A shot at moulding the future

Hakim Hayat

With the COVID-19 outbreak, ASEAN member states are now in the middle of dealing with a combination of shocks – the public health crisis, a lagging economy, stressed financial sectors, and climate change risk.

As the pandemic is far from over, the ASEAN economy is projected to contract by 3.8 per cent in 2020, the first economic contraction in 22 years, according to statistics from the Economic Research Institute for ASEAN and East Asia (ERIA).

The initial and individual country responses to the pandemic have been two-pronged: first to tackle the health emergency, and the second, to restore economy. Given the scale of socio-economic impacts, the 37th ASEAN Summit recognised the need for coordinated actions and promulgated the ASEAN Comprehensive Recovery Framework (ACRF), which serves as the consolidated exit strategy for the region.

The five strategic areas of ACRF are intended to address both the region’s immediate needs during the re-opening stage for a successful transition to the new normal as well as medium- and long-term needs through the stages of COVID-19 recovery and for longer-term sustainability. The framework also aims to advance more sustainable and resilient future.

According to Senior Economist at ERIA Venkatachalam Anbumozhi, the pandemic has put ASEAN governments in a bind, having to choose between saving lives and protecting livelihoods.

“Since March, ASEAN member states have announced several special economic recovery packages equal to two to seven per cent of the national gross domestic products (GDPs), which include interventions for immediate relief, liquidity, and payment deferrals to low-income households and small businesses.”

He said these broader economy wide interventions to stop contraction and stimulate growth came in phases. Despite the right intentions, implementing these measures is not easy, he added.

“Financial aid to small and medium enterprises (SMEs) is not effectively distributed because of challenges in identifying and targetting those in immediate need.”

Venkatachalam said that the challenge of millions of migrant labourers and those in the informal sectors raises systemic choices: will they return to old jobs and if not, what kind of decent employment they could find?

He added that the persisting need for social distancing directives and health protocols continue to disrupt supply chains, impede cash flow and make it difficult for small businesses and unskilled workers to resume normal operations.

However, he believes that the ACRP and its implementation plan gives an opportunity to shape the future in a manner that would deliver a new social contract among the public organisations, private sector and the people; one that rests on the pillar of commitment to create jobs, accelerate economic growth and achieve environmental sustainability. For policymakers, the trinity of jobs, growth and sustainability is often dubbed as mission impossible.

The European Union (EU) unveiled a EUR740 billion recovery package as a centre piece of its economic response to the pandemic. About 25 per cent EU stimulus packages are set aside for climate friendly measures like retrofitting old buildings, clean energy technologies, low-carbon vehicles, and sustainable land use.

These investments under the Green New Deal are planned to create one million new jobs in the low carbon sector over the next decade, while investing in the circular economy could add another 700,00 jobs.

Looking back, he said the ASEAN region had been on an unsustainable and vulnerable path before the pandemic and the economic recovery must avoid the dangers and fragilities of the past.

“Not only with respect to climate but more broadly with respect to the environment and plant boundaries such as biodiversity and natural capital,” he shared. “Being the most vulnerable region in the world to climate change, the pandemic has compromised ASEAN’s accumulated efforts to decarbonise its electricity sector, industries, and transportation networks and put a temporary halt to investments in building sustainable smart cities.”

However, he believes that the ACRF strategies give the assurance that there is no going back to the old normal, which was characterised by climate risks, high inequality, and low labour productivity. Venkatachalam said in this context, ASEAN member states will need to consider more ambitious stimulus packages that can help revive local economies, restore decent jobs, and also build a low-carbon future for its citizens.

As policymakers prepare interventions and industries consider changes to their business models, the pandemic crisis and stimulus packages offers a once in a generation opportunity that could work towards building a more sustainable future, and he said that in this context, the implementation of ACRF should consider the following three principles in guiding the future initiatives and investments.

First, the right investments will need to be fast and labour intensive in the short run, and have higher multiplier co-benefits in the long run. Investments with these characterises include low-carbon infrastructure such as renewable energy assets, building energy efficiency, research and development in green technologies, rural support for climate smart agriculture, education and skill development, natural capital investment to improve ecosystem resilience, and restoration of degraded forests. There is strong evidence that fiscal multipliers from these types of investments outperform those of alternative investments.

Second, the forthcoming stimulus packages will also need supporting policies to maximise the benefits of the investments. Falling fossil fuel prices provide an opportunity for carbon pricing and pervasive subsidy reform, which can provide a source of much needed revenues, and can be part of wider fiscal reforms to restore financial stability.

Complimentary and supporting regulations and competition policies can provide clear signals and induce innovation in high growth sectors, lowering the level of budget expenditure to bring the economies back to full activity. Any change in current policies will need to carefully consider distributional consequences to ensure social safety nets for unemployed workers and vulnerable communities.

And third, it will be critical to mobilise all pools of finance – public, private and international – and utilise them more effectively. This includes strengthening national development banks, bolstering, and making effective use of international climate finance, capitalising bond markets, and enhancing strategic partnership with the international financial community.

Recovery packages are set in a macro-fiscal context, where fiscal expansion is necessary but severely constrained in many ASEAN member countries. Hence, it will be crucial to substantially augment the mobilisation of private finance through trade and investment channels while aligning financial outlays with the Paris Climate Agreement and Sustainable Development Goals.

As the implementation of ACRF unfolds, Venkatachalam highlighted that coordinated policy responses will require resolute leadership at regional level, willingness to experiment and change at national level, and innovative public-private financing models at local level.

“The new social contract and greening of the recovery will be an economically prudent bold choice for ASEAN to reduce damaging inequalities and bring back the growth within planetary boundaries.”