible; Enhance clean, renewable energy solutions; And ensuring that the conversion is fair and affordable.
ETMs will provide low-cost financing, including concessional government funding, private sector investment, and the resources of charities. This innovative process has the potential to be the world’s largest carbon reduction model.
As ASEAN’s recovery from the Covid-19 epidemic moves into high gear, regional cooperation initiatives will be critical to meet the growing challenges and seize new opportunities to build a strong future.
Masatsugu Asakawa is president of the Asian Development Bank.