## Maintaining

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### Outlook and momentum
- Southeast Asia exhibits a strong capacity to produce uplifting surprises, with recent political changes (for example, Malaysia’s voters electing a reformist government) and long-run democratic transitions (Indonesia since 1998) cited as evidence.
- The region encompasses "643 million people in 10 nations" ranging from Lao P.D.R. to Singapore.
- Confidence that the region can overcome global challenges—aging populations, climate change, advances in technology, and shifts in international trade and finance—rests on its record of adjusting flexibly and building resilience after shocks such as the crisis of 1997–98.

### Aging trends and urbanization
- The region is undergoing a major demographic transition: population growth will slow and aging trends will become more pronounced; Singapore and Thailand will age faster, and even Malaysia and the Philippines will experience slower growth in populations and labor forces.
- The era of plentiful and cheap labor that supported export-led, labor-intensive manufacturing will be ending across most of the region.
- United Nations projection: urban population will expand from "49 percent of the current total to about 56 percent by 2030."
- The projected urban expansion implies "another 80 million people" concentrated in towns and cities, presenting both challenges (competition for jobs and facilities) and opportunities (80 million workers with a chance to be more productive and earn higher wages; a lucrative market for goods and services).

### Technological change and sectoral implications
- Advances cited: artificial intelligence (including robotics), 3-D printing, new composite materials, and wider use of SMAC (social, mobile, analytics, and cloud).
- Expected effects:
  - Manufacturing processes will become less labor-intensive while enabling new product opportunities and changing drivers of competitiveness.
  - Indirect effects include new classes of super-long-haul aircraft using composite materials, potentially increasing tourism via cheaper point-to-point travel.
  - Wider SMAC adoption should help businesses enhance profitability and tailor goods and services more directly to consumers.
  - Renewable energy (especially solar and wind) will be used more widely, potentially reducing dependence on polluting fossil fuels and enhancing energy security.
  - New biomedical therapies, some based on genomics, could transform treatments and raise life expectancy and quality of life; new business activities may grow from such innovations in medical hubs (example: Bangkok).
- Labor market dynamics:
  - Predictions of wholesale displacement of workers are characterized as overly pessimistic; some displacement is normal, and "the pace of job creation" is likely to accelerate along with dislocation.
  - Example of technology-driven job creation: United States cybersecurity workforce "estimated at 768,000" (CompTIA).
  - Certain labor-intensive industries (textiles, garments, footwear) have limits to automation, preserving scope for labor-intensive work.
  - New technologies have already enabled entirely new industries in the region (example: the Philippines and business process outsourcing).

### Integration, globalization, and external financial links
- Forms of integration may shift: large multilateral, "whole-of-the-globe" initiatives may be harder to execute, while smaller-scale integration (subregional partnerships, cross-border trade) is likely to expand.
- ASEAN (the "10-member Association of Southeast Asian Nations") is pursuing practical plans such as the ASEAN Economic Community 2025 plan, allowing long-term goals with country flexibility to improve flows of goods, services, capital, data, and people.
- The Greater Mekong Sub-Region is an example of over 20 years of cooperation that improved transportation and grew trade and labor flows; cross-border trade (for example between Thailand and neighbors) transformed small towns into hubs.
- Continued exposure to global financial flows presents two challenges:
  - Financial markets are subject to frequent stress, shocks, and crises; volatile capital flows can complicate monetary policymaking and destabilize currency, equity, and bond markets with harmful consequences for growth and financial stability.
  - China will become a more tangible actor in global finance as its savings liberalize; initiatives and institutions mentioned include Belt & Road, the New Development Bank, and the Asian Infrastructure Investment Bank.

### Climate change and environmental risks
- Southeast Asia is projected to be among the world’s hardest-hit regions by climate change (Asian Development Bank assessment referenced).
- Examples of environmental stress:
  - Annual smoke from forest fires across parts of Indonesia, Malaysia, and Singapore causes extensive damage.
  - Water scarcity is an underappreciated source of conflict and economic trouble; stress is already evident due in part to dams on the upper Mekong River in China that alter nutrient-rich sediment flows and the annual flood pulse needed downstream for fishing and livelihoods in the lower Mekong Basin.
- Managing water resources and ensuring equitable access to safe water will be challenging.

### Building resilience and flexibility
- Resilience improvements since 1997 include:
  - More diversified economies.
  - More flexible exchange rate regimes.
  - Financial structures less prone to crises; banks are better capitalized.
  - Stronger balance sheets for companies, households, financial institutions, and governments.
- Recent shocks weathered include the global financial crisis, successive euro area crises, and the collapse in commodity prices.
- Two complementary channels for adjustment:
  - Bottom-up, spontaneous adjustment by companies and individuals: examples include AirAsia and regional scaling by Thai firms such as Charoen Pokphand Group and the Siam Cement Group.
  - Policy-driven adjustment: emergence of globally competitive clusters supported by industrial master plans, industrial estates, and incentives to attract foreign investors.

### Policy focus and government support
- Key public goods to improve policy-driven adjustment:
  - Infrastructure investment.
  - Education and skills training.
  - Research and development.
  - Social safety nets.
- Positive policy shifts: increased infrastructure investment across the region; regulatory cuts and anti-corruption efforts (Indonesia’s rise in World Bank ease of doing business rankings and prosecutions by its anti-corruption agency; Malaysia’s new government pursuing anti-corruption measures).
- Examples of government-supported clusters and corridors:
  - Thailand’s eastern seaboard as a major manufacturing hub (petrochemicals and automobiles) and the Eastern Economic Corridor transformation plan.
  - Malaysia’s Penang-Kulim corridor and the southern Iskandar region as globally competitive manufacturing and logistics clusters.

### Overall assessment and outlook
- The next couple of decades could be exhilarating (technology and global growth opportunities) and tumultuous (risks from an unreformed and unstable international financial architecture).
- Policymakers have not "gotten everything right," but progress is noted: companies are scaling and becoming more sophisticated, and the region has a track record of responding to challenges.
- Confidence that Southeast Asia will continue to adapt flexibly and build resilience is grounded in recent experience and institutional changes.

*MANU BHASKARAN has studied economic and political trends in Southeast Asia for more than 30 years. He is chief executive officer of Singapore-based Centennial Asia Advisors, a unit of Centennial Group, a strategic advisory firm based in Washington, DC. He previously worked in the administrative service of the Government of Singapore and as chief economist at SG Securities in Singapore.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2018/september/future-of-southeast-asia-bhaskaran.pdf_