CONTEXT

All economies in Asia and the Pacific have been affected by the COVID-19 crisis in many ways even though the impact is not uniform across countries and regions. The virus containment measures have caused both demand and supply side shocks, and its knock-on effects have had enormous consequences on people’s livelihoods.

During the pandemic, MDBs have been actively implementing large scale anti-crisis programs and playing a countercyclical role particularly for least developed counties. The Islamic Development Bank (IsDB) approved a USD 2.3 billion Strategic Preparedness and Response Program to assist its member countries’ efforts in preventing, containing, mitigating and recovering from the impact of COVID-19. Other MDBs have also launched massive pandemic response packages, which are much higher than their response to the 2007-2008 global financial crisis. However, for middle income counties, financial constraints are hampering the ability of MDBs to reach out to a wider constituency. This suggests that innovative financing tools, including blended models, are necessary to extend the reach of MDBs.

Regional cooperation organizations (RCOs) have also responded to the crisis swiftly. To give a few examples, the Association of Southeast Asian Nations activated pandemic preparedness protocols for travel, tourism, sharing of best practices, and strengthening response capabilities. South Asian leaders have established a COVID-19 Emergency Fund under the South Asian Association for Regional Cooperation to fight the pandemic. Economic Cooperation Organization issued a guideline on cross-border facilitation measures to maintain regular supplies of goods. But despite these early successes, there is a room for improve the existing RCO-MDB partnerships to cross-fertilise their respective competencies.

As the world is still struggling through the crisis, one of the foremost issues deserving our immediate attention is growing inequalities within and across countries and regions. It is an alarming fact that the poor and small enterprises are the most vulnerable to large-scale shocks in that nature, and the pandemic can exacerbate the already pressing inequality problems in the long run.

In such a fragile environment, there is now a heightened interest in understanding what drives economic resilience at national and regional levels. This has already been a hot topic since the 2009 global financial crisis, but the scale and reach of COVID-19 is making it even more relevant in today’s political and socio-economic landscape.

There is a substantial evidence in the literature and real-life case studies, suggesting that “cooperation” is a major determinant of economic resilience. To the extent nations cooperate with each other, they do well in recovering fast from crises. Furthermore, “geographical proximity” continues to play a major role in shaping trade and investment trends globally as we know that production fragmentation is concentrated among proximate trading partners. This also suggests that Regional Cooperation and Integration (RCI) is a key component of resilience-enhancement policies from a long-term perspective.

When it comes to the COVID-19 pandemic and its associated economic crisis, the truly global consequences of the crisis require inter-regional cooperation among economic blocks. During this time of urgency in dealing with COVID-19, MDBs and regional cooperation organizations are well-positioned to lay the ground for enhanced inter-regional cooperation considering their experience, resources, and political leverage in their respective constituencies.

There are plenty of lessons learned from the crisis, which can potentially guide future RCI efforts across the globe. For example, digital trade played a central role in ensuring smooth flow of essential goods across borders during the pandemic by reducing the need for physical contact among the actors of cross-border logistical operations and trade transactions. Now, there is an opportunity to convert these practices into long-term arrangements by scaling up the use of digital (paperless) trade and payment systems under harmonized rules and procedures across Asia and beyond.

Digital technology opportunities are abundant, but they do not come without challenges. In the specific case of Asia, the existing digital divide across the region is a major impediment to inclusive digital transformation efforts. Therefore, there is a need to invest more resources into digital infrastructure connectivity and upgrading of digital skills in order to leverage the existing momentum of digital transformation in large segments of societies in the region.

Based on the assumption that there is a room for improving the existing cooperation among MDBs and across regions, some relevant policy recommendations can be structured around the following areas.

• Multilateral Development Banks (MDBs) and Regional Cooperation Organizations (RCOs) can serve as a bridge between the global and national policy levels to strengthen disease surveillance, exchange experiences, and coordinate policies related to infrastructure connectivity, trade facilitation, and digital transformation.
  
• There is a need to put more efforts in facilitating RCI “from below” by utilizing new modalities of South-South cooperation (e.g. IsDB’s Reverse Linkage mechanism), involving sub-national actors (such as border localities) in RCI policymaking, and forging close cooperation between MDBs and RCOs are emerging issues of consideration to support regional identify building, political buy-in as well as economic cohesion across borders.
  
• Health has been traditionally regarded as a domestic policy area (not like trade, competition, intellectual property rights, or climate change), but the COVID-19 pandemic offers us an opportunity to change this perception globally.
  
• A “regional” public health policy cannot exist in isolation from other policy areas such as the regulation of movement of people, climate change, digital transformation/uptake, upgrading of skills, cooperation for data standardization and international data sharing.
  
• There is room for better cross-fertilization of MDBs’ respective strengths and experience. IsDB’s experience with Islamic Finance and South-South cooperation by means of the Reverse Linkage mechanism, ADB’s successful sub-regional cooperation platforms such as CAREC, the World Bank’s truly global experience and reach, AIIB’s strong focus on sustainable infrastructure, and EBRD’s unique expertise in managing economic transition reflects the strong complementarities of MDBs in the aftermath of COVID-19.
  
• MDBs and RCOs need to align their priorities with the needs of the post-COVID world. Innovative financing tools, including Islamic finance modalities and blended finance models, can be utilized to help countries and regions in coping with the emerging challenges imposed by the pandemic.