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Speeches & Transcripts December 6, 2017

The 42nd Federation of ASEAN Economic Associations (FAEA) Conference


Opening Speech

Your Excellencies, colleagues and friends,

Good morning. On behalf of the World Bank Group and our Global Knowledge and Research Hub here in Malaysia, I’m honored to be delivering the keynote address at the 42nd Conference of the Federation of ASEAN Economic Associations.

Our longstanding partnership with the Malaysian Economic Association, and with many of you across ASEAN, is very important to us, and that is why we are here.  It is important to us because your role is vital to the overall narrative on how to reduce poverty and share prosperity (the Twin Goals of the World Bank Group), achieve sustainable growth and the SDGs, and ensure that economic development is broad-based and inclusive. Meeting people’s ambitions across all ASEAN countries, and realizing each country’s own strategic goals, is as much about collective action as it is an individual endeavor. 

In today’s world, we all depend on each other.  Broad regional and global perspectives, integration, and inclusion are key for sustained growth and improvements in people’s lives. Country policies and actions have most impact when they harness partnerships with their neighbors and trading partners for their mutual benefit.  Within a country, the opportunities for development are highest when all agents of change are involved. Policymakers are not and should not be alone in identifying a country’s priorities and constraints. This is why fora such as this are important.  Policymakers are also not the best equipped to create, uncover or research innovative new solutions to tackle these priorities. This is why fora such as this are so important.

This FAEA Conference is a doorway to bring in new ideas, cutting-edge research, and varying perspectives to the development narrative in ASEAN, and beyond.  Your views, your work and your voice are important not only for policymakers but also for institutions such as the World Bank Group, as we continue to work as trusted partners across ASEAN and in the East Asia Pacific region.

We are facing new collective challenges, and are coalescing around important initiatives like the ASEAN Blueprint 2025 and the SDG Agenda to find solutions.  Your work over the next few days and beyond can contribute greatly to this. Let’s turn to some of these challenges, globally, and for ASEAN.

First, global growth remains sluggish, despite a pick up to 2.7 percent in 2017 from 2.3 percent in 2016.  Some of the contributing factors include the continuing policy uncertainty in advanced economies; increases in non-tariff trade barriers and slow global trade growth, by 2.2 percent in 2016, and likely still low in 2017 as well;  and a long-term slowdown in global productivity growth, down from about 5 percent from the 1970s until the late 90s to 1 percent since the mid-2000s. East Asia has experienced a similar trend since the East Asia Financial Crisis. Labor productivity growth is declining in several ASEAN countries including Vietnam, Malaysia, and Thailand. Even in China, which accounted for 30 percent of the world’s growth last year, productivity growth is declining.

Inequality is rising. According to a study by Oxfam[1], the richest 62 people in the world own as much wealth as the poorest 3.6 billion.  Economic growth has disproportionally benefited a few and already well-off segments of the population, while the incomes of the middle class have lagged and limited their ability to consume and generate growth.  In some of your countries, this growing inequality has accompanied high levels of urbanization, with some people falling behind while others gain.

Looking ahead, we see some emerging megatrends that will shape the world’s future prospects, including in ASEAN nations. For example:

  • Demographic change. A number of ASEAN countries are aging, and expect to see a decline in the relative size of the working-age labor force, with profound implications on growth, and fiscal and social sustainability. This will have implications not only at the country level, but on migration patterns in the region. Many ASEAN countries will grow old before they grow rich.
  • A second global megatrend is climate change. I don’t need to convince you of the repercussions of climate change, whether we talk about natural disasters and their impacts, or about longer terms issues. This is where the call for collective action is perhaps greatest. Countries’ readiness to deal with climate impacts and their willingness to promote and implement green growth policies are increasingly critical in ensuring a sustainable path. On this note, we are inspired by recent successes in ASEAN to begin to address these issues. Just last month, the World Bank participated in the ASEAN Capital Markets Forum held here in Malaysia, where we have been supporting the recent issuance of the ASEAN Green Bond Standard that harmonizes this important instrument across the ten countries.  We are also very gratified and honored to have been partners to the Government of Malaysia in the issuance of the first ever Green Sukuk in the world, a historic moment in bringing Islamic and Green finance together.  There are cases where joint efforts bring innovation to address our most critical needs.
  • A third megatrend is the digital revolution and the unprecedented pace of technological change.  The rise of quantum computing. Artificial intelligence. The internet of things. Cybersecurity. Cryptocurrency. Fintech. Big data. These are all terms that were not in our vocabulary just a few years ago. Yet, now they are real challenges and opportunities that confront us. We are seeing massive digital dividends that could be accrued to our societies if the rules of the game are right and if everyone has access, but also the digital divides that have emerged, creating the ‘haves and have-nots’ among economies, sectors and people.  We are witnessing disruptive technologies altering long-established supply and logistics chains, needing new policies and regulations, a new kind of workforce, and an overhaul of traditional education systems. The World Bank has been looking at this for some time, and I’m happy to know that the World Bank-led session on the fourth day will cover the lessons of Digital Transformation across the world. 

