INTER-DEVELOPMENTAL DIVIDE & INTRA-DEVELOPMENTAL DIVIDE OF CLMV COUNTRIES AND ASEAN OLDER MEMBER STATES

by Fara Sheila Azalia, Intern for Program Division of ASEAN Studies Centre, Universitas Gadjah Mada (Picture by ASEAN.org)

ASEAN which previously comprised of Indonesia, Malaysia, Thailand, Singapore, Brunei Darussalam, and the Philippines, received the newest four members at the end of 1990s: Vietnam in 1995, Lao PDR and Myanmar in 1997, and Cambodia in 1999. Referred to the CLMV (Cambodia, Lao PDR, Myanmar, and Vietnam) countries, these four countries have changed the scope of ASEAN. Its membership means that ASEAN’s efforts to integrate the economy of the whole region has another work on how to integrate such a diverse country with different economic stages.

When CLMV countries firstly joined ASEAN, there were benefits that go both ways, not only for the ASEAN as a regional organization but also for the development of the CLMV countries itself. To counter the rise of Chinese domination after the isolation of Beijing post-Tiananmen Square massacre, ASEAN needs the help of CLMV countries to be on their side so that CLMV’s support goes to ASEAN instead of China. With incorporating CLMV countries, ASEAN too could strengthen their position during multilateral cooperation. (Soja, 2017) Also, military cooperation of CLMV countries with external partners such as the US could be perceived as ‘threat’ by other member states and could lead to arm race, however, this could be reduced by CLMV accessions to ASEAN. For CLMV countries, pressure for economic development would transform their economy to reach growth. Gradual modernization for CLMV countries needed to make sure they could catch up with other ASEAN member states.

However, their presence also creates a concern of ‘development divide’ between integrating those fast-growing modern economy countries such as Singapore and Brunei Darussalam with those of inward-looking poor countries–CLMV countries. (Pomfret, 2013)

The four countries have different economic structures due to different history among them. Vietnam has undergone a lot of policy changes since its reunification between the Communist North and market-based South in 1975, with they are now currently pursuing privatization policy along with encouraging more foreign investment under the so-called doi moi reform. (Pomfret, 2013) On the other hand, Lao PDR as a landlocked country lack behind than Vietnam. Since the country has overthrew the Lao monarch in 1975, they have tried several programs such as financial reforms and privatization programs in 1988. (Pomfret, 2013) However, the progress is not as fast as those that Vietnam experience, since Laos is a landlocked agrarian country. Myanmar and Cambodia was experiencing almost similar situation with those of Lao PDR. (Pomfret, 2013)

To narrow the development divide, there has been a proposal to create the ASEAN Convergence Fund under the ASEAN Development Fund where the source of money comes from voluntary member states and managed by professionals. (ADBI 2012) However, Menon argued that this proposal might not work as the voluntary member states who is going to likely finance are Singapore and Brunei Darussalam (the richest member states among other ASEAN members) which is relatively small compared to the four countries they are going to finance. (Menon, 2012) Any kind of effort to give aid from these relatively small countries would converge the developmental divide, however, making CLMV countries dependent on the long run. Therefore, Menon argued that there has to be a policy from the countries itself to improve their economic development. How would ASEAN then could realize what they envision in ASEAN Economic Community (AEC) with the notion of ‘developmental divide’ with CLMV countries?

AEC itself has four pillars: single market with single production base where this included free flow of goods, free flow of investment, free flow of capital, and free flow of skilled labour, creating equitable economic development in the region, establishing a highly competitive economic region where this includes creating policies that foster competition among the member states, and having the region fully integrated with global economy. (Lim & Nyunt, 2010) How is CLMV’s situation so far? CLMV Countries are having economic developmental gap among them. They had yet to implement the whole AEC pillar. Not only they have gap with ASEAN older members, but they also have gap within themselves. The first prerequisite for CLMV countries to catch up with AEC is through tackling the ‘equitable economic development’ pillar first. This could be assessed through the income per capita in each country. A study by Fumitaka Furuoka (2018) found that CLMV countries’ income gap exists, although the four countries made progress to overcome their lackluster economic development. Cambodia succeeded in reaching the same income level with Indonesia, while Vietnam is currently catching up with Indonesia and Philippines. Myanmar and Lao PDR have remained income gap that is not reduced yet. (Furuoka, 2018) The concern for developmental divide has been discussed since the four countries joined ASEAN and thus they compete with each other on catching up with ASEAN older member states. Cambodia started first in 1985 by transforming its economy into a market-oriented one. Lao PDR’s transition to market-oriented economy started in 1986 through implementing the New Economic Mechanism. Vietnam’s economic opening to trade and Foreign Direct Investment (FDI) as part of doi moi reforms started in 1986. (Menon, 2012) Vietnam’s economic development can be said to progress rapidly compared to the other three, as the country right now is focusing its export on rice and crude oil. The country is even bypassing the Philippines.

The result was outstanding as the four countries achieved rapid growth, however, this growth is creating another divide among them. The distribution of gains for each country are very different from one to another, thus creating another issue of uneven and income inequality within these countries. In other words, “inter-country differences in economic conditions are narrowing at the same time that intra-country differences are increasing’. (Menon, 2012). In the realm of trade openness, for example, Vietnam has reached a percentage of GDP above 100% while Cambodia lagged behind as a result of ban on log exports and the rise of new competitor–the US and the European Union (EU) as export destinations. (Menon, 2012) Vietnam then proceeded to pursue an increase in sub-regional trade with Thailand, through having more trade partners and leaving Myanmar, Lao PDR, and Cambodia in 2010. However, Cambodia showed a good result when they switch their raw commodity export into manufactured-goods exports due to changing demand. This is through garments exports which account for most of Cambodian exports. However, Myanmar and Lao PDR are still relying on labor-intensive and resource-based production when it comes to producing manufactured goods.

CLMV as a whole’s FDI has seen an increase over the last two decades as shown by its stock which amounted to $209bn. (Menon, 2012) As previously in the 1980s all the four countries were skeptical against FDI, now the four countries are very welcoming towards FDI. The two contributing countries for the increasing FDI in CLMV were Vietnam and Cambodia with both FDI’s stock-to-GDP ratios rose well above the sub-regional average. However, Myanmar’s openness to FDI experienced decline since 1998. Lao PDR managed to get opportunities of attracting FDI through its agriculture and forestry, along with its mining and hydropower projects. Therefore, the dilemma persists: when a country choose to switch to a market-oriented economy, they can have rapid growth. However, at the same time they also faced with more inequality among them.

One might ask whether the CLMV countries have to catch up as a whole or individually with ASEAN older member states? Should they then be grouped as ‘one’, newest member states of ASEAN that deserves attention since they came from Mekong region with predecessors of GMS which already handled them, long before coming to ASEAN? Or should they proceed with using ‘ASEAN Minus X’ formula to alter the gap among them?

Bibliography

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Furuoka, F. (2018). Do CLMV countries catch up with the older ASEAN members in terms of income level? Applied Economics Letters, [online] 26(8), pp.690–697. Available at: https://www.tandfonline.com/doi/abs/10.1080/13504851.2018.1489494 [Accessed 18 Dec. 2019].

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