As the 44th Summit of the Association of Southeast Asian Nations (ASEAN) draws to a close on 11 October, the region stands at a crossroads. ASEAN faces rising internal tensions and a more turbulent external geopolitical outlook. The region’s rapid economic growth and robust post-COVID-19 recovery are colliding with rising social challenges and escalating climate risks. ASEAN is yet to attain a level of global influence in proportion to its economic heft, partly due to shortfalls in regional integration.
The core theme of the Lao People’s Democratic Republic’s (Lao PDR’s) 2024 ASEAN Chairmanship, Enhancing Connectivity and Resilience, neatly captures the interplay between the need for deeper regional cooperation and stronger external partnerships, and between the social, economic, and environmental dimensions of development. This aligns strongly with the key messages of Transforming ASEAN: Strategies for Achieving Inclusive and Sustainable Growth, published by the ADBI in April 2024.
The Rapid Ascent, Increasing Integration, and Growing Influence of ASEAN
Since the Asian financial crisis in 1997, ASEAN has experienced dramatic and considerable economic development. The region’s overall gross domestic product (GDP) has risen more than fivefold, and per capita income has skyrocketed eightfold in Indonesia and more than 10 times in Viet Nam (Mahbubani 2023). Extreme poverty in the region has plunged from 36.6% to 3.3% during the same period, from more than 1 in 3 people to less than 1 in 30 (ADB 2023a).
The region’s deepening internal integration has been central to this progress. Over the past decade, the ASEAN Economic Community, ASEAN Comprehensive Investment Agreement, and dedicated regional agreements on tourism, customs, the digital economy, and COVID-19 recovery have accelerated regional cooperation. Since the Asian financial crisis, ASEAN has seen a roughly eightfold increase in regional trade to $4 trillion, with internal economic integration outpacing even ASEAN’s robust growth trajectory (ADBI 2024).
ASEAN’s strengthening external relationships and growing global role have also been pivotal to its development. Since 2020, ASEAN has struck a Comprehensive Strategic Partnership Agreement with the People’s Republic of China (PRC), consolidated its network of bilateral trade agreements into the Regional Comprehensive Economic Partnership (RCEP), elevated interregional relations with the European Union into a Strategic Partnership, and upgraded its trade agreement with Australia and New Zealand (AANZFTA). Indonesia’s G20 Presidency in 2022 drew global attention and acclaim to ASEAN and showcased its model of diplomatic management and economic cooperation (ADBI 2024).
Navigating Headwinds: Forging a Connected and Resilient ASEAN Amid Geopolitical, Climate, and Economic Risks
Looking ahead, however, the region faces some significant headwinds. Many are exogenous. Unfolding global conflicts and the aftershocks of COVID-19—from rising inflation rates and food insecurity to energy market pressures—continue to reverberate across the region. The global value chains that have driven regional growth and prosperity are in danger of fragmenting and could cost the world 2.5%–7% of GDP in the long term (IMF 2023).
Geopolitical tensions are creating growing concern. ASEAN has sought to chart a middle path between the United States and the PRC, reflecting a reluctance to “choose sides” that remains the majority view and has brought relative stability and prosperity to the region (Luo 2021; Barrett 2022; Suruga 2024). However, ASEAN’s “Third Way” is increasingly under strain, limiting its capacity for regional coherence and unified external action (Mahbubani 2023). This arises both from power competition and internal discord on key issues facing the region, which are raising questions about the sustainability and effectiveness of ASEAN’s pragmatic, consensus-driven approach.
There is also scope for a renewed approach to ASEAN’s development model. Despite its dramatic growth, many ASEAN members face persistent inequalities and patchy social services. For example, Thailand is the world’s third most unequal country, with 58% of national wealth held by the richest 1%. Meanwhile, the four richest men in Indonesia have more wealth than the poorest 100 million combined, and Viet Nam’s highest net worth individual earns more in a day than the poorest earn in a decade (Bangkok Post 2018).
Climate change has brought increasingly frequent and severe extreme weather events, most recently visible in the record-breaking heatwaves that swept through Southeast Asia earlier this year (Fuckar 2024). The risk of extreme heat is amplified by a lack of access to cooling options, with less than 10% of households in Indonesia, the Philippines, and Viet Nam—home to a combined population of 500 million people—having air conditioning (Shen, Azhgaliyeva, and Baño Leal 2024). The region remains highly reliant on fossil fuels, with more than three-quarters of energy needs still met by coal and gas (ASEAN 2023a). The World Bank estimates that annual losses due to increasingly frequent and severe natural disasters cost the region $4.4 billion, and 90% of citizens are uninsured against climate risks (Bangkok Post 2018).
