Malaysian trade minister rules out single currency for Asean

Linda Yueh
Chief business correspondent

Panel at 2015 World Economic Forum, Linda Yueh talking to Mustapa Mohamed
Image caption,
The 2015 World Economic Forum in Jakarta is putting the spotlight on South East Asia's largest economies

The Malaysian Minister for International Trade and Industry, Mustapa Mohamed, told the BBC that the single market that the 10 nations of South East Asia (Asean) are forming by the end of the year will not include a single currency in their deliberations.

Mr Mohamed told me at the World Economic Forum in Jakarta that a single monetary policy was out of the question in the near future, as we discussed lessons from the European experience that could apply to the Asean Economic Community (AEC) that is due to launch at the end of year.

He pointed to the vastly different levels of income in Asean which would make sharing a currency - and therefore monetary policy - infeasible. He told me that there would not be the equivalent of the European Central Bank in the AEC in the foreseeable future.

EU rival

Malaysia is chair of Asean and will lead the conclusion of the talks to form a single market that will rival the EU in terms of population.

With more than 600 million people, Asean is seeking to link together 10 countries ranging from rich Singapore to poor Laos in a free trade area, with free movement of labour, removal of tariffs, and common standards.

Mr Mohamed is confident that the AEC will soon rival the EU and could overtake it by 2025. He cited the 5%-plus economic growth rate of Asean, as compared to the 1-2% growth of the EU.

Still, there are numerous challenges facing the formation of the AEC. There aren't many pan-regional institutions, for one.

Tony Fernandes, the chief executive of AirAsia, one of the few pan-Asean companies, called for a strong commission for the AEC. Instead of going to 10 different governments, he would like to see the equivalent of the European Commission in the AEC. Although, Mr Fernandes added, he would prefer a less bureaucratic version of the Commission in Asean.

Others, such as the Asian Forum for Human Rights and Development, have called for institutions to protect human rights and workers, including a court like the European Court of Justice.

That will be challenging, as political differences in the region - including numerous non-democratic states - will make it tough to integrate politically, as well as socially. Those are the two other unsurprising pillars of the AEC, which mirrors the development of European institutions, since tying markets together requires more than just economic agreements.

Besides institutions, the region also faces challenges in terms of what economists call "deep" integration. There are many trade links in the region, but intra-regional trade in Asean is only about a quarter of total trade as compared with the EU or, in particular, the eurozone, where the biggest trade partners are the other economies in Europe.

Trade has increased in the past few decades, but it is non-tariff barriers protecting some home industries that remain barriers.

Image caption,
Vastly differing incomes would prevent a single currency in Asean

Mr Mohamed also emphasised that the impetus behind the AEC is to compete with the sizeable markets of the EU and US, as well as neighbouring China and India.

Mr Fernandes also pointed to the rise of regional free trade agreements being negotiated, such as the TPP linking America to Asia, and TTIP tying the US to the EU, as to why there is urgency for South East Asia to link their economies to compete.

With twice the population of the United States and one that is similar to the scale of the EU, the AEC has potential to become one of the largest economic entities in the world. And Mr Mohamed is not only confident that the AEC will overtake the EU, he also believes that the AEC could rival the United States one day.

We'll soon see if the AEC becomes a common reference point for the rest of the world like the EU is, and if it can become a market like the US that global businesses have to be in. It seems that South East Asians certainly have that ambition.