Initiative for ASEAN Integration (IAI) Projects and

Narrowing the Development Gap in ASEAN

1. Introduction The Association of Southeast Asian Nations, or ASEAN, was formally established on

8 August 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration

(Bangkok Declaration) by the Founding Fathers of ASEAN, namely Indonesia,

Malaysia, Philippines, Singapore and Thailand. Shortly after that, Brunei Darussalam

joined on 1984 after got the independence from UK‘s colonialism. Then eventually in

the minds of 1999, Viet Nam, Lao PDR, Myanmar and Cambodia were admitted to

joined the ASEAN, making up what is today the ten Member States of ASEAN.

These last four countries are sometime referred to by the abbreviation CLMV.

In early 1990s, just upon the CLMV admission to be ASEAN members, was coincide

with the rising regionalism in the other parts of the world as well as increasing

competition from the regional giants China and India. This situation spurred ASEAN

efforts at economic integration. ASEAN assert this economic integration could help

them to deal and compete with that situation.

However, aware of the economic disparity among the member country, it seems not

easy for ASEAN to undertake integration quickly, economic disparity perceived to be

an obstacle. Particularly it is more striking when ASEAN-6 compares to CLMV

countries. Hence, ASEAN should tackle this challenge to proceed with the economics

integration. If this case left untouched, the disparity will grow larger then come up the

concern about difficulties arising out of a two-tiered ASEAN.

In other perspective, there are also fears that this two-tiered ASEAN may become

irrelevant in the global economy if effective economic integration cannot take place

because of the regional economic divide. Thus, the CLMV countries have also

realized that they must progressively and steadily integrate their economies with

those of the older members if they do not want to be left behind.

Time is of the essence because the development divide may widen, making worse

an already bad situation when the benefits arising out of globalization become even

more unevenly distributed among the members of the grouping, and therefore

making it more difficult for ASEAN members to move and advance together.

As such, the leaders of ASEAN have managed to establish the ASEAN Vision 2020

which was announced at the ASEAN Summit in Kuala Lumpur in 1997. One of the

visions of ASEAN 2020 is build the ASEAN economic community (AEC) in which has

the goal to enhancing the competitiveness for economic growth and development

through closer economic integration. In this context, ASEAN introduced the Initiative

for ASEAN Integration (IAI) to accelerate the process. IAI was expected to narrow the

development gap among ASEAN Member States and between ASEAN and the rest

of the world through concerted efforts, effective cooperation and mutual assistance.

Therefore, in this paper, I would like to analyze whether the IAI project has significant

influence in narrowing the development gap or not.

2. Development Gap

Based on Alavi, Rokiah and Ramadan, Aisha Al-Alim (2008), development gap

happen when there is difference in either the per capita income or other social

development between countries or regions. In context of ASEAN, the development

gap occurs both in per capita income and social development. This development gap

actually exists among the 10 member‘s countries, but this paper will only examine the

development gap between the ASEAN-6 and CLMV countries.

To determine the development between the ASEAN-6 and CLMV countries,

measuring the indicators in the development gap is required. Several approach had

been introduced, one of them is using GDP per capita level and growth. However,

limitation of GDP eventually provokes intense debates and do not include the social

indicator. As such, Todaro (1999), asserted the 3 important values of ―development‖

in which signaled to move to assess development beyond the narrow economic

objective to larger social and political goals. In other reason, the development is not

only tied on per capita but also the qualitative indicators that would have significantly

influenced the development, namely:

i. Raising people‘s living levels—(their incomes and consumption levels

of food, medical services, education) through ‗relevant‘ economic

growth processes.

ii. Creating conditions conducive to the growth of people‘s self-esteem

through the establishment of social, political and economic systems

and institutions which promote human dignity and respect, and

iii. Increasing people‘s freedom to choose by enlarging the range of their

choice variables.

In addition, look at ASEAN case; it should also be pointed out about different

stages of reform and international integration in each CLMV countries. Thus, Bui

and Vo (2007) present two approach to address this case based on the indicator

basis, 1st approach is ―4-I‖ with the four ―I‖s referring to Income, Infrastructure,

Integration, and Institutional Gaps. While, 2nd approach, Vo (2005) postulates

that certain valuable information (and experience) can be learned from the reform

process in each of the CLMV countries. Vo (2005) then describes the two major

components of external assistance: the special and differential treatment (SDT)

(allowing a longer period of implementation of liberalization or easier access to

other members‘ markets), and technical assistance.

