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Mekong Countries: Regional Integration Holds Key to Accelerated Development

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
July 2006
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How to tackle uneven development within Southeast Asia has been a hot topic among policymakers in the Association of Southeast Asian Nations (ASEAN) in recent years and the focus of several regional initiatives. Although Cambodia, the Lao People’s Democratic Republic, and Vietnam—the three Mekong countries—have made impressive strides since launching their economic reform programs in the 1980s and early 1990s, more needs to be done to help these less developed economies catch up with their more advanced neighbors. There is broad understanding that this catch-up is important not only for the Mekong countries themselves but also for efforts to accelerate economic integration in the region. As Cham Prasidh, Cambodia’s Minister of Commerce, observed, “We are like wagons hooked to a fast-speed train…if our wheels are not round like the ASEAN-6, we will bounce on the rails or just derail. When we derail, the locomotive will derail, too.”

Can regional integration help quicken the pace of development in the Mekong countries? A high-level conference in Cambodia on June 26–27 took up this question. The conference, organized by the ASEAN Secretariat, the IMF, and the royal government of Cambodia, brought together government officials from the three Mekong countries, neighboring countries, and development partners, as well as officials from multilateral financial organizations, businesspeople, and academics.

Cambodian Prime Minister Samdech Hun Sen set the tone, stressing the potential benefits of regional development and the vital role played by cooperation. “Our past experiences,” he said, “have taught us that the lack of cooperation among nations in the Mekong region has made the region vulnerable to external shocks and mired in poverty.” The lesson to be learned from this, he added, is the value of greater integration and the resilience that can be gained through regional development. In their opening remarks, IMF Deputy Managing Director Takatoshi Kato and ASEAN Secretary-General Ong Keng Yong echoed these sentiments.

Recipe for progress

In the view of Suiwah Leung (Professor, Australian National University’s Crawford School of Economics and Government), if the Mekong countries are to reach their potential, they must complete the transition to more efficient market-oriented economies. Market orientation is also essential if these economies are to compete in an increasingly integrated and globalized economic environment.

What specific steps are needed? According to Leung, the key reforms are improving legal and regulatory systems, developing stronger banking and financial sectors, and reducing the role of the state in the economy. Leung also pointed out the importance of reducing the costs of services, such as telecommunications, transport, and electricity, to enable the Mekong economies to increase foreign direct investment inflows and participate in the production networks of East and Southeast Asia. Although most participants subscribed to this thesis, many also emphasized that major investments would be needed in infrastructure and human resources, especially in education and health care. Such investments—important for any country—are particularly critical in the Mekong countries, they argued, given the legacies of war and upheaval. There was a clear consensus that corruption in all its forms must also be tackled if these economies are to attract private investment on any scale.

A paper by Martin Stuart-Fox, Emeritus Professor of History at the University of Queensland, Australia, explored the extent to which political culture might also influence a country’s pace of development. He argued that economic development potentially faced more obstacles in cultures where patronage and hierarchy were more deeply rooted—such as in Cambodia and Lao P.D.R.—because there was an inherently higher risk of resistance to policies and programs that benefit the nation-state but threaten the ruling party’s monopoly on power.

Stuart-Fox’s thesis prompted a vigorous debate, with a number of participants contesting the assertion that certain cultures were more prone to political patronage or less conducive to economic development. Stuart-Fox agreed that such an outcome was not preordained. He cited the example of Thailand, a country with a cultural background similar to that of Cambodia and Lao P.D.R. but one that has been successful in encouraging development. However, he argued that the first step to overcoming the obstacles to development is to recognize the potential problems that a culture of political patronage poses.

Integration and its rewards

The role of regional integration and cooperation in advancing reform and development in the Mekong countries was a prominent topic of discussion. Fukunari Kimura, Professor of Economics at Japan’s Keio University, highlighted the substantial benefits that less developed economies could draw from regional integration. His research suggested potentially big payoffs for the “ASEAN latecomers,” as production processes in the manufacturing sector can be efficiently divided into many segments, with labor-intensive segments located in those countries that can offer inexpensive labor and low “service link” costs that facilitate cross-border integration with other production segments. Implemented effectively, regional integration could greatly accelerate the capacity of the Mekong economies to participate in the regional production networks that are a growing feature of the East Asian economy.

Another important integration issue is the role of bilateral and regional trade agreements. Conference participants had a lively exchange of views on this topic, and opinions were divided on whether the benefits outweighed the risks when it came to the contribution these agreements made to the region’s development. Some participants, such as Kimura, suggested that the risks associated with the proliferation of regional trade agreements were rather low—mainly because most intraregional trade is already taking place at very low tariff levels. He also discounted the dangers posed by the oft-cited “spaghetti-bowl” phenomenon, where overlapping trade arrangements result in excessively complex and opaque trade regimes.

Others were more cautious. Fred Burke, Managing Partner of Baker & McKenzie in Ho Chi Minh City, argued that the proliferation of trade agreements was imposing significant costs on the private sector. IMF economist Patrizia Tumbarello also cautioned that the proliferation of regional trade agreements could lead to an undesirable diversion of trade unless “Asian countries continue to complement regional integration with most-favored-nation-based trade liberalization”

Regional and global partners

What was not contested was the importance of ASEAN’s evolution in recent years—notably, the greater involvement of newer member countries and the strong links being established with China, Japan, and Korea. Chalongphob Sussangkarn, President of the Thailand Development Research Institute, emphasized the importance of accelerating economic integration within ASEAN. He said that unless further progress is made on this front, “there is a real danger that each of the ASEAN economies will become marginalized within a large Asian region dominated in size by China and India and dominated technologically by Japan and South Korea.” His view found wide support among participants from the region.

There was broad agreement, too, that the international community had an important role to play in supporting the Mekong region’s development. Continued financial and technical support for much-needed investments in education, health care, and infrastructure will clearly be one priority. Greater access to markets, technology, and know-how will also be critical, as will capacity-building efforts, to help the Mekong countries participate effectively in the Asian region. However, there was a plea from participants for greater donor coordination of the vast array of initiatives that are springing up to develop the Mekong region.

Benedict Bingham

IMF Asia and Pacific Department

For more information on the conference, see Press Release No. 06/145 on the IMF’s website (www.imf.org).

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