1. SAEO 2011/12
(Southeast Asian Economic Outlook)
- Prospects and policy responses
Pre-launch Seminar
Paris, 16 November 2011
Asia Desk
OECD Development Centre

2. Three regional economic outlooks
African Economic Outlook Latin American Southeast Asian
since 2001 Economic Outlook Economic Outlook
since 2007 since 2010
(*) Quarterly publication - ”This quarter in Asia”
2

3. SAEO - What’s in it?
Regional Economic Monitor
 Coverage: ASEAN
Structural Policy Country Note
countries, China and India
 Structure: SAEO comprises Thematic Focus
three main parts
• 2010 - Transport infrastructure
• 2011 - Green growth
• 2012 – Narrowing the
development gap

4. Outline
1 Regional economic outlook in 2011-2016
2 Structural Policies (Country Note)
3 Thematic Focus: Green Growth

5. 1 Regional economic outlook in 2011-2016
2 Structural Policy Country Note
3 Thematic Focus: Green Growth

6. The region’s economic outlook will remain solid in the
medium term
2010 2011 2016 Average Average
2003-07 2012-16
Indonesia 6.1 6.3 6.9 5.5 6.6
Malaysia 7.2 4.6 5.6 6.0 5.3
Philippines 7.3 4.5 5.1 5.7 4.9
Singapore 14.5 5.6 4.8 7.5 4.6
Thailand 7.8 2.5 4.9 5.6 4.5
Viet Nam 6.8 5.9 6.7 8.1 6.3
Average of six countries 7.6 5.0 5.9 6.1 5.6
China 10.4 9.3
India 8.8 7.7
Average of Emerging Asia 9.5 8.2
Source: OECD Development Centre, MPF-SAEO 2011/12, Southeast Asian Economic Outlook 2011/12
(forthcoming) and OECD Economic Outlook No 90 (forthcoming).

7. Recent developments cast a shadow over Asian
economies in the near term
a) ASEAN average
115
100
85
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
b) Emerging Asia average
115
100
85
Aug-08
Aug-09
Aug-11
Aug-10
Feb-09
Feb-10
Feb-11

8. Emerging Asia will not be decoupled from global
economic slowdown
a) Stock indexes in the G7 and Emerging Asia
b) Credit default swap premiums in the G7 and Emerging Asia
Source: CEIC and Datastream

9. Two large-scale natural disasters affected the
region adversely
Production of motor vehicles and components in 2011
(index, Jan 2011=100)
Source: CEIC.

10. Large capital inflows need to be managed
Capital inflows and outflows of Southeast Asian countries
a) From 2010-Q3 to 2011-Q1 b) From 1996-Q1 to 1996-Q4
(Quarterly average, millions of current USD) (Quarterly average, millions of current USD)
(Note) Net capital flows for Malaysia, (Source) CEIC

11. Structural policies to enhance productivity are needed
Historical decomposition of output gap (%, 2009-11)
a)Indonesia b) Malaysia c) Philippines
(Source ) OECD Development Centre, MPF- 2011/12

12. Domestic demand will be an important
engine for the growth
Current account balance of six ASEAN countries
(percentage of GDP)
(Source) OECD Development Centre, MPF- SAEO 2011/12

13. Fiscal situation will gradually improve and further effort
to mobilise domestic resources would be critical
a) Fiscal balance of general b) Tax revenues as percentage of GDP
government in six ASEAN countries in 2010
(percentage of GDP)
(Source ) OECD Development Centre, MPF- 2011/12 and CEIC

14. Ageing population poses a medium-term risk
in the region
Percentage of population aged 65 or over (% of total population)
40
FORECAST
35
30
25
20
15
10
5
0
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
Indonesia Malaysia Philippines
Singapore Thailand Vietnam
China India OECD average
Source: UN

15. Key messages (1)
 Growth for the region will moderate in the near term but
solid growth performance will continue until 2016.
 Volatility of capital inflows needs to be managed by
appropriate macroeconomic policies. Strengthening
structural policies is a key to coping with global
uncertainties.
 Domestic demand will be an important engine in the
medium term - infrastructure and social policies will play
significant roles. There is room for mobilising resources.
 Ageing population will not be a negligible downside risk.
Pension and healthcare systems need to be reshaped.