Meanwhile, in the 1990s the UNDP also introduced the Human Development

Index (HDI), which is now being widely used as an indicator for socio-economic

development. The UNDP Human Development Index (HDI) measures and

compares each country‘s average achievements in basic human development,

and can be used to get a good feel of the development gap between ASEAN

member countries. Based on three component sub-indices, namely life

expectancy (measured by life expectancy at birth), education (measured by adult

literacy and combined primary, secondary, and tertiary enrollments), and GDP

(measure by GDP per capita in purchasing power parity terms), the HDI value of

a country, which ranges from 0 to 1, shows the distance the country has to travel

to reach the maximum possible value of 1.

Referring to above mentioned definition, a development gap is multifaceted.

Hence, this paper will use the multifaceted concept of development to explain

development gap in ASEAN.

3. Narrowing Development Gap

In the framework of accelerating the economic integration in ASEAN, narrowing

development gap between ASEAN-6 and CLMV countries is crucial. This due to the

ASEAN integration cannot succeed if the development gap in ASEAN, particularly

between ASEAN-6 and the CLMV continues to widen.

CLMV, which are relatively new members of the Association of Southeast Asian

Nations (ASEAN), share a number of similarities, these include their primarily agro-

based, transition economies, high poverty incidence rate, insufficient infrastructure,

and institutions that are still too weak for a shift to a market economy. Although

CLMV have enjoyed a certain degree of macroeconomic stability in recent years and

are considered one of the fastest-growing economies in the region, unemployment

and underemployment still persist. CLMV are still facing huge challenges in fighting

poverty, narrowing gaps in wealth among the population, and addressing

development gaps within the regions.

Concerning those differences in development constraints of each CLMV countries,

narrowing the development gap has its own challenge. CLMV should also take an

effort for their future development. Support funding from development partners within

and outside the region also has important contribution to running this project in

narrowing the development gap.

4. Initiative of ASEAN Integration (IAI)

ASEAN is strongly committed to regional economic integration with a special

emphasis on narrowing the development gap among its members. Within this

context, the Initiative for ASEAN Integration (IAI) Work Plan for Narrowing the

Development Gap within ASEAN was adopted to assist new member Countries with

the aim of narrowing the development gaps among ASEAN member countries and

expediting greater regional economic integration, promoting equitable economic

development and helping to alleviate poverty in CLMV.

Since it was launched in 2000, IAI has a six-year work plan for two phases, work plan

I (July 2002–June 2008) and work plan II (2009-2015). The four priority areas of the

current IAI Work Plan are:

1. Infrastructure development;

2. Human resource development

3. Information and communication technology; and

4. The promotion of regional economic integration.

Three new focus areas were added after a Mid-Term Review of the IAI Work Plan,

which was completed in November 2005. The Mid-Term Review recommended in

order to broadening of the scope of the work plan to include tourism, poverty and

quality of life, and projects of general coverage.

According to 35th Meeting of the IAI Task Force, status update of the IAI work plan I

(2002-2008) as of 19 October 2009 there are 258 projects at various stages of

implementation. Funding has been secured for 217 projects (84%), of which 186

project have been completed, 26 project are under implementation and 4 project are

being planned for implementation. 5 project have secured partial funding, 14 project

are matching process and 22 projects has yet to be funded.

The ASEAN-6, dialogue partner and development agencies contributed to implement

above project. This is reflected the commitments of ASEAN-6 to assist the CLMV

countries to narrowing development gap and accelerate the economic integration.

While, in term of support funding or Official Development Assistance (ODA) from

dialogue partner and development agencies, China, Japan and Korea are playing an

important role for all IAI project.

In this paper, due to the time constraint, it only examines the first four project of IAI

that had been implementing to CLMV countries. While for the sake of the data, this

paper will only use the IAI work plan I (2002-2008) considering that this project had

been finished, hence we could get a complete status about that.

5. Analysis

5.1 Infrastructure development

Infrastructure plays an important role in accelerating the economic integration,

particularly to facilitate the production of good and service in remote and

isolated areas and small and landlocked countries. Kuroda, 2006 said that

physical connectivity through cross-border infrastructure (CBI) development is

crucial for enhanced regional cooperation and economic integration. As such,

the development infrastructure in ASEAN is very important. Further, as

Bhattacharyay, (2009) said that there are four main reasons why

infrastructure development needs to be accelerated in ASEAN. First,

infrastructure plays a significant role in promoting and sustaining economic

growth in the region, second, infrastructure development is necessary to

accelerate economic integration within the region, particularly in the area of

trade and investment. Third, addressing inequalities in infrastructure

development is critical to the wider objective of reducing development gaps

among ASEAN countries; and income inequality and poverty within each

country. Finally infrastructure development is necessary to improve resource

sharing and efficiency in the region to provide basic needs, such as water and

electricity.