Transforming ASEAN: Key Insights to Inform the Next Phase of Development:
Released in April 2024 and launched in July, Transforming ASEAN: Strategies for Achieving Inclusive and Sustainable Growth provides a timely and essential guide on how to address these challenges and unlock the opportunities facing the region. Its 14 chapters are divided into three parts, focusing on accelerating decarbonization and the sustainability transformation, deepening regional integration and advancing the next phase of development, and amplifying Southeast Asia’s global influence in an increasingly complex and uncertain world.
The first challenge relates to reconciling rising energy needs with the imperative to foster green grids. Energy demand in Southeast Asia has increased by 3% every year since 2000 and is projected to rise by a further 166%–218% by 2050 (CSIS 2023). Coal accounts for a substantial proportion of the energy mix, at over 60% in Indonesia and the Philippines (Azhgaliyeva, Baño Leal, and Shen 2024). The region’s fleet of coal-fired power plants is young—averaging 12–15 years as opposed to 40–50 years worldwide—and continues to expand, contributing to an expected 72% increase in power sector emissions in the decade to 2030 (Chen and Mauzerall 2021). In addition, the region is highly exposed to extreme weather events and rising temperatures, with hitherto limited adaptive capacity (Sonobe et al. 2024). The recent adoption of net zero pledges by many ASEAN members is welcome progress, but the broader implementation of Energy Transition Mechanisms, climate adaptation strategies, sustainable finance, and climate-related disclosure tools will be crucial in advancing the transition.
The second challenge relates to advancing regional economic integration to more fully unlock digitalization, tap into global value chains, and accelerate macroeconomic diversification and resilience. However, ASEAN’s capacity to advance these objectives depends on bridging socioeconomic inequalities. More than 60% of workers in the region remain locked in informal jobs with little or no employment protections (UNDP 2022). In 2023, approximately 34% of the population in developing Asia and the Pacific remained unconnected to the internet, and the price of connectivity can be four times higher in the least developed countries, such as the Lao PDR and Cambodia, than in advanced economies (ITU 2023). The book provides a detailed set of prescriptions to leverage innovative finance and strategic investment, governance and strategy in ASEAN Vision 2045, and policy approaches to expand trade connectivity, improve food security, and advance regional integration.
The third and final challenge concerns ASEAN’s global role. Indonesia’s leadership of the G20 in 2022 and ASEAN in 2023 has provided an opportunity for the two fora to be linked and to jointly shape the future of developing Asia’s role in the global economy (Sonobe et al. 2024). While Indonesia is a full member of the G20, and Singapore is regularly involved in this forum, there is potential for ASEAN to press for formal membership following the example of the African Union under India’s G20 Presidency last year (Reuters 2023). Global value chains (GVCs) are increasingly shifting toward Asia and the Pacific, where GVC activity grew by 10.7% in 2022, outstripping the global average by roughly 50% (ADB 2024). This is essential for addressing regional inequalities, as GVC-linked jobs account for 1 in 4 employees in Southeast Asia, and youth, women, and low- and medium-skilled workers are highly represented in these roles (ADB 2023b). Going forward, there is substantial scope for strengthening the alignment between ASEAN’s strategic frameworks, institutional arrangements, supply chains, and policy priorities with those pursued through the global governance architecture.
The Way Forward: Paving Policy Avenues Toward ASEAN Vision 2045 and a Sustainable, Inclusive, and Globally Influential Future
A recent survey by the ISEAS-Yusof Ishak Institute indicates growing support for stronger ASEAN centrality and connectivity and a more resilient, unified approach to global governance (ISEAS-Yusof Ishak Institute 2024a). Building on this year’s ASEAN Summit in the Lao PDR, several pathways can consolidate and advance recent progress toward this end and tackle the social, economic, and environmental challenges facing the region.
