Association of Southeast Asian Nations (ASEAN) economic ministers believe that 95% of the AEC integration measures can be completed by the end of 2015 according to P. Ravidran, a senior director within the ASEAN economic cooperation division at the Malaysian Ministry of International Trade and Industry (MITI).
Speaking at a recent conference, he based his optimism on progress to date on the overall implementation rate. The AEC is divided into four phases, set out back in 2007: Phase I (2008-09); Phase II (2010-11); Phase III (2012-13) and Phase IV (2014-15), as well as four pillars of integration: a single market and production base; a competitive economic region; equitable economic development; and integration into the global economy.
Ravidran reported that the overall implementation rate is already 80% for Phases I to III and 38% for Phase IV. The AEC, with a targeted launch date of 31 December 2015, is designed to allow a free flow of goods, services and investments as well as a freer flow of capital and talent.
A Longer Process
For the financial services sector, however, the picture appears to be rather different. “The idea that we’re 90% there (with AEC integration) feels so far from reality, lamented Nazir Rajak, chairman of Malaysia’s CIMB Bank, at a recent investment forum covered by the
At least part of the reason for the difference for financial services may be that the target dates for integration in the sector are far different than for most other industries, with the result that integration may be at least five years or more away.
As the Asian Development Bank (ADB) explained it in its 2013 report entitled
‘The ASEAN Economic Community: A Work in Progress’
: “the distinctive feature of the financial sector liberalisation under the AEC is that (1) the liberalisation target is extended to the year 2020 instead of 2015 and (2) there is no pre-specified scope of liberalisation.”
This implies, the ADB added, that “the scope of liberalisation would likely be very limited, there is no minimum commitment required of all member states (and) none of the original ASEAN–5 member states are willing to open up their banking sector.”
Updating that report in an International Monetary Fund (IMF) working paper on ASEAN financial integration earlier this year its authors, Geert Almekinders, Satoshi Fukuda, Alex Mourmouras and Jianping Zhou, said that ASEAN still “has not indicated plans to consider a single supervisory mechanism or to form a perfectly integrated banking sector. Instead, ASEAN countries have shown a trend towards harmonising regulations.”
The result – as explained by a Bloomberg report – is that “within the financial services sector, integration will continue beyond 2015 as measures will be consistent with national laws and appropriately paced to suit the level of development of individual members.”
Analysts at the Economist Intelligence Unit (EU) concur, reporting that the ASEAN Banking Integration Framework (ABIF) is: “…a work in progress. The potential is there. However, in our survey, services firms say that their ability to take a regional approach to their business is much harder than in the manufacturing sector.”
writer John Fernquest was blunter. In an editorial run by the paper last January, he said that “banking and insurance have not been opened. ASEAN leaders are trying to protect and develop their nascent financial services and capital markets sectors.”
There has, at least, been modest progress more recently. ABIF, the new framework agreement, was signed by the bloc’s finance ministers in March. It enables banks within ASEAN to sign reciprocal bilateral deals to operate in a partner country on the same terms as domestic financial institutions. ABIF is designed to ensure a more stable flow of funds in ASEAN as well as increasing cross-border trade and investment.
However, despite this small step, further negotiation or even legislation may be needed before further progress is achieved.
As Rajiv Biswas, Asia-Pacific chief economist for the information and analysis group HIS, described it to German broadcaster Deutsche Welle, “cross-border liberalisation of investment flows is likely to be more problematic and may need to be part of an AEC Stage Two round of negotiations.”
ADB’s head of the office of regional economic integration, Iwan Azis, also sees several speed bumps in the road ahead. He told Bloomberg Brief’s Justin Jimenez “in each country they may have a point in the constitution that strategic sectors should be protected and treated differently in order to be used for the welfare of the domestic population… It gets more difficult.”
So while the AEC may achieve integration in quite a number of sectors this year, financial services seems likely to lag behind and firms should not expect full integration for quite some time.
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