Excellencies, Ladies and Gentlemen,
It is my great pleasure and honor to address the opening of this the Regional Conference on “The CLMV Countries and ASEAN Economic Community (AEC) 2015 – Bridging the Development Divide”. Taking this opportunity, I would like to warmly thank the Institute of Southeast Asian Studies, the Asian Development Bank and Konrad Adenauer Stiftung for organizing this event in Cambodia.
The topic before us here is “How the establishment of the ASEAN Economic Community can contribute to bridging the development divide between CLMV countries and the older ASEAN members”. These two key factors: building ASEAN Economic Community and bridging development divide should be complimentary and closely reinforcing one another.
That is, on the one hand, economic integration through economic community building is meant to bring people and societies closer together through sharing markets and economic spaces, attracting FDI, employment generation and of course to improve the quality of life of the people. Bridging development divide, on the other hand, is meant to accelerate economic development through economic integration to catch up with the rest of ASEAN.
The role of economic community building therefore is essential because economic integration enables the expansion of the economic and market space. Inevitably, the processes of development and economic integration help to improve the way we work, they help to transform our societies, and they help to improve our institutional arrangements.
Development Challenges in the CLMV Countries
The CLMV countries, located in the heart of mainland Southeast Asia, are instrumental for geo-politics and geo-economics of ASEAN and are crucial for shared prosperity of mainland South East Asia. The CLMV region is endowed with bountiful natural resources, and inhabited by about 160 million people, which presents a tremendous potential for the economic and market opportunity.
Our economies constitute a building block of ASEAN, which is closely intertwined and mutually reinforcing our objectives of creating the ASEAN Community by the year 2015 and the East Asian Community over the long run. Thereby it would enhance ASEAN competitiveness and narrow the development gap amongst ASEAN members.
In retrospect, the CLMV countries had suffered from the legacy of political wars and social instability. It was torn by political and ideological warfare. Decades of wars within our region ultimately destroyed local economies, political and social institutions that in so many ways contributed to the erosion of social unity, destruction of infrastructure, regional peace and stability that ultimately led to the present predicaments such as poverty, economic deprivation and social insecurity.
However, at the dawn of the 21st century, we have witnessed the following transformation of the whole CLMV Region:
- Firstly, its transformation from a region, stricken by internal conflicts and instability to an oasis of peace, security, stability and cooperation.
- Secondly, its gradual transformation from an under-developed region into a sustained economic growth at a faster pace in the lead up to the Global Financial Crisis in 2008/2009. Most of CLMV countries have gone through a gradual shift away from agriculture towards manufacturing and services. More importantly, economic progress has resulted in improvement of human resource development across the CLMV region; and
- Thirdly, CLMV countries have become more and more openness and liberalized through their membership in ASEAN, AFTA and WTO.
I trust that our past experiences have taught us that the lack of cooperation among nations of the region has made the region vulnerable to external shocks and mire in poverty. Therefore, the learned lessons are to cooperate by becoming more integrated and resilient through regional development.
In spite of all the endless efforts and inspirations on accelerating the development of the CLMV countries, the fundamental challenge of our cooperation is financing. Thus, Foreign Direct Investment (FDI), market integration, trade, and investment, in conjunction with ODA, play a significant role for our development initiative.
Alongside with the cooperation initiatives, we also have witnessed the proliferation of countless meetings at different level.
In this regard, I would urge all CLMV countries to take serious strides to tackle the following issues:
Firstly, Domestic resource mobilization to ensure sustainable growth;
Secondly, Enhanced cooperation with development;
Thirdly, Private sector participation in all the initiatives;
Fourthly, Joint effort to improve market access to products originated from the CLMV countries;
Fifthly, collective work to generate support for our initiatives under multilateral frameworks, particularly in attracting international financing.
I would like to stress that economic integration is essential and perhaps inevitable, but to accelerate the process such as integrating markets and promoting free flow of goods, services and factors of production requires not only policies coordination, capital, institutional reform, but also the respect for national jurisdictions and sovereignty.
At national level, we also recognize the essence of structural reform, if we are to accelerate the transformation of the CLMV countries. The structural reform in the areas of public financial management, trade, legal systems, investments regimes, and civil service reform are critical for the sustainability of economic growth and economic integration as well as for the development of human capital. With this, at regional level, we recognize that good governance is needed to ensure that the CLMV countries sustain its competitive edge and provides the best investment environment.
Cambodia: Two decades of nation building
Taking this opportunity, I would like to provide some stocktaking of serious strides that Cambodia has made for the past two decades of nation building.
