Nazir Razak: Asean For A New Era

Asean For A New Era
18 Apr 2011, by Dato' Sri Nazir Razak, Senior Lecture
Venue: University of Indonesia

Professor Dr Firmanzah, Dean of the Faculty of Economics, Universitas Indonesia

Esteemed Faculty Members of Universitas Indonesia

CIMB Group Chairman and Board members

Bapak-bapak dan Ibu-ibu

Thank you Universitas Indonesia for inviting me to speak on “ASEAN for a new era”. I am very honoured to be here, at one of Indonesia’s most important institutions, a cradle of national leadership and learning.

For 160 years, this institution has stood at the forefront of national affairs. No doubt many of today's students will one day become national leaders. It will follow from the thrust of my speech today that these future leaders of Indonesia will find themselves at the helm of one of world's most dynamic economic regions. If not, then sadly, ASEAN will have failed to live up to its potential and its failure will be our collective responsibility.

YESTERDAY'S ASEAN

Ladies and Gentlemen:

We stand today between an old order and a new era. Corresponding to this are yesterday's ASEAN, and tomorrow's ASEAN. A new world unfolds before us, and we need a new ASEAN to meet its challenges and harness its opportunities.

The old ASEAN was defined by security concerns. A new ASEAN on the drawing board will stand or fall based on how its project of regional economic integration fares. I will argue that this project is a step change from what we have done before and that therefore it needs a step change in the way we, our governments and all of us, have supported, communicated and implemented the ASEAN project.

The success of this project depends on our having the collective imagination and will to take bold steps towards integration. It means we need buy-in from broad sections of society and we need leadership from every sector of society including business and academia.

Ladies and Gentlemen

In August 1967 five foreign ministers, Adam Malik from Indonesia, Narciso Ramos from the Philippines, S. Rajaratnam from Singapore, Tun Razak from Malaysia, and Dr Thanat Koman of Thailand - gathered in a small village southeast of Bangkok. They declared that their countries would come together to "establish a firm foundation for common action to promote regional cooperation in South-East Asia in the spirit of equality and partnership and thereby contribute towards peace, progress and prosperity in the region."

They created the Association of Southeast Asian Nations (ASEAN), an organization which, through thick and thin, and in a world that has changed around it, is the oldest and most important inter-governmental organization in Asia today. In their speeches they struck a common theme of an independent Southeast Asia.

Adam Malik described Indonesia's vision of a Southeast Asia developing into "a region which can stand on its own feet, strong enough to defend itself against any negative influence from outside the region."

Tun Razak said, "We the nations and peoples of Southeast Asia, must get together and form by ourselves a new perspective and a new framework for our region. It is important that individually and jointly we should create a deep awareness that we cannot survive for long as independent but isolated peoples unless we also think and act together and unless we prove by deeds that we belong to a family of Southeast Asian nations bound together by ties of friendship and goodwill and imbued with our own ideals and aspirations and determined to shape our own destiny".

Their regionalism was motivated by the common ideal of an autonomous Southeast Asia and a shared fear of external interference by parties on either side of the conflict raging in the war in Indo-China. They rejected a bipolar world order shaped by the Cold War and declared their independence of it.

This ASEAN, formed by the first generation, was the ASEAN of the diplomats. Its chief task was confidence building. Its methods were largely informal and consensual. It helped secure forty years of peace between its member countries. No small achievement. However its methods and habits are not enough for today’s task.

Forty years later, the context and imperatives of ASEAN are very different. So different that what is needed is, in effect, ASEAN 2.0, an ASEAN for a new era.

I believe the opportunity represented by this new ASEAN, and the stakes involved in its execution need to be better understood, appreciated and supported.

THE WORLD HAS CHANGED

Ladies and Gentlemen

The world has changed since ASEAN was formed, in ways that make regional cooperation more important, the economy more important, and scale more important than ever. For 3 main reasons:

1. The geopolitical landscape has changed greatly.

Since ASEAN’s Cold War birth we have seen the fall of the Soviet Union, the premature proclamation of the End of History in a world dominated by a single model of liberal-democratic capitalism, and now the emergence of a multi-polar world in which History is very much on the march again. The global order has gone from being rigid to deterministic to dynamic. From bi-polar to uni-polar to multi-polar. In such an environment, regional organizations are increasingly the key platforms for securing the stability of the international order.