Considering these global conditions and emerging megatrends, what are the pressing issues for ASEAN countries, and ones that your work can contribute towards?   Allow me to suggest some where your informed voice matters.

First, it is so critical for us to keep our eye on the trade integration agenda.  Even in this era of increased threats of neo-protectionism, ASEAN can reap the benefits of greater and freer trade, unlocking more jobs, prosperity and opportunity for all. One key area is the liberalization of services across the ten countries, including the urgent implementation of agreements and measures that have already been agreed under the AEC. Liberalization of services, for example, will help improve productivity and expand the economy of all member states.

Addressing trade integration is about getting both the hardware and the software right.  ASEAN has a Regional Investment Framework, which includes projects that, ifimplemented well, can strengthen connectivity and increase trade andproductivity. The gains from this investment framework may be enhanced further if it is aligned with the Belt and Road initiative that is gaining momentum. 

Now, a coherent network of physical investments will yield the best results when the software aspect allows for smooth movement of goods, services and people across countries to the greatest extent possible. So far, we have seen commendable progress in reducing tariffs and facilitating the trade of goods within ASEAN. This is good news.  However, much more can be done to address non-tariff measures and open up services.   After all, this is what sophisticated investors look at. Let us be pragmatic: an investor rarely looks at a country from the lens of its previous investment and trade climate, and its reform storyline.  She will look at a snapshot at the market at this point in time, and its future horizon.  Investors are practical in that they will look at the size of the whole market that their businesses will reach.  In that sense, an ASEAN-wide market is a lucrative sight to behold.

One important step will be to move toward a truly seamless transport of goods across borders. , This will involve, for example, the harmonization of domestic transport regulations and standards, country-by-country insurance requirements, import-export paperwork for vehicles, etc. An investor or businessperson will tell you that the lack of a system for sharing advance manifest information makes cross-border goods transport burdensome.  She will say that there is no justification for a truck going from one ASEAN country to another to come back empty on its return journeys. She would ask why four different insurance instruments are required for vehicles to travel from Yangon to Da Nang, and why trains have to be inspected at each border.  This adds to costs and takes away from efficiency. These are concrete problems. They are real challenges and bottlenecks, and are not beyond the scope of this conference or our work.

A second pressing issue is the productivity agenda.  The root causes of stagnating productivity growth differ across ASEAN, but this is all the more reason for comparative analysis, and the sharing of lessons across members. Many countries across the association have reaped the benefits of capital accumulation over the years, while others require much more investment in this regard. In some countries, there is room for much more investment in physical and human capital to boost productivity and assure economic growth. In other countries- Malaysia for instance- strong investment in factor accumulation over the years has continued to bear fruit, but at a lesser rate every year.  This has rendered urgent the need review of the current competition policy in place, a great role for SMEs in Malaysia’s trade, and an energized workforce that can meet the country’s ambitions for a fourth industrial revolution.  In other countries, urgent infrastructure investments will be needed, requiring a deep dive into the investment climate.  

One key driver of productivity is human capital, which is not only about the ever-important need for strong education and skills development policies, but also about tackling malnutrition and its longer term impact. ASEAN has made significant progress in providing food security. However, malnutrition rates are still high across several members[2], so we cannot yet claim victory for the entirely of ASEAN.  Malnutrition affects individuals through stunting, and also reduces their ability to learn and diminishes their productivity significantly. Data show that stunted kids drop out of schools earlier and earn significantly less compared with other kids. Improving nutrition and reducing stunting is complementary to the ASEAN Blueprint 2025 and SDG’s 2 (No Hunger), 3 (Good Health), and 6 (Clean Water and Sanitation).  I know this is a priority that many of your countries have already begun to tackle. For example, this is a major policy agenda in Lao PDR, and Indonesia, Philippines, and Vietnam have already rolled out interventions to address this. These are just some promising examples. 