16. 1 Regional economic outlook in 2011-2016
2 Structural Policies (Country Note)
3 Thematic Focus: Green Growth

17. Medium-term development plans of
Southeast Asian countries
Country Period Theme/Vision
Towards the realization of an Indonesia that
Indonesia 2010-2014
is prosperous, democratic and just
Malaysia 2011- 2015 Charting development towards a high-income nation
Philippines 2011-2016 In pursuit of inclusive growth
High skilled people, innovative economy, distinctive
Singapore 2010-2020
global city
A happy society with equity, fairness and resilience
Thailand 2012-2016
under the philosophy of Sufficiency Economy
(Note) Viet Nam’s forthcoming medium-term plan
Viet Nam 2011-2015 was in the process of formulation as of 1 November
2011.
Source: OECD Development Centre’s compilation based on national sources.

18. Policy focus from Country note in SAEO 2011/12
Human capital
Infrastructure
development
Indonesia Human capital Singapore Innovation
development
Labour market SME development
SME development Health
Human capital Human capital
Malaysia Thailand development
development
Taxation and fiscal Agriculture
system
Enterprise development
Infrastructure and reform of SOEs
Human capital Macroeconomic
Philippines Viet Nam management
development
Human capital
Taxation
development
Source: OECD Development Centre.

19. Human capital development: Education systems
need to become more outcome-oriented
a) OECD-PISA results in 2009 b) Qualifications by sex and urban-rural areas
- Indonesia and Thailand in 2009 - Viet Nam (percentage)
Source: OECD PISA 2009 database.
Source: OECD and CEIC

20. Infrastructure development needs to be strengthened
(Country notes from Indonesia and Philippines)
Infrastructure competitiveness (ranking)
Source: Global Competitiveness Report, World Economic Forum.

21. Strengthening SME development is critical in the region
(Country notes from Malaysia and Singapore)
a) Number of business establishments b) Contribution of SMEs to GDP
by size – Malaysia (percentage)- Malaysia
Source: SME Annual Report 2009/10, National SME Development Council.

22. Key messages (2) - from country notes
Speed up transport infrastructure development by improving regulatory
environments
Indonesia Improve the outcome of higher education and reduce urban-rural
disparity in access to educational infrastructure
Reform labour market regulation to increase employment
Enhance SME development with special attention to capacity building and
innovation
Strengthen the link between industries and academic institutions to
Malaysia improve labour force skills and to enhance research and development
Reform the tax regime and improve efficiency of public spending to
bolster the sustainability of public finances
Increase funding for infrastructure development and attract more private
participation
Improve the access to and the quality of basic education and strengthen
Philippines TEVT
Reform the tax system by enhancing tax collection and widening the tax
base
Source: OECD Development Centre.

23. Strengthen life-long learning by enhancing pre-school education
Raise efficiency of innovation policy through well- coordinated
Singapore
policy evaluation system
Enhance SME development by improving assistance programmes
Reform healthcare schemes to provide higher quality of and equal
access to services
Improve the outcome of education and reduce urban-rural
Thailand disparity
Enhance agricultural productivity and raise the attractiveness of
the farm sector to workers
Speed up the reform of state-owned enterprises (SOEs), in
particular improve the governance and management system of
SOEs
Viet Nam
Establish an adequate monetary framework to control inflation
Increase skilled labour by education reform
Source: OECD Development Centre.

24. 1 Regional economic outlook in 2011-2016
2 Structural Policy Country Note
3 Thematic Focus: Green Growth

25. Green Growth and Southeast Asia
Shift in mindset on National
development characteristics
Encourage more New sources of
Export-led growth balanced, growth and jobs
“Grow First, Clean inclusive and
sustainable Social issues and
Later”
growth equity concerns
OECD GGS Regional Dimension

26. Carbon emissions under the Kyoto Protocol
Global CO2 emissions have risen mostly in
Developing Asia since 1990
MT CO2
35,000
30,000
25,000
ROW
20,000 Other Asia
ASEAN (6)
15,000 India
China
10,000 OECD
5,000
0
1990 1995 2000 2005 2010

27. Carbon emissions under the Kyoto Protocol
CO2 emissions may differ significantly
depending on which accounting methods are used
MT CO2
2008p
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
-2,000
OECD (30) DEV ASIA (11)
-4,000
PBE CBE Net Transfer

28. Carbon emissions under the Kyoto Protocol
CO2 trade surplus grew large in several Asian economies
CO2 trade balance as % of national emissions
%
30
25
20
15
10
5
0
-5 OECD (30) DEV ASIA (11) ASEAN (8) China India
-10
-15
-20
1995 2000 2005 2008P