2. Information technology is driving change at a greater rate and over a wider part of the world than at any time in human history.

Let’s compare the technological context within which ASEAN was founded and today’s context. Take the Apollo Guidance Computer (AGC) that provided on-board guidance for the Apollo 11 landing module in 1969. This state of the art system had 2k of memory, 32k of storage and a processor clock speed of 1Mhz. The iPhone 4 in your pocket has 260,000 times more memory, 1 million times more storage, and is 800 times faster.

Technological revolutions, from the printing press to the steam engine to the telegraph, bring revolutionary historical change. We are now in the middle of a social and political revolution driven by information and communication technologies.

The global financial crisis and the Arab Spring cannot be understood apart from the network effects of information technology and mass communication. Both are major disruptions of our political and economic order. Both arrived unexpectedly and propagated rapidly with unpredictable consequences. In a world of massively coupled and interactive systems, digital, financial, economic and climatic, the nature of risk itself is changing.

The upshot of this is that people, markets and movements are already linked in ways that are often impossible to untangle. From epidemics to financial crises, from climate change to political uprisings, opportunity and threat now arrive in globalized form, and on a scale that demands regional rather than national responses.

These are not just theoretical considerations. ASEAN's plan to build a regional community came out of the bitter experience of the Asian Financial Crisis of 1997 and the SARS crisis of 2003. Both were crises which required urgent practical cooperation across the region to avert disaster. Both experiences brought home how the countries of the region are integrated with, and dependent upon, each other.

3. The Great Rebalancing of the global economy is happening before our eyes.

The dominant story of our time is the rise of Asia and all that follows from it. This is what will be written about in the history books. Anyone who studies world history will read about “the Industrial Revolution.” It is described in that way, as Larry Summers points out, “because there were noticeable changes in standards of living in a human life span – changes of perhaps 50%. By comparison, however, at current rates of growth in Asia, standards of living may rise 100 fold, 10,000% within a human life span.”

The rise of Asia brings great opportunities but also severe competitive challenges to Southeast Asian economies. China and India are each larger than ASEAN and growing faster than ASEAN. By 2030 they are likely to be the largest and third largest economies in the world respectively.

A major reason why India and China are growing faster is that they are single economies and ASEAN is not. They draw on the advantage of having markets of a billion people each while we remain a set of economies with barriers to investment, trade and the movement of people between them.

The countries of ASEAN cannot tap the advantages of economic size without economic integration. An ASEAN Economic Community must be at the core of our response to the Great Rebalancing.

AN ADEQUATE RESPONSE TO A NEW ERA

Ladies and Gentlemen

These revolutionary changes have re-shaped the global economic and political order. We live in a new era, and our response must rise to the occasion of our challenge. If the ASEAN of the Cold War era was ASEAN 1.0, we need version 2.0 to meet it.

The good news is that today ASEAN has a blueprint and Charter which potentially reinvents itself for a new era. The bad news is that almost nobody believes ASEAN is capable of bridging the gap between present reality and these plans.

Let's look at the good news first. By 2008, the member governments had ratified a Charter for ASEAN, making it a legal entity with the powers to set up a rule-based inter-governmental organization dedicated to the formation of an ASEAN Community. This was a sea change in the scope and function of ASEAN.

ASEAN 1.0 was mainly a defensive alliance against global conflict in our backyard. ASEAN 2.0's core project is to anchor our economic relevance in a world economy whose centre of gravity has shifted into our backyard.

ASEAN 1.0 was an ASEAN of the diplomats. ASEAN 2.0 is an ASEAN of the people.

ASEAN's prior role was to preserve a peaceful status-quo. ASEAN 2.0 is about breaking the status quo to create a new and unique economic entity.
A project on this scale needs mobilization beyond the traditional circle of diplomats and government leaders. It needs other sectors such as business, academia and NGO’s to come together.

ASEAN 1.0 was a process. ASEAN 2.0 is a vast project with timed deliverables.

