By Wang Jiping
“One of the key challenges for the South-East Asian sub-region is narrowing the development gap within ASEAN between the later-entrants − Cambodia, Laos , Myanmar and Vietnam (CLMV) − and those which had become members of ASEAN earlier,” according to a UN report, The Economic and Social Survey of Asia and the Pacific 2017, released on May 8 in Beijing, China. It also suggested that one way to solve the above-mentioned problem is “narrowing the development gaps through better governance”.
According to the report, in income terms, the gap in the ratio of GDP per capita between the early-entrants of ASEAN and CLMV remains wide, although it has been gradually narrowing. The ratio stood at 10.6 in 2015 and 4.1 if the highest-income economy in the sub-region, Singapore, is excluded. If concerted and coordinated measures are not taken to accelerate the narrowing of the income gap between the ASEAN-4 (Indonesia, Malaysia, Philippines and Thailand) and CLMV, it may take another 40 years to eliminate the gap completely.
Apart from income gaps, development gaps also exist in major socioeconomic areas. For instance, in the wake of technology-driven economic growth and the desire to integrate deeper into ASEAN, there is a need for CLMV to pay attention to their widening skills gap. Access to basic education has increased, but higher education and the quality of education remain a challenge. Similarly, while indicators of health in CLMV have improved significantly since 2000, the large gaps with other ASEAN countries remain. Active policy interventions will be required to ensure that higher income growth translate into lower poverty, less income inequality and better social outcomes.
Specifically, narrowing the income and development gap will require measures that increase the availability and quality of physical capital, as well as improve workers’ skills and the availability of decent and productive jobs. In addition, there is a need to improve the economic fundamentals, wage and social protection systems and the effectiveness of fiscal policy. The need to narrow gaps in the economic development of CLMV is particularly pressing given that the deepening of sub-regional integration structures to fully realize the ASEAN Economic Community has already begun. Failure to close development gaps would run the risk that the economies of CLMV be overwhelmed by more developed neighbors and not take full advantage of the opportunities emanating from integration.
Underlying all of these policy measures, however, is the need to improve governance and institutional quality in CLMV as this is a prerequisite to undertake effective policies in the socioeconomic sphere to close the development gaps.
Analysis of the World Bank’s Worldwide Governance Indicators that relate to the rule of law, regulatory quality, control of corruption and government effectiveness shows that CLMV performed more poorly in all of these governance dimensions than their ASEAN peers. Moreover, for most of the indicators there has also been little improvement over the two periods 1995-2004 and 2005-2014. Indeed, control of corruption has deteriorated, whereas for other indicators performance has largely been unchanged apart from the rule of law, which has improved. In looking at the cross-country comparison of the latest period, CLMV continue to rank particularly low in control of corruption and regulatory quality, while there has been somewhat better performance in terms of the rule of law and government effectiveness.
When considering the governance performance of individual countries in CLMV, there is considerable divergence. In general, Vietnam is a better performer in the composite governance indicator and in most individual indicators, while Myanmar has the greatest deficit in both the composite and individual indicators. Whereas Cambodia shows substantially better performance in regulatory quality, Cambodia and Laos are in general in the intermediate position within CLMV for the composite and the individual indicators.
The importance of governance for socioeconomic development in CLMV can be seen by considering some of the relationships between their development indicators and governance performance. One key concern for CLMV is financing their development needs. Apart from external development assistance, this involves increasing domestic resource mobilization from both the public and private sectors. In the public sphere, governance affects the ability of these countries to raise tax revenue, owing to issues such as corruption in tax collection and low tax morale due to perceived governance deficits.
Another important relationship for CLMV is between governance performance and social development, especially in the critical spheres of health and education. The efficiency of the provision of health and education services is affected by governance performance, particularly through the channels of corruption and ineffective administration.
Among CLMV, the greatest governance challenge is currently being faced by Myanmar. This is not surprising as the country has been in a transition process since 2010 involving economic and political opening. Good governance is especially important for attracting investors during the economic opening of the country as it attempts to diversify from an economy based on natural resources. One of the key governance challenges is to increase bureaucratic efficiency. One way is to increase salaries. While these have been increased rapidly in recent years, they still remain low, especially in comparison with newly available private sector jobs, including in foreign enterprises. The competition is highest in the ministries with easily transferable skills, such as the Ministry of Planning and Finance and the central bank (Hendrix and Noland, 2015). Public sector reforms were initiated in 2013, with the formation of inter-ministerial committees to simplify coordination mechanisms, such as the National Energy Management Committee. However, these committees would be greatly aided in their work by having independent secretariats, as currently any policy proposals are returned to individual ministries for action. Another major challenge will also involve implementing effective decentralization of the bureaucracy. Although the 2008 constitution established state and regional governments, each with the power to levy taxes (Hook and others, 2015), bureaucrats are appointed by the national government. This creates conflicting powers of delegation for bureaucrats, especially with lines of delegation being further blurred by fewer line ministries at the regional level than at the national level, which results in multiple responsibilities.
While many of the measures to alleviate these governance challenges will have to come through national policies in CLMV, policy coordination at the sub-regional level can also play an important role through the assistance of ASEAN. Actions that ASEAN could take include monitoring the relative governance performance of CLMV using readily available data, establishing strategic capacity-building and knowledge-sharing activities that target existing gaps and complementing national programs. Another action includes establishing a more focused approach in capacity development programs that target gaps in CLMV public services that are not being addressed through national programs. CLMV could work closely with their ASEAN partners to identify these gaps.