The Challenge of Developing the Mekong Region, A Commentary by Takatoshi Kato, Deputy Managing Director, International Monetary Fund

July 12, 2006

A Commentary
By Takatoshi Kato
Deputy Managing Director
International Monetary Fund
Washington, D.C.
Bangkok Post
July 11, 2006

Amid the tremendous economic advances that Asia has made over the past generation, the considerable progress of the Mekong region countries is sometimes overlooked. Cambodia, Laos and Vietnam have taken great strides since launching economic reform programmes in the second half of the 1980s and early 1990s. This progress is all the more impressive given the difficult starting point each confronted.

In addition to enjoying relatively stable macroeconomic conditions, each of these countries has moved rapidly toward greater market orientation and increased integration with regional and global markets. Their growth and export performances over the past 15 years have been particularly encouraging, resulting in notable gains in poverty reduction.

Nonetheless, although the Mekong countries are gradually catching up with their neighbours, there is still a significant development gap that needs to be closed. They are facing one of the key challenges confronting policymakers worldwide: how to ensure that less-developed economies can fully participate in, and derive the greatest benefit from, the globalisation of the world economy.

This challenge has been taken up by policymakers within Asean. They recognise that more needs to be done to address development imbalances within Southeast Asia and help the community's less-developed economies to catch up. This is important not only for the Mekong countries themselves, but also for the East Asia region more generally.

Large development disparities give rise to a number of cross-border problems—undocumented labour migration, smuggling and human trafficking, to mention but a few—which can exacerbate intra-regional tensions.

Many of these issues were addressed in late June at a conference in Siem Reap, Cambodia, sponsored jointly by the Asean Secretariat, the International Monetary Fund and the government of Cambodia.

Participants agreed that, for Mekong countries to seize opportunities, they needed to overcome significant structural impediments and accelerate growth over the medium term, while maintaining sound macroeconomic policies.

There are two key challenges. First, they must complete the transition to more efficient market-oriented economies. This is essential if they are to be able to compete for trade and investment and exploit the benefits from the internationalisation of production networks in the region. Among the key measures needed to promote private-sector development are improving the legal and regulatory systems and developing stronger banking and financial sectors. State-owned enterprise reform is also a priority. Tackling corruption, in all its forms, will be essential to improving the investment climate and reducing the cost of doing business.

Second, there is a clear need for major investment in infrastructure and human resources, especially education and health. Such investments are important for any country, but are critical in the Mekong economies because of the legacies of war and upheaval.

While international assistance will be important, it will be crucial to mobilise domestic revenues and improve the management of those resources, to ensure that they are used effectively.

Regional integration and co-operation also have an essential role to play in developing the Mekong countries. The evolution of Asean in recent years, with greater involvement of new member countries and the strong links with China, Japan, and Korea, has been an important complement to the WTO accession process in the Mekong countries.

There are risks to the proliferation of bilateral and regional trade agreements, notably those from trade diversion, so a key priority will be to ensure that regional initiatives continue to complement the push for multilateral liberalisation. By strengthening their outward orientation, the Mekong economies will strengthen both themselves and the rest of Asia.

The international community needs to be involved in supporting the Mekong region's development. Continued financial and technical support for investments in education, health and infrastructure—at the individual, country and regional level—clearly will be one priority. Greater access to markets, technology, and know-how will also be critical, as will capacity-building efforts to help the Mekong countries participate effectively in the Asian region.

The IMF strongly supports the efforts to develop the Mekong region and foster its integration into the East Asian and global economies. Also, the IMF stands ready to assist these efforts in any way that it can. The dialogue between the Mekong economies and the rest of the world on how to develop the region is important, and of significant relevance to the broader discussion of strategies for development and poverty reduction, that will be taken up at the IMF-World Bank Annual Meetings in September in Singapore.


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