Among the three aspects of integration: economic, security and socio-cultural, identified by the blueprint, the ASEAN Economic Community (AEC) is the cornerstone effort. A successful AEC would boost income growth across the region to underwrite regional security. Successful economic integration would also drive the movement of ideas and people to bring an ASEAN social community into being.

The AEC is a plan to transform our region into a single market and a production base, competitive on the global market, by 2015. Our governments have promised to remove barriers to the free movement of goods, services, and investment between ASEAN countries to create a new regional economic entity.

If it functioned as a single economic entity today, it would be an “economic country” of 600 million people or 8.8% of the world population and boast a GDP of USD1.8 Trillion. Sitting at the nexus of both overland and maritime in Asia Pacific, it would be Asia’s 3rd largest economy, with a unique proposition of its own as the world’s most culturally diverse region and a cultural and trading bridge between China, India, the Middle East and the Pacific.

Individually, we disappear in the crowded and fast moving pack of emerging countries globally. In our immediate surroundings we are dwarfed by India and China. None of our countries has the combination of scale and skills to be globally significant.

Together, we are Asia's third great economic region and its geopolitical hub. Together we would be one of the world’s most important economic entities.

With such high stakes and only four years to go to 2015, how are we doing? Are we moving quickly enough?

We have made progress. An ASEAN Free Trade Area (AFTA) for goods originating in ASEAN is in effect. As of 1 January 2010, duties on 99.65% of all tariff lines have been eliminated thanks to a Trade in Goods Agreement (ATIGA). We also have agreements governing Services and Investments. We have adopted a Masterplan on ASEAN Connectivity.

However, outside a circle of ASEAN insiders the general public is not much aware of the AEC. Many people don't believe it can happen. Others think the plan is too ambitious and think that it should be scaled down.

I think the great challenges of our time absolutely requires bold action in response. Incrementalism will get us nowhere amidst the great shifts taking place in the world economy. The AEC is not overly ambitious. It is our implementation that is not ambitious enough. We need to take a more aggressive approach to its execution.

ASEAN MULTINATIONALS

Ladies and Gentlemen

The AEC is a step-change project that needs a step-change in our manner of implementation. We cannot continue to rely only on policymakers, regulators and diplomats to drive the change we need.

To begin with, we should involve the business community, not merely as a passive recipient of decisions made by diplomats and bureaucrats, but as the leading agents of the change we need. Right now, businesses are by-standers to the AEC process. A recent survey found that fewer than 20% of them have any plans for AEC 2015. More of them had plans for China than for ASEAN. Are ASEAN's plans not credible to business? Or are they simply not aware of them?

How and where companies decide from here on to locate production, hire their people, source supplies, and sell their products will be the key test of the effectiveness of AEC initiatives being put in place now. If we don't start seeing real change in the behaviour of firms, the ASEAN project will remain a pipe dream.

We cannot wait for the completion of multilateral agreements instituting an Economic Community before we invite businesses to come in. We need their cross-border activities and their regional expansion to catalyze the economic integration planned and agreed by governments.

Instead of the present one-way relation between the policy and business communities there should be a partnership between them.

Back in 2006 I challenged my own company, CIMB, to become a Southeast Asian regional universal bank. We set ourselves the goal of becoming truly ASEAN. We became the first bank to identify ourselves fully with the ASEAN community, its welfare and its objectives. We strive to make our organization, people, products and strategies oriented towards ASEAN.

Our Board is multi-ASEAN, our corporate structures are integrated across ASEAN, and our people see themselves as part of one ASEAN company. Some of our major businesses have moved their headquarters out of KL to Jakarta, to Singapore and soon Bangkok too. We are “Aseanising” our entire organization and we connect with our customers in each market as their local ASEAN bank.

This is an exciting and fulfilling project. ASEAN captures the imagination of our staff, shareholders and customers. We have tapped a genuine yearning among our employees, shareholders and customers to identify with the region and call it home. Our regional push would not have been so successful if the passion behind it did not strike a chord in people. Our ads, which you see all over ASEAN, would not work if they didn’t remind people of a reality they feel deep down.