In Cambodia for example, due to a long protracted war, international isolation,

and political strife, the infrastructure in Cambodia is still in poor condition

compared to other countries in the region. At present, Cambodia does not

have sufficient financial, technical, and human resources that are necessary

for infrastructure construction. Inadequate physical infrastructure, including

road transportation, electricity, irrigation and water systems, and port facilities,

is a major barrier to economic development and poverty reduction in

Cambodia. Hence, infrastructure networks can be assigned a leading role in

supporting the development process. Also for the Lao PDR, as a landlocked

area, it was definitely difficult for them to provide a good access either for

trade or investment to the other countries. As such, the developments of

infrastructure would give a significant impact on economic growth for both

countries.

Infrastructure can be categorized into hard infrastructure and soft

infrastructure. The former refers to physical structures or facilities that support

the society and economy, such as transport (e.g., ports, roads, railways);

energy (e.g., electricity generation electrical grids, gas and oil pipelines);

telecommunications (e.g., telephone and internet); and basic utilities (e.g.

drinking water supply, hospitals and health clinics, schools, irrigation, etc.).

In narrowing the infrastructure gap in CLMV countries, IAI project focused

both hard and soft infrastructure. In hard infrastructure, the project is focusing

on transport and energy, while soft infrastructure is on ICT (information and

communication technology).

5.1.1 Transportation

IAI‘s major projects in transport are the ASEAN Highway Network, Inland

Waterways and the Singapore Kunming Rail Link Projects. The whole

project was conducted in form of management training programme. In

terms of transportation, the project aims to ease and enhance the

multimodal transport to the linkages and interconnectivity among the

ASEAN countries. Through the develop infrastructures, it will intensify

regional activities, improve the integration and generate the economic

growth.

On 2009, IAI had been completed the 12 project of infrastructure-transport

with secured full funding. Mostly project funding are coming from ASEAN-

6 and development partner support such as Japan, Korea and India.

5.1.2 Energy

In order to accelerate the economic integration, the CLMV countries are

currently seems increasing their activities in industrial scheme. In the

beginning, mostly of CLMV countries are depend on agricultural to

generating the income, but nowadays they start to explore the other

resources assets such as oil, coal and gas. This was clearly seen in

Cambodia, Myanmar and Vietnam. For example, In Cambodia, the

Government of Cambodia has been actively promoting the development

of the country‘s oil and gas assets with the aim of enhancing economic

growth and providing opportunities for employment in the industry for

Cambodian nationals and companies. As a realization, Cambodian

National Petroleum Authority (CNPA) was formed in 1998.

However, as a matter of fact, to run and sustain industries activity, the

demand of energy supply is getting higher. Unlike developed economies

who have established energy industries that are able to fulfill the energy

demands of their local economies, the CLMV countries had mostly just

emerged from war in the 2nd half of the 20th century and most of their

industries are still in the infancy stage. In Mynmar for example, it stated in

their main objectives of the Fourth Short-Term Five-Year Plan (2006-2007

and 2010-2011) are: To develop the electric power and energy sectors to

conform with the developing trends in industries. This is show how energy

gives significant influence to the country to develop.

As such, IAI project assist the CLMV through training programme and

workshop regarding energy establishment, namely: Rural Electrification

Decentralized, Coal Briquetting Technology, Strengthening and Capacity

Building in the Energy Sector (Oil & Gas), Power Industry Capacity

Building and Development of Renewable Energy.

On 2009, IAI had been completed the 9 project of infrastructure-energy

with secured full funding. Mostly project funding are coming from ASEAN-

6 and development partner support such as Japan and European

Commission- ASEAN Energy Facility (EAEF).

5.1.3 ICT

Awakening the awareness of the importance of the ICT to the CLMV

countries is crucial. Considering in this information age, disparity in

informational technology leads to widening of developmental gap where

those who are well advanced in the ICT tend to grow faster and leap

forward further ahead compared to those who are backward in

informational technology.