The third pressing issue- and where collective voice and action is perhaps most needed- is that of environmentally-friendly policies that can help the region transition towards sustainable and resilient “green growth”. It is an established fact that climate change is causing droughts, floods, fires, and losses to the economy, especially for the poor who are most exposed to these disasters. The world is now broadly reconciled with the fact that this is an urgent and global effort. One-hundred and ninety-five (195) countries have signed the Paris Agreement and as of August 28, 2017, as many as 160[3] countries have made ratification part of their commitments to addressing climate change. As you know, the Paris Agreement requires these countries to put forward their best efforts through “nationally determined contributions” (NDCs) and to strengthen these efforts in the years ahead. This includes requirements to report regularly on their emissions and on their implementation efforts. In connection to the implementation, the Paris Agreement sets expectations that countries will mobilize climate finance from a variety of sources, instruments and channel.

ASEAN is no small part of this storyline, both in terms of its economic power and voice. Collectively, you are the sixth largest economy in the world, and pushing for tandem movements on this will have a clear global impact.

Looking forward, a consolidated approach would again create the greatest impact. First, we need to ensure that current investment plans and hardware reflect these commitments.  Moving towards low carbon technology, identifying climate-resilient projects, and having functional early warning systems are collective priorities and actions. Each country will have to execute these projects with equal rigor and under a wider agenda and set of standards.  Not surprisingly, the process itself can also promote regional unity, and ensure infrastructure investments which withstand climatic stress-tests. Also, ASEAN’s recent push that I mentioned earlier to introduce a common framework for Green Bonds is an extremely important step in the right direction.  

The World Bank is a strong and long-standing promotor of green bonds.  As early as 2008, we launched the Strategic Framework for Development and Climate Change to help stimulate and coordinate public and private sector activity to combat climate change.   Our World Bank Green Bond raises funds from fixed income investors to support World Bank lending for eligible projects that seek to mitigate climate change or help affected people adapt to it. Since 2008, we have issued over USD 10 billion equivalent in Green Bonds through more than 130 transactions in 18 currencies.  The World Bank also contributed to global standards setting for green bond and impacts reporting, with our latest engagement with the ASEAN Green Bond Standard- through our Hub in Malaysia- as a sign of our continued commitment.

…but you have been doing great things also…..In the ASEAN region, we see an increasing focus on sustainable financing sponsored by governments. 

  • The Philippines government has issued a green bond in 2016, and also developing a Catastrophic Bond to cover climate change risks.   
  • Malaysia recently has seen the issuance of a series of corporate green sukuk since July 2017, the first in the world.  
  • Indonesia’s financial sector authorities (OJK, MOF) have been working on a green bond guideline which is expected be issued by the end of 2017. 
  • Singapore is offering an extensive incentive scheme to attract green bond issuance to Singapore.
  • Vietnam, Lao PDR, Thailand and Cambodia joined the Sustainable Banking Network sponsored by IFC.  

As you can see, much has been achieved in ASEAN that can serve as a model for others.  Obviously, much more needs to be done.  This is again where the FAEA can work together to develop some collective research and advocacy work, and also capture the region’s efforts to date to inform global policy and action. After all, many challenges remain for developing countries, including establishing enabling regulatory frameworks, building consensus in other regional groupings on green standards and policy coordination; securing investors’ commitments and enhancing the capacity of financial service providers.  We can also work together to shed light on recent innovations, such as Green Islamic Finance, to unlock the potential in the Middle East, South Asia, and throughout the world.  

Colleagues, I have highlighted a few of the policy directions that would be truly transformative for ASEAN countries, and where your contributions can bring about more change.  These are also where the World Bank Group id and will continue to partner with you- both through governments, the private sector, civil society, and important settings like the FAEA. Over the next few days, a lot of important discussions and analysis will be discussed here, and you will have the opportunity to explore these and other critical topics.  I would ask you to please do this with great urgency and resolve, and to also focus on how you can practically package and deliver these findings to inform both the policymakers in your countries, as well as the World Bank and other development institutions.  I think I speak for my colleagues here and for the entire World Bank Group when I say, we are listening.

Let me end by again thanking the organizers and our partners at the Malaysian Economic Association, and the FAEA, for allowing me the opportunity to speak to you today.  We very much look forward to the upcoming discussions.

Thank you.

[1] Oxfam Briefing Paper, An Economy for the 1%, January 2016.

[2] Stunting rates: Cambodia (>30%), Lao PDR (>40%), Indonesia (>35%), Thailand (>15%), Myanmar (>30%), Vietnam (>15%), Philippines (>30%)

[3] http://unfccc.int/paris_agreement/items/9485.php