In trying to be an ASEAN bank, we are passionate about supporting intra-ASEAN business and fostering a new generation of ASEAN champions. We're proud of successes such as our Thai customers venturing into the Indonesian market because they drew confidence from our also being Indonesian.

We wish, though, that we did not have to fight so many battles to make intra-ASEAN banking possible for our customers.

With four years to go to the targeted date for an ASEAN Economic Community, there is no common framework for banking in ASEAN that would let regional banks support homegrown ASEAN businesses and bridge their growth across the region. It is still harder to move talent, information and capital between ASEAN borders than out to Hong Kong, Dubai or London.

In fact we lack a common policy framework to support the development of ASEAN businesses. Regulators and government departments in all the ASEAN countries treat companies as either foreign or local. It is as if ASEAN does not exist. If we are serious about the AEC by 2015 then there should now be a category for ASEAN businesses, an "ASEAN Lane" between "foreigners" and domestic companies. ASEAN businesses have a catalyzing role to play in forming the ASEAN community. Helping them is to help build the Community.


ASEAN FINANCIAL SERVICES INTEGRATION

Ladies and Gentlemen

ASEAN’s progress in the capital markets also reflects insufficient ambition in how we bring our economies together. The announcement of the creation of a single website as a common branding platform and tracking portal for ASEAN stocks at the recent Finance Ministers' Meeting in Bali was welcomed positively. With actual trading linkages between the exchanges still to be worked out, this is a first step, a platform to promote ASEAN as an asset class. All this is well.

Meanwhile however, driven by globalization and the technological revolution I talked about earlier, the world's largest exchanges are in the midst of consolidating into giant exchanges. A merger is being planned between the London Stock Exchange, Deutsche Borse and NYSE Euronext. Each of these starts out already many times larger than all of ASEAN's exchanges combined. Together they will become a seamless high performance trading system of a huge number of stocks spanning geographies and time zones. They will make our national exchanges irrelevant and more dramatically, make ASEAN’s gradual approach look like “a Sony Walkman in a world of iPods”.

We need radical initiatives to confront the radical challenges ahead of us. ASEAN needs a bolder competitive response: A single equities exchange, now. But how?

The crucial first step has nothing to do with capital markets per se. We need a shift in the mindset of our national governments. Led by opinion makers in each of our countries, the leadership of ASEAN should thoughtfully redraw the line between those things we should protect as domestic reserves and those we should build together as a regional community. There is an understandable instinct that each country must have its own equities exchange just as it was once thought that each country must have its state owned "flag-carrier" airline or "national car”. Exchanges make poor national symbols. Markets are no longer physical places. Rather than get into national-ego contests over performance of stock exchanges we should be tracking only tangible outcomes such as GDP and direct investments and more importantly, per capita income, educational levels, health and other measures of well being of our people.

Once freed of such an outdated paradigm ASEAN should set up a totally new exchange, call it say, ASEANX, owned by ASEAN, i.e. all ASEAN countries. It could automatically recognise all presently listed companies from existing national ASEAN exchanges with over half a Billion USD in market capitalization. It could dual list them first but eventually all national exchanges would be relegated to being smaller companies exchanges. Existing exchanges will feel some dislocation in the advent of a new, larger ASEAN exchange. But it's a badly kept secret that in great transformations there will be winners and losers, at least temporarily.

The combined market capitalization of this exchange, if it existed today, would be USD2 Trillion. In comparison, the largest exchange in ASEAN, Singapore’s SGX, has a combined market capitalization of only USD620 Billion. ASEANX would still pale next to NYSE which is almost USD15 Trillion but it would certainly compare more favourably against the HKSE which is about USD2.7 Trillion. It would be a far more competitive platform for fund raising by our companies, which is ultimately what matters.

ASEAN MACHINERY

Ladies and Gentlemen

I suspect that one reason why ASEAN remains timid in its ambition is because the official ASEAN machinery is simply not ready. It is one thing to be a loosely knit organization of five countries reliant on informal links in a global backwater and another to be a chartered organization of ten member countries with a blueprint for a landscape-changing project, and with the centre of the world economy moving into your backyard. The ASEAN machinery has to be radically “upgraded” to meet its radically different new scope and role.

