Speech

Accelerating Development in the Mekong Region--The Role of Economic Integration, Opening Remarks by Mr. Takatoshi Kato, Deputy Managing Director, International Monetary Fund

June 26, 2006

As Prepared for Delivery

1. First of all, I would like to thank His Excellency Keat Chhon for his kind introduction, and join him and His Excellency Ong Keng Yong in welcoming you all to this seminar on Accelerating Development in the Mekong Region. I would also like to express our deep appreciation to Samdech Prime Minister Hun Sen for agreeing to join us today and to being our keynote speaker.

2. As you may know, this seminar is part of a series of seminars that are being organized in the run-up to our Annual Meetings in Singapore in September.

3. Our seminar focuses on the development challenges confronting the economies of Cambodia, Laos, and Vietnam. These economies differ on many dimensions, but have been molded by two common elements over the past 60 years: an extended period of disconnection from the global and regional economy, during which other economies in South East Asia recorded remarkable economic expansion, and, more recently, a period of increasing integration into the international economy, during which the three Mekong countries have themselves begun to record strong economic growth.

4. Policy-makers in the Mekong countries have much to learn from the experience of other countries in the region - notably the founding members of ASEAN, who have acquired much experience in managing the process of export-oriented growth and closer integration into the international economy. But those outside the region can gain much from studying the experience - and the successes - of the Mekong countries in overcoming the legacies of civil and regional wars and gradually laying the basis for sustained economic growth.

5. Let me briefly remark on a number of themes that struck me as I read the papers prepared for the seminar:

• The three Mekong countries have made remarkable advances since launching their economic reform programs in the latter part of the 1980s and early 1990s. Vietnam has by now established an impressive track record of sustained economic growth and poverty alleviation, and I am very encouraged to also see Cambodia and Lao P.D.R. experiencing strong economic growth and a favorable economic outlook.

• That said, these countries still have sizable income gaps with the rest of Asia, and a high incidence of poverty by regional standards. They also face significant structural impediments that need to be overcome, if they are to sustain, and accelerate growth over the medium term. And changes in the global economy, notably the emergence of China as a highly competitive economic powerhouse, creates both challenges and opportunities for smaller less-developed economies in this region.

• The papers suggest that the Mekong countries will be confronted with two key challenges as they face the future. The first is to complete the transition to fully-fledged market economies. Measures to promote private sector development by improving governance, strengthening the banking system, and developing the legal and judicial systems will be key in this regard.

• Second, there is clearly a need for major investment in human resources and infrastructure. Such investments, especially in education, are important for any country wanting to stay abreast in a rapidly changing world. The international community surely has a major role to play in this context, but the primary challenge would appear to be reforms of the fiscal regimes in the countries to mobilize additional revenues and improve their capacity to manage public resources effectively.

• While the primary burden will be on domestic reforms, the papers also highlight the potentially positive role of regional integration and cooperation in advancing reform and development in the Mekong countries. Full participation in the systems of production that have evolved in East and South East Asia offers an excellent opportunity for the Mekong countries to achieve export-led growth, following in the path of the original ASEAN member states. Regional trade agreements can play a supporting role in this integration process.

• Finally, the international community has an important role to play in support of the region's development. Continued financial and technical support for much-needed investments in education and infrastructure are clearly a 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 this highly dynamic region in which they are located.

6. The themes raised by the papers lay out a rich landscape for us to cover. I look forward with interest to the discussion of these topics over the next day and a half.

7. Thank you.