Mahathir: Study EU problems

Mahathir: Study EU problems

Asean members need to study the proposed formation of an EU-type entity thoroughly before forming an economic community, or else the grouping could suffer a similar fate as its European counterpart, says former Malaysian prime minister Mahathir Mohamad.

Some European countries became unattractive to investors, says Mr Mahathir. SOMCHAI POOMLARD

He said not all Asean members are ready for the Asean Economic Community (AEC) to be formed on Dec 31, 2015 due to policy differences between countries.

The EU, for instance, started as a union of prosperous developed countries, but when the later stages of formation included Eastern Europe, the EU became a union of unequals.

When the single currency was adopted, product prices shot up, as the euro was stronger than the national currencies of Greece, Spain and Portugal, which were relatively less developed and had low-cost economies.

This caused the cost of living in these three countries to spike, exports became expensive, and competitiveness was lost.

"The rate of conversion [from their own currencies] to the euro was not properly worked out. In almost all cases, they rounded up prices to the nearest euro equivalent to the national currency price. They became less attractive to investors and tourists, but they still wanted to live the lifestyle of the rich," said Mr Mahathir.

He said these countries also decided to adopt the shorter working hours of the rich, thus losing productivity.

"They made the mistake of borrowing money to meet their shortfalls, but it wasn't spent on something that generated a return. We know that poor people who try to live beyond their means will eventually face bankruptcy," said Mr Mahathir.

He made his remarks in Bangkok yesterday at a conference entitled "Assessing Asean's Readiness by Country: Opportunities, Concerns and Preparedness towards the AEC 2015".

When Southeast Asian countries suggested forming such a pact, they did not bother to learn what the EU was experiencing since the euro zone was not in trouble at that time, said Mr Mahathir.

He said almost all of the EU is in trouble now. On the other hand, Turkey wants to join the EU, and it has become one of the strongest economies in that part of the world.

"So maybe not forming a union would have saved the EU from the present crisis. Maybe we need to rethink our coming together," said Mr Mahathir, adding that Asean countries are not looking deeply enough into possible problems such as those affecting the EU.

He suggested the region create a new common trading currency with its value based on the gold price to avoid the mistakes of the euro.

Mr Mahathir reasoned that the gold price is more stable than the US dollar, which is currently used for the settlement of trade worldwide.

At the same time, the national currency of each country could be maintained for domestic use.

As well, Laos, Cambodia and Myanmar should be allowed to protect their economies to a certain extent.

They could retain their import duties and exclusivity in certain areas including among professionals.

Chap Sotharith, a board member of the Cambodian Institute for Cooperation and Peace, said Cambodia is ready to be part of the AEC and expects to reap more benefits than membership will cost.

Former Asean secretary-general Surin Pitsuwan stressed the need to increase intra-regional trade, as the current 25% figure remains extremely low compared with the North American Free Trade Agreement's 68% and the EU's 85%.

"Meanwhile, member countries should move forward from being caught in the middle-income trap, characterised by the fact that we depend on cheap labour, abundant natural resources and low-cost environmental care," he said.

Of all 10 members, only Singapore and Brunei are considered high-income countries.

"If we continue to grow on that basis, we cannot compete with the rest of the emerging world including Africa. The only way Asean can get out of this trap is by investing more in research and development, science and technology. But we're not doing that," said Mr Surin, adding that Thailand spends very little on R&D compared with other countries.

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