The Association of Southeast Asia Nations (ASEAN) is unlikely fall in a financial crisis due to its strong fiscal position, a high-ranking official said in an exclusive interview recently. “The possibility of ASEAN countries falling into the same fiscal debacle is low for now, in my view. This is because ASEAN fiscal position has been strengthened over the years, particularly after the hard lessons learned during the Asian financial crisis,” said Sundram Pushpanathan, deputy ASEAN Secretary-General for Economic Community.
He took examples of fiscal reforms to increase taxation, improve expenditure efficiency, and rationalize expenditures that have been implemented in most ASEAN countries, in addition to implementing fiscal consolidation plans. “As well, most of the ASEAN countries have adopted fiscal-rule framework to guide their policies related to maintaining budget balance, debt sustainability and expenditure and revenue rules,” he said. He added that last year most the ASEAN countries resorted to extra-ordinary fiscal stimulus measures that led to increase sharply in fiscal deficits, and most of the countries in the region have managed to generate fiscal surpluses or incur small fiscal deficits since 1997.
According to Pushpanathan, one lesson learned from the Europe’s sovereign debt crisis is that like any crises, a solution is always possible.
“I think the solution lies in undertaking comprehensive fiscal reforms. Europe can likewise do the same in its fiscal institutions,” he said.
He added that while the fiscal reform programs may vary across countries, the programs should be able to address structural fiscal problems to ensure fiscal stability in the medium and long term.
“Recent stabilization measures announced by the European Union (EU) and the European Central Bank (ECB), which put emphasis on structural reforms of public finances, are steps in right direction,” he said.
Pushpanathan said that given the benefit of strong fiscal reforms, it is possible that the Portugal, Ireland, Italy, Greece and Spain (PIIGS countries) can cover their deficits.
“Reforms will help restore market confidence that will allow these economies to function efficiently. However, while fiscal reforms are crucial, all those stabilization measures and mechanisms will only become effective if governance issues that contributed to the crisis are being addressed as well,” he said.
In this case, he added, fiscal reforms in PIIGS countries must be accompanied by commitment of policy makers in these countries to implement these fiscal reforms and other economic measures depending on each country’s circumstances – with greater transparency and accountability.
Pushpanathan said that the debt crisis may not be only a problem for Europe.
“It can happen anywhere if the fundamental issue of fiscal prudence is not adequately addressedand with serious implications cross-border,” he said.
As shown by the Greece crisis, he said, fears of a sovereign debt crisis have started to reverberate in some countries in Europe, including the PIIGS countries.
“Theoretically, no countries can be spared from the possibility of sovereign debt crisis, if the fiscal fundamentals are not put in place and implemented well,” he said.