For CLMV countries, ICT will definitely help them to the better facilities in

communications in order to develop commerce and trade and establish

friendly relations with other countries. As such, the economic integration

will be more easily achieved.

To overcome this problem, IAI‘s projects provide some of the training on

ICT such as Basic to Advance in Computing and Evolution of Networking,

Smart School Project, Digital Telecommunication Network Operation &

Maintenance Technology, ASEAN e-Commerce Programme and Training

in Database Administration for IAI and e-Government Training for IAI.

On 2009, IAI had been completed the 30 project of ICT with secured full

funding. For funding, ASEAN-6 especially Singapore give a big

contribution, they contributed 17 projects out of 30 then followed by

Malaysia. While for development partner, the funding is only coming from

Japan.

This present, the awareness of ICT is getting higher in CLMV countries. In

Cambodia, Myanmar and Vietnam, they had set up the e-ASEAN working

Group and ICT master plan that consists of 5 key programs, namely: -

human resource development in ICT; upgrading of infrastructure; the

development of software industry; The development of hardware and the

acceleration of the development in ICT. While in Laos, the ICT

development seems still lessen than the other. The ICT development is at

the very first stage. The country is encountering many problems such as

lack of infrastructure; lack of skilled human resources, and lack of legal

framework and etc.

Overall, the most challenge of narrowing the ICT gap in CLMV countries is

lacking of the human resource development. The development of IT

needs experts while the production of IT manpower from the universities

in the country can not meet the demands from the industries due to the

low quality of education and training in ICT. The other challenges are the

very high cost of Internet usage which has resulted in the low utilization of

the Internet as well as the lack of laws and regulations in ICT.

5.1.4 Infrastructure gap between ASEAN-6 and CLMV

Refer to above mentioned explanation regarding the importance of

infrastructure development, particularly in transportation, energy and ICT

sectors, IAI project had been provided a training to assist CLMV countries

on how to tackle their infrastructure problem.

However, in spite of the IAI first phase project had been finished, the

infrastructure gap between ASEAN-6 and CLMV countries is still wide.

Table 1: Ranking of ASEAN Countries According to the Level of

Infrastructure Development

Country 1991 2000 2005

Index Rank Index Rank Index Rank

United States

25.96 1 22.95 1 20.66 1

Japan 16.28 5 18.65 4 18.58 2

Singapore 15.73 6 20.11 2 17.66 3

Malaysia 5.10 37 8.65 27 9.21 29

Thailand 4.17 43 5.48 38 5.89 42

Viet Nam 0.91 92 1.85 75 3.27 61

Indonesia 2.23 69 2.74 63 3.21 62

Philippines 1.53 76 2.58 65 2.95 63

Lao PDR 0.55 99 1.19 84 0.87 92

Myanmar 0.97 90 0.79 91 0.76 95

Cambodia 0.45 100 0.66 93 0.55 98

Note: Index= Research and Information System for Developing Countries Infrastructure Index (RII) where RIIit=RIS Infrastructure Index of the i-th country (104 countries) in t-th time (namely, 1991, 2000, 2005), Wjt=weight of the j-th aspect of infrastructure in t-th time, and Xjit=value of the j-th aspect of infrastructure for the i-th country in the –th time point. Each of the infrastructure variables is normalized for the size of the economy so that it is not affected by the scale. The Wjt are estimated with the help of principal component analysis (PCA). The aspects of infrastructure covered in the construction of the composite index are transport infrastructure, ICT infrastructure, Energy infrastructure and Financial Infrastructure. Detailed explanation is in Kumar and De (2008)

According to table 1, overall it have shown that the infrastructure gap

between ASEAN-6 and CLMV countries is still exist and even wider. Note

that the infrastructure aspects in here are transportation, energy and ICT.

Ranking of CLMV countries is in the last compare to the other ASEAN

countries. The progress of infrastructure development in CLMV countries

is also too slow, except for the Vietnam which shows more rapid

progression. For Vietnam, the ranking rise up during three years

successively.

5.2 Human resource development

In CLMV countries, the need for human resources is immediate and rather

urgent. As we aware from point 5.1, many of programs are yet give significant

influence due to the lack of human resources. In CLMV countries, based on

chap, 2008 he said that Human resource development and promotion of trade

and investment are very crucial for their future development. For example in

Lao PDR, to implement the government‘s development strategy framework

based on the country‘s specific potential and opportunities successfully to

narrow the country‘s development gap within the region, human resource

development with a focus on vocational schools and training for skilled labor

are highly required (ERIA, 2007).