Forging an Environmentally Sustainable Future in ASEAN
Accelerating the green transition in ASEAN will require a more robust policy framework, novel financing tools, regionally integrated approaches, and intensive investment in technology and infrastructure. The ASEAN Centre for Climate Change and the ASEAN Agreement on Disaster Management and Emergency Response provide an overarching governance framework, strategic direction, and institutional vehicles for coordinating these efforts (ASEAN 2023b). Acknowledging the region’s vulnerability to extreme weather events and with over 90% of disaster losses remaining uninsured, the Southeast Asia Disaster Risk Insurance Facility (SEADRIF) creates a regional platform to pool finances, broaden coverage, and mobilize a parametric insurance model for faster, more accessible payments (SEADRIF 2024). The ASEAN Power Grid (APG) represents an effort to boost regional connectivity and shared energy infrastructure (ASEAN 2023b; 2015). Under the APG, the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project enables hydroelectricity to flow across borders and has doubled to 200 MW in 2024 (ISEAS-Yusof Ishak Institute 2024b). At the country level, the recent adoption of carbon pricing schemes by Singapore (2019) and Indonesia (2021), the involvement of Indonesia, Viet Nam, and the Philippines in ADB Energy Transition Mechanism pilot schemes to shift from coal to renewables, and Malaysia and Singapore’s establishment of green building codes represent encouraging progress that could be scaled up to the regional sphere (Azhgaliyeva, Baño Leal, and Shen 2024; Shen, Azhgaliyeva, and Baño Leal 2024).
Accelerating Social Mobility and Progress Toward a More Digitized and Inclusive Economy
Despite significant economic advances in recent decades, ASEAN faces widespread rural-urban, digital, health, education, and gender divides that must be addressed in the next phase of development. The overall value of the digital economy in ASEAN is due to triple from $300 billion to $1 trillion by 2030. This has broad-based benefits, with each 1% rise in digital trade associated with an extra 0.8% in GDP per capita (UNCTAD 2023). The Digital Economy Framework Agreement, signed last year, provides an institutional instrument to forge closer cooperation and maximize the economic gains of this process. In parallel, the ASEAN Smart City Network, established in 2018, has attracted investments in scalable solutions for digital transformation, energy management, and transport (ASEAN 2024a). The ASEAN Socio-Cultural Community Blueprint, Senior Officials Meeting on Social Welfare and Development (SOMSWD), and ASEAN Social Protection Results Framework provide a strategic, governance, and measurement and reporting architecture for upgrading social protection at the regional level (ASEAN 2020), but more remains to be done to forge a more socially just and inclusive economy.
At the national level, Thailand’s near-universal health system coverage—through which 99.5% of the population are insured—high life expectancies and relatively low public health bill of 6% of GDP indicate potential examples for others to follow (The Economist 2024). As education represents one of the primary pathways for narrowing inequalities and advancing social mobility, transferable lessons could be gleaned from Viet Nam’s heavy investments of 20% of provincial budgets in education, prioritization of equity through pay incentives for teachers to take up roles in rural areas, and robust skills program for training high-quality educators (The Economist 2023).
Deepening Regional Integration and Global Influence: From Trade to Climate
At the regional level, the deepening of the ASEAN+3 format with the PRC, Japan, and the Republic of Korea provides a vital vehicle for both economic cooperation and geopolitical stability. Trade among ASEAN+3 increased by 10% in 2023, while the package of cooperation measures includes both leader-level dialogues and channels for “track 2 diplomacy.” Joint financial institutions, such as the ASEAN+3 Macroeconomic Research Office and the Asian Bond Market Initiative, also provide for economic resilience (ASEAN 2024b). ASEAN’s prominent and formative role in RCEP, which built upon existing ASEAN+1 bilateral free trade agreements, provides a way to consolidate and advance economic cooperation with a group of countries comprising roughly a third of global GDP. Going forward, there is significant potential for bolstering green cooperation in step with these economic channels. The recent establishment of Just Energy Transition Partnerships with Viet Nam and Indonesia provides a basis on which to build in this regard by mobilizing international climate finance to advance a socially just and environmentally sustainable transition in the region (Azhgaliyeva, Baño Leal, and Shen 2024). The ASEAN Climate Resilience Network also offers a vehicle for amplifying the region’s voice in multilateral fora (ASEAN 2024c).
Taken together, these recommendations and the advice contained in Transforming ASEAN are designed to enable ASEAN policymakers to effectively navigate the next generation of challenges, deepen regional integration as a basis for greater global influence, and pave the way toward a more socially inclusive, economically resilient, and environmentally sustainable future in line with ASEAN Vision 2045.
The authors extend their gratitude to Rachel Ho (capacity building and training intern, ADBI) and Sheena Kanon Leong (capacity building and training intern, ADBI) for their contributions to the development of this article.
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