29. Carbon emissions under the Kyoto Protocol
Per capita carbon emissions vary across
Asian economies
T CO2
20
18
16
14
12
10
8
6
4
2
0
2008

30. Strategy, Policy and Institution: ASEAN Perspectives
• Natural capital and stage of development
Development Strategy • Environmental concern vs. other development
concerns (e.g. poverty reduction)
• Emission reduction targets (from BAU levels)
Green Growth Policy • Nationally appropriate mitigation actions (NAMAs)
• Fiscal policy space
• Public sector capacity
Institutional Support • Monitoring, verification and reporting (MVR)
• Private-sector participation (e.g. green products)

31. Challenges Ahead for ASEAN Countries
• Policy Goals
 Reduce GHG emissions voluntarily
 Make greater use of clean technologies and green products
• Priorities
 Sustainable agriculture, land use and forestry management
 Shift to clean energy, including renewable energy (e.g. geothermal)
 Waste management
 Transport and logistics management
• Implementation
 Legal authority
 Financial resources

32. Types of Environmental Tax Instruments
• Direct taxes/fees on a pollutant (e.g. carbon tax)
• Taxes/fees on an input or output (‘proxy’) that
generates pollution (e.g. motor fuel)
• Tradable permit systems (e.g. ‘cap and trade’)
• Deposit refund schemes
• Subsidies to use less polluting products
• Subsidies and other government assistance for to
develop and disseminate greener technologies

33. Priority Areas for Southeast Asia
• Motor vehicles– pollution and road congestion
• Water quality
• Waste management
• Management of forests and fisheries
• Carbon and other GHG emissions
> Meet international commitments (voluntary)

34. Factors affecting ETI use in ASEAN
• High degree of economic openness and linkages in global
supply chains
> Spillover of taxes & effects on competitiveness
• High priority on poverty reduction and support for lowest
income groups
• Potential conflict between ETIs and development
objectives (ex. development of the auto sector)
• Limited development of tax systems:
> Raises administrative costs
> Limits scope for compensation of groups most affected by ETIs

35. Key messages (3)
• Greater use could be made of ETIs and bring significant
benefits to the society as a whole:
 Especially taxes/fees, since they usually can be more precisely
targeted and raise revenues
 Care should be taken of the social/equity aspect
• Co-operation across ASEAN states in instituting ETIs can
enhance their benefits and reduce potential costs
• Implementation of more ETIs need not hamper real growth
if carefully phased in and could help in fiscal consolidation
• International co-operation is essential to promote GG

36. Southeast Asian Economic Outlook:
A Tool for Policy Dialogue
Thank you!
Contact: dev.asia@oecd.org
36

37. ANNEX

38. Low Carbon
Green Growth
Korean
Development IT Ventures
R&D
Semi-conductors
Autos
Light industry Heavy Industry
Source: Kang (2011)

39. Some lessons from the OECD
• Keep it simple
• Use compensation rather than mitigation to help most
burdened groups where possible
• Careful planning and coordination of instruments is
critical for cost-effective results
• Financial burdens, distribution and competitiveness
effects make it very difficult to achieve fully optimal
use of ETIs
> Transparency and good communication with the public and
those most affected is crucial

40. Criteria for evaluating ETIs
• Efficiency:
- Pollution reduction at lowest economic cost (‘static’)
- Maximum incentives to innovate (‘dynamic’)
• Flexibility and robustness to uncertainty
• Administrative costs
• Budget impact
• Impact on development objectives
- Growth
- Income distribution; poverty reduction
- competitiveness

41. Best uses of ETIs
Common
ETI Most appropriate when:
Examples
Pollutant is easily measured;
Direct
sources are small and diverse; flat Water pollution;
taxes/fees
marginal damage curve
Pollutant-proxy relation is stable; Fuels [and coal];
Proxy
proxy contains several pollutants; motor vehicles;
Taxes/fees
flat marginal damage curve fertilizers
Exact control of pollution is very Greenhouse
Tradable important (steep damage curve); Gases; Air
Permits markets are well-developed; pollution;
[cross-border spillovers] fisheries

42. Best uses of ETIs (Cont.)
ETIs Most appropriate when: Examples
Forest
Subsidies to Taxes are politically unacceptable;
management;
reduce subsidized activity is good
purchase of
pollution substitute for polluting activity
home appliances
R&D subsidies
for green
Market size, externalities to technologies;
Subsidies for
innovation, or network subsidies for
Innovation
considerations are important renewable
energy in
electricity