ASEAN

Will ASEAN reform SOE Governance to align with OECD?

State-owned enterprises (SOEs) are central contributors to economies of several ASEAN countries, but poor governance can constrain private sector growth. A study commissioned by the Friedrich Naumann Foundation for Freedom in partnership with the Institute for Democracy and Economic Affairs (IDEAS) explores how SOE reforms have advanced in ASEAN member states in tandem with deepening multilateral cooperation between OECD and ASEAN: ASEAN and OECD Alignment on State-owned Enterprise Governance Reforms.

The authors, Alissa Marianne Rode and Ng Chien Chern, found that deepening multilateral cooperation on SOE reforms requires a focused ASEAN workstream on public sector governance. In the race to attain high income status, several Southeast Asia’s largest economies are looking for internationalization to deliver the next phase of growth. Middle income states, namely Indonesia, Thailand, Vietnam and the Philippines, are deepening ties with the Organization for Economic Cooperation and Development (OECD), to secure investor confidence and accelerate economic growth.

The cooperation centers around governance reforms, particularly in the oversight of state-owned enterprises (SOE). The Organization for Economic Cooperation and Development (OECD), a 38-member bloc composed of high-income economies, develops policy best practice and encourages policy alignment through voluntary cooperation in various platforms and mechanisms such as market reviews and legal instruments. It sets high, enforceable standards that prospective members are required to meet through structural reforms prior to accession.

The Association of Southeast Asian Nations (ASEAN), on the other hand, emphasizes political consensus and sovereignty. While ASEAN states seek integration of cultures and economies, it is less strict on governance. ASEAN blueprints, including the ASEAN Community Vision 2045, have featured good governance as an economic enabler, but standard-setting exercises are based on opt-in protocols; there are also limited coordination mechanisms for public sector governance in ASEAN.

The result is a widening gap: ASEAN economies are deeply integrated in trade and investment, yet uneven in governance standards. That gap has become more visible as global investors scrutinize fiscal risks, transparency and sustainability practices in emerging markets.

Indonesia and Thailand, with their long-term development plans, are regional pioneers in OECD alignment, having both formally begun the accession process in 2024. They serve as a key enabler in their respective national development plans to achieve high income nation status by 2037 for Thailand and 2045 for Indonesia respectively.

The Philippines and Vietnam have also demonstrated growing engagement with OECD platforms. In January 2025, Vietnam’s Prime Minister expressed intent to pursue OECD accession and has already signed MoU with the OECD in 2021. The Philippines has also signed the MoU in 2025. Their enthusiasm for OECD cooperation is also reflected in SOE governance reform efforts.

Across Indonesia, Thailand, the Philippines and Vietnam, SOE reforms have followed a similar trajectory: a pattern of centralizing and clarifying state ownership in order to manage orderly consolidation and institute uniform governance standards across the portfolio. The sequencing follows general OECD experience and practice, but implementation is uneven. For example, the separation of the state’s policy regulation and ownership roles usually fall short when line ministries retain influence over operational or strategic decisions. Centralizing ownership without the appropriate mechanisms for oversight also risks masking political capture instead of preventing it. The challenge lies not only in adopting international standards, but in adapting them to domestic political realities without diluting their intent.

In addition, not all of Southeast Asia is moving in tandem. Singapore, though often cited as a governance model, has shown little interest in joining the OECD. Its sovereign investment company, Temasek Holdings, is widely regarded as a regional benchmark for professional management and stable long-term returns. Yet Singapore’s participation in broader regional alignment on SOE governance has been limited, and transparency practices remain shaped by statutory exemptions rather than comprehensive disclosure mandates.

Malaysia’s SOE governance, on the other hand, remains underdeveloped for its economic position, lacking a unified legal framework for its 1,800 government-linked companies (GLCs) under various ownership arrangements. Unless they are publicly listed, Malaysia’s GLCs are not bound by law to disclose, audit, and report on their finances. There is also no formal competitive neutrality framework, with state-linked firms receiving preferential procurement access and regulatory advantages in some sectors. As neighbors press ahead with reforms and OECD engagement, Malaysia, which has a high number of unconsolidated SOEs, risks falling behind with inaction.

At the core, the debate is not about whether government should own enterprises. Ownership management and development mandates still fall within sovereignty. The more pressing question is how these enterprises are governed, where the areas of caveats take place and whether regional economies can comply to minimum standards of transparency, accountability and fair competition. Engagement with OECD must answer all the boxes. For ASEAN states, alignment with internationally recognized standards could reinforce investor confidence and reduce fiscal vulnerabilities, which could further raise the income status of those pursued reforms and engagement.

Please download the study “ASEAN and OECD Alignment on State-owned Enterprise Governance Reforms” here.

* Hnin Wint Naing is a regional communication officer of the Asia Office of the Friedrich Naumann Foundation for Freedom.