Even after the general elections of 1993 following the peace agreement, unrest continued. The prerequisites for any serious development had yet to be established. However, the rudiments of a market economy were established during this period. Cambodia was firmly put on the path of rehabilitation. The Cambodian economy was growing 6.3% per annum during 1994-1998. Only the “win-win” policy of national reconciliation that I initiated and implemented in 1997 finally ended the Khmer Rouge regime and the remaining Khmer Rouge political and military forces were integrated into the mainstream of the Cambodian society.
Since 1998, with the return of full peace, a sense of confidence and pride pervades the country, a feeling that bodes well for bright prospects for economic growth and job creation and a concrete vision of a promising future. We have successfully implemented the triangular strategy, focusing on strengthening peace and security, integrating Cambodia into the region and the world, and promoting reforms and development. Cambodia joined ASEAN in April 1999. The Royal Government of Cambodia has embarked on wide-ranging reforms focusing on macroeconomic management, public financial management and financial sector reforms, and rehabilitation and reconstruction of physical infrastructures, especially the national road network. Since then, the Cambodian economy has undergone a dramatic and rapid transformation. Economic growth during 1999-2003 averaged 8.8%. Although ODA continued to finance growth, FDI particularly investments in garment and tourism, was key to promoting growth.
The economic take-off phase started from 2004. Considerable efforts have been made by the RGC to implement the second generation reforms in all sectors as envisaged in the Rectangular Strategy, in particular the implementation of the Public Financial Management (PFM) reform program and continued investment in provincial and rural roads. Economic growth during 2004-2008 averaged 10.3%. For the first time Cambodia achieved sustained double-digit growth, financed mainly by the rapidly growing banking sector, FDI inflows and the ODA. Cambodia was the first Least Developed Country to join the World Trade Organization in October 2004.
Cambodia can be considered as a successful post-conflict country. With the support of our development partners and the private sector, Cambodia has made giant strides in development in the last decade. Since 1993 Cambodia’s Gross Domestic Product (GDP) increased fourfold from US$2.4 billion in 1993 to US$10.3 billion in 2008. During this period per capita income has more than tripled from US$229 to US$739. Poverty rate was reduced from around 50% in 1993 to 30% in 2007, then to 27.4% in 2009. The structural reforms were undertaken to allow the Cambodian people to live in a modern civilized society. These reforms are necessary, a life-or-death matter, so that Cambodian society can face the future confidently and achieve prosperity. With these reforms Cambodia is moving on a right track. With the implementation during the last 5 years of the Public Financial Management (PFM) Reform Program, government revenue more than doubled from 2,220 billion riels (US$ 553 million) in 2004 to 4,928 billion riels (US$1.2 billion) in 2009. The expenditure tripled from 3,043 billion riels (US$758 million) to 8,539 billion riels (US$2 billion). At the same time, we have accumulated more than US$700 million in cash reserves in government deposits. In 2009, the Gross Domestic Product experienced a positive growth, though very small, as agriculture and services sector maintained robust growth.
However, with each stage of development accomplished, new challenges arise. Cambodia’s economic performance has been affected in 2009 by the global financial crisis. The RGC has successfully guided the economy, like other Asian economies, through the most difficult period of the global crisis. The RGC has acted swiftly to counter the social impact of falling incomes and employment from declining garment exports, tourism and construction pursuant to the crisis. Cambodia has managed to maintain the stability of the financial sector as well as macro-economic and social stability, especially the normalcy of the people’s livelihoods.
ASEAN and Sub-Regional Cooperation: Efforts to bridge the development divide
The Leaders of the Mekong countries have responded to changes and challenges in the region by adopting the vision and long-term programs for sustainable development of the Mekong Region. We have witnessed the proliferation of different cooperation frameworks and sub-regional initiatives intended to facilitate integration of the CLMV countries aiming at narrowing development gap.These are: the Mekong River Commission (MRC) under the auspices of the UN, the Greater Mekong Sub-region (GMS) cooperation framework for 6 Mekong countries spearheaded by the ADB, the ASEAN-Mekong Basin Development Cooperation, the Mekong-Ganga Cooperation (MGC), the Ayeyawady – Chao Phraya – Mekong Economic Cooperation Strategy (ACMECS) between Cambodia, Lao PDR, Myanmar, Thailand and Vietnam; the Cambodia-Vietnam and Laos Development Triangle, the Emerald triangle development among Cambodia, Laos and Thailand.
Behind the different cooperation framework lie the following strategic objectives: (i) provide support to economic stability and peace; (ii) establish ownership; and (iii) contribute more effectively to the community by agreeing to the common objectives. Despite such proliferation, a number of cooperation frameworks are inactive, only a few sub-regional initiatives are gaining ground.
