The Regional Economy: Looking Forward by Looking Back

Summary

The year 2007 was a year of anniversaries for Southeast Asia. The two most significant were the fortieth anniversary of the founding of the Association of Southeast Asian Nations (ASEAN) and, more fretfully, the tenth anniversary of the Asian (not Southeast Asian) financial crisis. What these two anniversaries tell us about the future of Southeast Asia's economy(ies) will serve as the basis for this chapter.

The economic issues raised by the Asian financial crisis and, counter- intuitively, by the development of ASEAN are both important to understanding where Southeast Asia stands today economically and what are some of the major challenges facing the region and its national economies in 2008 and beyond. Both continue to shape the direction of intra-regional integration, Southeast Asia's place in the larger East Asian economy and finally its place in the global economy.

Southeast Asia at the beginning of 2008 is a more integrated and insulated economic region still facing major national barriers to further integration. Southeast Asian economies' relations with the two huge Northeast Asian economies are also in a period of significant change. Some Southeast Asian economies face the threat of being decoupled from China and Japan as East Asian production chains, the basis of modern Southeast Asia's integration into the global economy, are being reordered. Finally, Southeast Asia's position in the global economy is an increasingly uncertain one. Maritime Southeast Asia has lost its ‘halo’ as the first set of emerging markets to open up to foreign direct investment in export-oriented manufacturing. This means it is harder for Southeast Asian economies to remain attractive to foreign direct investment (FDI), and especially investment that helps push them up the value added ladder and away from cheaper competitors.

At first glance, the tone of this article may seem misplaced. The year 2007 was a good year economically for Southeast Asia (with Thailand and Myanmar as partial exceptions) and projections for 2008 look quite strong too. The Philippines, despite continued political instability, did particularly well in 2007 (see Table 1).