Reaching the Next Level

• Author: Chang Yong Rhee
• Pages: 10-11

10 FINANCE & DEVELOPMENT | September 2018

STRAIGHT TALK

SOUTHEAST ASIA HAS

made extraordinary s trides in

recent decades. Growth in per c apita incomes has

been among the fastest i n the world, and last year

the region was the fourth l argest contributor to

global growth a fter China, India, and the United

States. Living sta ndards have improved dramati-

cally. Poverty rates are down shar ply.

What accounts for th is record of success?

Openness to overseas trade a nd investment is a

big part of the answer. Mal aysia and ailand have

established themselves a s global manufac turing

powerhouses, churning out cars, c onsumer elec-

tronics, and computer chips. Indonesia and the

Philippines are among the world’s fastest-growing

large, domestic-demand-led emergin g markets.

Singapore is a major f‌inancial and commercial

hub. Frontier economies such as Cambodia, Lao

P.D.R, Myanmar, and Vietnam a re exiting from

decades of central planning after joining the

Association of Southeast A sian Nations (ASEAN)

and integrating with reg ional supply chains, par-

ticularly in China.

Sound economic management has a lso played

a vital role. To be sure, the Asian crisis of 1997

was a setback, but Southeast A sia bounced back

quickly and emerge d stronger. Banks were restruc-

tured and f‌inancia l regulation strengthened. Loc al

currency bond markets were deepened to reduce

dependence on volatile capital f‌lows. Risin g prices

and credit growth were brought under control as

some countries moved toward adopting inf‌lation

targets and so- called macroprudential policies,

which are designed to monitor and prevent risks

to the f‌inancial sy stem.

As a result, the region weat hered the global f‌inan-

cial crisis, but it will need to f urther strengthen its

economies to handle short-term challenges, such

as rising interest rates in t he United States and

other advanced economies, growin g trade tensions,

and slowing growth in China. It all adds up to

greater uncertainty and more market turbulence

for increasingly interdependent economies that

have accumulated more debt.

Fundamental forces

In the longer term, though, more funda mental forces

will test ASE AN leaders and populations. While

Southeast Asia ha s signif‌icantly na rrowed the gap

separating it from the world’s richest nations, fur ther

progress is not preordained. e region ca nnot af‌ford

to rest easy; risi ng to the next level will c all for a

mutually reinforcing set of bold reforms.

PHOTO: IM F

Reaching the Next Level

For Southeast Asia, further progress calls

for bold reforms

Chang Yong Rhee

Chang Yong Rhee, director of the

IMF's Asia and Pacif‌ic Department.