A MACROECONOMIC PERSPECTIVE OF AFTA'S PROBLEMS AND PROSPECTS

Abstract

The Association of Southeast Asian Nations (ASEAN) and the impressive economic performance of most of its members have increased the weight of the region's views in world fora. However, ASEAN has been unsuccessful in fostering a regional integration arrangement (RIA) leading to an increase in intraregional trade and foreign direct investment. In January 1992, ASEAN launched the Asean Free Trade Area (AFTA) seeking to establish a free trade area (FTA) by 2008. Market integration increases economic interdependence and thereby raises the need for policy integration and discipline. This paper argues that a number of difficulties that ASEAN faced in promoting intraregional trade are likely to continue to affect AFTA (e.g., low economic complementarity and macroeconomic imbalances requiring large changes in equilibrium real exchange rates). The experience of other RIAs suggests other potential problems. AFTA's prospects of evolving into deeper forms of sustainable integration are remote. Some cooperation in areas of common interest seems likely.

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