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Deepen Integration in Asia to Tackle Slowing Growth, Rising Inequality, and Climate Change

MANILA, PHILIPPINES, 23 November 2015—Countries in Asia and the Pacific have substantial untapped potential to expand regional cooperation and integration, says a new study from Independent Evaluation at the Asian Development Bank (ADB). The region has lagged other parts of the world where integration has advanced into economic, monetary, and customs unions, yet experience suggests that by moving beyond simple trade, Asia can better grapple with slowing economic growth, rising inequality, and runaway climate change.

Southeast Asia is making substantial progress in these areas, as highlighted in Kuala Lumpur over the weekend at the 27th ASEAN Summit, where leaders of the Association of Southeast Asian Nations gave a bit of official polish to the inception later this year of the ambitious ASEAN Economic Community. But parts of the Pacific, South Asia, and Central Asia remain among the least integrated subregions in the world.

“Greater cooperation and integration can promote social stability and peace and improve governance and financial stability. They are invaluable in addressing regional issues—failure to use it is wasted potential,” says Vinod Thomas, director general of Independent Evaluation at the Asian Development Bank.

Several facts stand out in the report, Asian Development Bank Support for Regional Cooperation and Integration. While trade among Asian countries in the global trade network has increased significantly—led by China and India—no Asian subregion has experienced significant increases in intraregional trade shares over the last decade. Intraregional trade in Southeast Asia has held steady at about 24% of total trade, while trade integration in all other subregions was actually higher in 1995 than in 2012.

The study also stresses the important contribution that development organizations such as ADB can make in overcoming these problems. Independent Evaluation rates more than 80% of ADB’s completed loan and grant projects approved during 2003–2014 and supporting regional cooperation and integration as successful on average. This compares with overall average success of 61%.

ADB’s long-standing support for subregional economic cooperation programs in the Greater Mekong Subregion (GMS), Central Asia, and South Asia taken as a whole has enabled closer coordination and collaboration among countries. “The GMS has been particularly innovative in institutionalizing and improving human development,” says Marco Gatti, Principal Evaluation Specialist.

Other projects have helped improve tourism infrastructure and services in both Southeast Asia and South Asia, with promising socioeconomic impact, boosting local employment in those countries and foreign exchange earnings. A project expanding the Gautam Buddha International Airport near Bhairahawa in southern Nepal, for example, is expected to contribute to substantial increases in both the number of tourist arrivals and tourist revenues.

The study finds important gaps, however, and calls for much broader support for regional cooperation and integration beyond infrastructure.  While attention to infrastructure ought to continue, natural resource cooperation—transboundary air and water pollution control, management of biodiversity, forestry, and fisheries—deserve far greater support than they have received in the past.

In this area, ADB has supported projects to preserve marine ecosystems in the Coral Triangle, a vast archipelago of islands Indonesia, Malaysia, Papua New Guinea, Philippines, Solomon Islands and Timor-Leste or in its work in biodiversity management in the GMS. These activities ought to be expanded and replicated in other subregions facing the same natural resource constraints. It could begin collaborating more with organizations such as the Mekong River Commission on water resources management in the Mekong countries.

Cooperation should also be deepened to assist countries that have benefited less from regional work, such as Georgia. It is one of just three countries, alongside Armenia and Timor-Leste, not covered by one or more ADB regional cooperation and integration programs. Yet it is geographically and strategically positioned to play a more important role in enhancing regional cooperation in the Caucasus subregion and between Europe and Central Asia.

Similarly, countries like Myanmar can play a stronger role in regional cooperation between Southeast and South Asia. ADB recently approved a loan to extend the GMS East-West Corridor, now connecting Viet Nam, Laos and Thailand through border crossings at Lao Bao/Dan Savanh and Savannakhet, into Myanmar.

On climate change, the coordination of multilateral actions under greater regional cooperation can obviously help to mitigate adverse impacts. Risk-sharing mechanisms such as insurance, and national, regional, and global risk pools, for example, can increase resilience to climate extremes.

The Developing a Disaster Risk Financing Capability project in the Pacific, for example, is tapping skills in local coastal communities and enhancing the capabilities of national and local institutions to manage ecosystems and build resilience to climate change.

Regional cooperation and integration have also been shown to help reduce poverty and worrisome inequality as Asia’s countries rise from low to middle-income status. For example, ADB’s assistance for communicable disease control in the Greater Mekong Subregion has helped lower poverty through the improvement of patients’ access to health services in areas that have lacked such access in the past.

The development organizations have had some success in encouraging regional cooperation and integration among member countries. But they have not always pressed their advantages to widen and deepen it. In the GMS and Central Asia, for example, ADB has allowed strategies it had used to guide the regional cooperation programs there to lapse in recent years—allowing authority to pass instead to frameworks within the region’s themselves. Although this demonstrates good ownership by the countries in the subregion, it limits ADB’s ability to monitor progress or influence direction.

To meet mounting environmental and economic problems, therefore, ADB and the other development organizations—including emerging new ones such as the Asian Infrastructure Investment Bank, the New Development Bank, or the Silk Road and Belt Initiative—and the countries they support need to more fully tap the benefits of regional integration.

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