This is a familiar kind of challenge in the corporate world. If ASEAN were a corporate, my advice would be to force discontinuity and re-structure aggressively. This would involve new organisation structures, processes and imperatives as well as a rebranding to signal a new era. And let’s face it, the “hour glass” logo of ASEAN today is well past its “sell-by date”; it's like seeing the Atari logo in a room of X-boxes.

ASEAN’s shareholders, the member governments, should increase the funding of the Secretariat to equip them for their transformative mission and empower their executive team. Each member country should appoint an ASEAN Minister to its cabinet to focus this seriousness domestically. It seems to me that there is a mismatch right now between ASEAN’s plans and ASEAN’s organizational capability to execute those plans.

ASEAN IDENTITY

Ladies and Gentlemen

I often tell the staff of CIMB, "What got us here won’t get us there." The same is true about ASEAN.

A new and necessary step to getting there is to open up our sense of identity as Southeast Asians. We need to actively re-imagine our identities within the community we are determined to build. This is not an artificial exercise but a recovery of something which geography, ancestry and culture prepared us for. Our roots in this part of the world flourished with no regard for colonial boundaries imposed fewer than two hundred years ago. Our future lies in a recovery of that larger economic space.

Alongside our local, ethnic and religious identities, let us re-affirm our identity as citizens of a region defined by world trade. We should do this not just as individuals but also as organizations. I am myself a Malay with Bugis ancestry, a Malaysian and a citizen of ASEAN.

If I may be so bold as to suggest, UI, with its high scholarly strengths as an Indonesian institution, could also see itself as a centre of excellence for ASEAN. You have a key role to play in supporting Indonesia’s leadership of the ASEAN Community.

This morning the University’s Faculty of Economics signed a partnership agreement with CARI, the CIMB ASEAN Research Institute. CARI is the bearer of our commitment to ASEAN integration. It will undertake research and public advocacy in support of the ASEAN Community while leading the business community in support of it. Our two institutions will work together to extend FEUI’s educational and research contribution to ASEAN. A great place to start would be to understand how to inspire our people to also see themselves, proudly, as people of ASEAN.

PRICE OF FAILURE

Ladies and Gentlemen

If we fail to grasp the opportunity of building an ASEAN Community our credibility as a region is shot and our individual prospects are not bright. The world does not wait for us. Much of the external interest in Southeast Asian countries is premised on our promises of an ASEAN Community. This is not the nineties when a few ASEAN countries were the Tiger economies. None of those Tigers has regained their former prominence on their own. The field of emerging economies is crowded with new entrants. This time we either make it to the front together or disappear in the herd.

Our growth prospects are seriously curtailed as we miss out on the dividend that each of our economies would have reaped from economic integration. In the short term this would come out as lower growth figures. Over the long term we will miss out on what integration would have done to increase the scale, differentiation and sophistication of our talent and our markets

BACK TO THE FUTURE

Ladies and Gentlemen

Five hundred years ago we were a single economic region connecting China, India and the Middle East. We can be that again. An appreciation of that splendid past might help us overcome our timidity at moving forward.

ASEAN must break with the bureaucratic hesitancy of the past and step up to the challenge of a changing world to seize this opportunity. As the world “re-balances,” ASEAN finds itself at the centre of new trading networks and new markets for enterprise and hard work. Yet viewed over a longer time horizon, the new resembles the old. It’s very much “back to the future” a civilizational re-awakening.

The country in the midst of this all is Indonesia, ASEAN's largest economy and its most populous country. By 2015 the Indonesian economy will account for half of ASEAN's GDP. To call for ASEAN's rise is to call for Indonesia's rise. A prosperous ASEAN would be a prosperous Indonesia. This year Indonesia chairs ASEAN. With so much more riding on ASEAN, and just four years to go to 2015, now is a time like no other for Indonesia to step up in leading ASEAN.

There is a Chinese saying that the conditions of success are provided by the Right Time, Right Place and Right People. We stand at the threshold of a new era. Timing and geography conspire to bring ASEAN to the fore in a resurgent Asia. What we need now are the right human capacities. We need breakthrough leadership. Leadership that can pursue economic integration with the boldness, and speed needed to create a new ASEAN Community for a new era.

Thank you.