Under the umbrella of ASEAN, the ASEAN Leaders adopted the “Initiative for ASEAN Integration (IAI)” and approved “the ASEAN Integration System of Preferences (AISP)”, aimed at reducing the gaps among the ASEAN economies. ASEAN launched the Initiative for ASEAN Integration in 2000 for a closer ASEAN Integration, through this mechanism the more developed ASEAN members assist its less-developed member countries – thus fulfilling the principle where to “prosper thy neighbor” is to “prosper ASEAN”. Moreover, the CLMV cooperation was incepted in 2004 with the reason to strengthen and accelerate the integration of the four countries with the other six ASEAN members in order to narrow development gap. Now the cooperation has been deepened into sectors level. The CLMV Economic Ministers’ Meeting has convened on regular basis and laid out annual action plan covering a wide range of areas – economic-trade activities, human resource development, and coordination mechanism.
The GMS cooperation constitutes a comprehensive effort to transform the Mekong Region into a well-integrated economy with a market approaching 300 million people. Cambodia was honored to host the first GMS Summit in November 2002, back-to-back with the 8th ASEAN Summit. The Summit proposes the establishment of the GMS economic corridors, founded on hardware as well as software pillars. The hard components are cross-border infrastructure: roads, telecommunications and power. The soft components are sub-regional policies, regulations and strategies on facilitation of travel, transport, trade, investments, information and HRD.
The strategic objectives of the GMS are to attract investments and transform the Sub-regional economy into a broad, rapidly growing market of close to 300 million people who enjoy the benefits of prosperity and peace. In this regard, I highly appreciate the active role and assistance provided by the ADB in supporting a number of flagship projects aimed at harnessing the economic potential of the Mekong region. Among others, tourism was endorsed as the 11th flagship program encompassed tourism development and visa facilitation.
At the Phnom Penh Summit, the GMS Leaders launched the Phnom Penh Plan for Development Management (PPP) to provide high quality education through learning programs to participants from the GMS countries. The project supports the GMS governments in improving internal capabilities to shape the national development agenda and to align themselves with regional priorities and programs. At the sub-regional level, the PPP helps to build capacities to plan, coordinate, and implement regional programs and projects to expand and sustain cooperation.
The ACMECS Economic Cooperation was proposed by H.E. Thaksin Shinawatra, Prime Minister of Thailand, on the sidelines of the ASEAN Special Summit on SARS in April 2003. Initially it included only Cambodia, Laos, Myanmar and Thailand. Vietnam officially joined ACMECS Summit in 2005. ACMECS cooperation is based on the vision of “five nations, one economy,” shaped by our commonalities and sustained, complementary efforts to strengthen the linkages among respective governments, entrepreneurs, and peoples. This cooperation framework was born out of the conviction that the key to enhanced peace, security and shared prosperity among the five nations is mutual cooperation and coordination for mutual understanding, strengthened by continuing dialogue, investments and technical and scientific cooperation and exchange.
In real terms, ACMECS cooperation achieved significant progress in concrete projects in the areas of trade and investment facilitation, transport linkages, agricultural and tourism cooperation. Cambodia and Thailand also agreed to pilot ACMECS Single Visa based on an ACMECS minus X formula.
I believe that the development of the Mekong region should be an interest not only of every ASEAN and Mekong member country but also for the stakeholders who would benefit from the development of Mekong region.
We are convinced that these cooperation initiatives would help us to exert our joint utmost effort to enhance trade facilitation and reduce non-tariff trade barriers, improve transport linkages and upgrade major border checkpoints and promote cooperation to a higher level through greater intra-regional trade and investment, enhance competitiveness and generate more employment and improved income and quality of life in the sub-region, in which most are the less developed new members of ASEAN. To this end, we would be able to timely envisage challenges to our future and together to develop effective measures to overcome these challenges.
To facilitate the cooperation in infrastructure, the Royal Government of Cambodia has put its utmost effort to rehabilitate and restore all kinds of infrastructure including electricity, water supply, and telecommunication and transportation network. The Royal Government has also considered the development of irrigation system to be a top priority in agricultural development. We need technical assistance and additional financing to further develop the irrigation system. All these efforts aim to achieve a target of one million tons of rice mill export in 2015.