To tackle the demand of human resources, IAI‘s project provides workshop

and training in capacity building, labor, employment and higher education.

Capacity building programs offer many projects to upgrade the English

language, international and economic politics knowledge, negotiation skills,

communication skills, leadership skills, SME, software and etc. While on labor

and employment and higher education, the programs offer the training on

public administration, vocational education and higher education

management.

On 2009, IAI had been completed the 62 project of public sector capacity

building, 12 project of labor and employment, and 1 project of higher

education, with secured full funding. Brunei Darussalam, Singapore,

Malaysia, Thailand and Indonesia took a big part on project funding. While

development partner support come from Japan and India.

The tangible benefits for CLMV countries form those training are they could

create a much-needed technical and vocational skill worker and automatically

decrease the rate of unemployment then increase the labor force.

However, this problem can not be quickly resolved. As seen in Table below,

the rate of unemployment and labor force in CLMV countries is still wide

compares to ASEAN-6. The unemployment Cambodia, Lao PDR and

Vietnam increase slowly only 1-5 % per years. Even in Myanmar the rate

reveals stagnant on 4.0% from 2000-2008. A good improvement as seen from

the labor enforcement, there is an increase of each CLMV countries but still

very small compares to ASEAN-6 especially Singapore, Malaysia and

Thailand.

5.3 The promotion of regional economic integration

The development objective in regional economic integration is to build

institutional capacity and HRD in the CLMV countries to expedite their

regional economic integration into ASEAN especially in the areas of the

ASEAN Free Trade Area including customs and standards, the ASEAN

Investment Area and liberalization of trade in services.

IAI provide 4 primary projects to assist the CLMV toward the regional

economic integration, namely trade in goods and services, customs,

investments and standards. The regional economic integration projects

collectively will reinforce the development of a single market and production

base. The less developed members will be provided with support to improve

their customs departments (eg international course customized and study tour

to the more developed countries) and in the process facilitate and streamline

the customs procedures, work towards the standardization of their products,

harmonization of procedures and processes to speed the processing of

imports and exports.

When markets integrate, increased economies of scale and scope,

competition and productivity at the company level all lead, at the regional

level, to higher investment flows, increased intraregional trade and prosperity.

The newer members will also share in the benefits of the larger cake and

experience larger foreign direct investments (FDI). Closer and deeper

economic integration will play a critical role in rebuilding ASEAN's

competitiveness and pave the way for higher rates of growth and wealth

creation.

On 2009, IAI has been completed the 43 project in regional economic

integration; 21 project for trade in good and service, 8 for custom, 8 for

standard and 6 for investment with secured full funding. Each of ASEAN-6

countries had been contribute to the funding, while for development partner,

Japan, Korea, New Zealand and World Bank took a part.

To analyze the development gap in regional economic integration, we can

see from the FDI inflows. Based on below FDI inflows into ASEAN shown that

the distribution foreign investments in CLMV countries is very small compares

to Singapore, Brunei Darussalam, Philippines, Malaysia, Indonesia and

Thailand. The increasing FDI rate for CLMV countries is only 0.3% - 1.1%.

While, From 1995-2008, the FDI gaps between ASEAN-6 and CLMV

countries is still wide that is 70%

6. Conclusion

6.1 Although the macroeconomic development in CLMV countries had

increased but it is clear that the development gap between ASEAN-6 and

CLMV countries still exists even wider for particular sector.

6.2 The ASEAN economic integration on infrastructure development run very

slow. The development on three sectors of infrastructure that is

transportation, energy and ICT is still in the first stages.

6.3 Regarding the Human Resources Department, the IAI project on vocational

school and English language training were benefit to create a skill full

employee, decrease unemployment and increase a labor force.

6.4 Despite the promotion on regional economic integration had been taken but

the share of FDI inflows into CLMV countries is still very small compares to

ASEAN-6.

6.5 ASEAN-6 and Development partner funding support played an important role

to continue the running of IAI project.

7. Recommendation

7.1 The IAI project in infrastructure development should be augmented and

accelerated, in view of many project can not run effectively due to insufficient

infrastructure.

7.2 The implementation of IAI project should consider the development constraint

and country profile of CLMV respectively. Adjusting with the country policy to

accelerate the progress.

7.3 Narrowing development gap should be accelerated considering the gap is

getting wider. If it is still continue then would be formed not only two-tiered

ASEAN but could be three-tiered ASEAN.

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