With the COVID-19 outbreak, ASEAN member states (AMS) are now in the middle of dealing with a combination of shocks – the public health crisis, a lagging economy, a stressed financial sector, and climate change risk.
As the pandemic shows no signs of ending, the economy of ASEAN is projected to contract by 3.8 percent in 2020, the first economic contraction for the bloc in 22 years. The initial and individual country responses to the pandemic have been two-pronged: first, to tackle the health emergency and second, to restore the 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 the ACRF are intended to address the region’s immediate needs during the reopening 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 a more sustainable and resilient future.
The pandemic has put ASEAN governments in a bind, having to choose between saving lives and protecting livelihoods.
Since March, AMS have announced several special economic recovery packages equal to two to seven percent of their national gross domestic products (GDPs), which include interventions for immediate relief, liquidity, and payment deferrals to low-income households and small businesses.
These broader economy wide interventions to stop contraction and stimulate growth will come in phases. Despite the right intentions, implementing these measures is not easy.
Financial aid to small and medium enterprises (SMEs) is not effectively distributed because of challenges in identifying and targeting those in immediate need. The challenge of millions of migrant labourers and those in informal sectors raises systemic choices: Will they return to old jobs and if not, what kind of decent employment could they find?
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.
But the ACRF and its implementation plan provides an opportunity to shape the future in a manner that would deliver a new social contract among public organisations, the private sector and people; one that rests on the pillar of commitment to create jobs, accelerate economic growth and achieve environmental sustainability.
For policy makers, the trinity of jobs, growth and sustainability is often dubbed as mission impossible.
The European Union (EU) unveiled a EUR740 billion (US$896 billion) recovery package as a centre piece of its economic response to the pandemic. About 25 percent of the EU stimulus package is 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 expected 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.
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.
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 has put a temporary halt to investments in building sustainable smart cities.
However, 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. In this context, AMS 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.
Initiatives And Investments
As policymakers prepare interventions and industries consider changes to their business models, the pandemic crisis and stimulus packages offer a once in a generation opportunity that could work towards building a more sustainable future.
In this context, the implementation of the ACRF should consider the following three principles in guiding 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 characteristics 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 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.
Thirdly, 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 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 (SDGs).
As the implementation of the ACRF unfolds, coordinated policy responses will require resolute leadership at regional level, a willingness to experiment and change at national level, and innovative public-private financing models at the local level. The new social contract and greening of the recovery will be an economically prudent and bold choice for ASEAN to reduce damaging inequalities and bring back growth within planetary boundaries.