ASEAN Community Building and Closing Development Divide
The process of building the ASEAN Economic Community is to promote free circulation of goods, services, capital and skilled labour. Although tariff reduction program will be on track, our challenges remain the non-tariff barriers. Therefore, ASEAN should make further efforts to overcome all obstacles aimed at realizing the ASEAN Economic Community by focusing on the implementation of the ASEAN single window, trade facilitation, as well as measures identified by the ASEAN Economic Community Blueprint. As the matter of fact, the ASEAN region now has a population of more than 600 million citizens, with a combined gross domestic product of nearly US$ 2,000 billion marked by high growth and political stability, a growing middle income population, endowed by enormous natural resources. These endowments result in great potential for rebalancing growth from foreign to domestic sources, thereby promoting intra-ASEAN regional trade and internal growth and its economic attractiveness to external partners.
However, the reduction of development gaps among ASEAN member states is the pre-requisite condition in order to ensure competitiveness and to achieve regional integration. Closing these gaps will require a lot of resources. The ADB estimates that Asia Pacific countries need to invest about USD 8,000 billion dollars over the next decade. Such investment would not only boost productive potential but would also help in the fight against poverty, by improving access to basic services such as electricity and clean water. It is important therefore that implementation of Greater Mekong Sub-region Program and the Initiatives for ASEAN Integration (IAI) be strongly supported by development partners and members of the regional community alike.
To this end, the Greater Mekong Sub-region (GMS) program is crucial to resolving the imbalances among the regional economies. The ADB Strategic Thrust of the GMS has enabled linkages and connectivity of the GMS countries among themselves. Lao DPR is no longer ‘land locked’ but ‘land linked’, owning to GMS Transport Corridors. Tremendous progress has been achieved in connecting the GMS countries with each other. Trade and Transport Facilitation (TTF) measures have been implemented, and the GMS is poised to transform the transport corridors into Economic Corridors. As a result, the GMS countries are ready to enter a second generation reform which essentially increasing investment on soft aspect of development such as greater financing on human resource development, increasing institutional competency and training; and cross border market management.
Development partners (Australia, EU and Japan) all expressed continuing commitment in assisting the GMS Cross Border Trade Agreement (CBTA). Financial and technical supports are available for the Trade and Transport Facilitation action Plan. Australia’s AusAID made available USD 230 million dollars for hardware and software assistance. USD 170 million is made available for road and energy sector development. The EU will provide expertise and TA through the ASEAN-GMS framework; and Japan will finance human resource development of three important projects.
In this regard, I would like to welcome the recent plan made by the GMS Ministers in Vietnam to connect regional rail lines under the GMS cooperation. This will allow the Singapore-Kunming rail link to be materialized by 2020. I also would like to welcome the US-Lower Mekong meeting that was initiated by the Obama administration. At the same time, Japan’s support for the CLMV cooperation is very much appreciated.
Moreover, the Master Plan on ASEAN Connectivity is the most comprehensive plan underpinning the success of building the ASEAN Economic Community. To achieve this goal, ASEAN needs to engage all ASEAN Partners, including the Plus 1, the Plus 3 and other countries concerned, to support the implementation of the Master Plan in order connect ASEAN by both soft and hard infrastructures, in particular land, rail, air, waterway and maritime connectivity. At this point, I would like to emphasize that the Royal Government of Cambodia has given high priority to the construction of transport infrastructure to link with all of our neighboring countries including the missing railway section of about 257 km from Phnom Penh (Cambodia) to Loc Ninh (Viet Nam) within the framework of Singapore-Kunming Rail Links.
Assistance and participation in second-generation reform in the CLMV countries is also much sought to create a healthy, stable and prosperous region that in turn provides all development partners with the opportunities to invest in ASEAN and working together for a dynamic business environment for trade and investment for the long term. One will lost nothing, but to benefits from ASEAN liberalized economy, political, security, cultural; and social-health policies cooperation, sharing information and cooperating in anti-terrorism measures, as well as combating non-traditional security threats help to stabilize regional security.
CLMV countries must not only overcome impediments to growth through the reform process, but must also create the conditions for sustainable growth through equitable distribution of costs and benefits of development. For a start business costs, costs that weigh upon employment will be further reduced. We must map out a clear strategy and implement it in order to enhance its attractiveness as an investment destination.
In conclusion, much has been said and more needs to be done. I hope Regional Conference on “The CLMV Countries and ASEAN Economic Community (AEC) 2015 – Bridging the Development Divide” will enlighten our understanding on the future shape of our region, and ways we can work even more effectively together to enhance regional cooperation and promote sustainable development and charter a roadmap on how we are going to expedite the bridging of development gap in this part of the region, while we are moving ahead toward the establishment of the ASEAN Economic Community.
I thank you for kind attention, and I wish you all a successful and productive conference and a memorable stay in Cambodia.