Sibos 2015: ASEAN financial and economic integration

The final day of Sibos in Singapore was ASEAN (Association of Southeast Asian Nations) Day, reflecting the location in Singapore.

Plans and opportunities for integration

Framing the discussion in a session on ASEAN integration, Standard Chartered Bank Global Head of Transaction Banking Farook Siddiqi said ASEAN is the 7th largest economy in the world, annual GDP growth has averaged 9 percent since 1980, the population is slated to grow 10 percent to 700 million people by 2020, and foreign direct investment (FDI) in the region has exceeded FDI in China since 2013.

Despite ASEAN having articulated plans for economic integration, Siddiqi said the regulatory and institutional reforms that are underway are proceeding at a slow pace and there are questions about where the money will come from for hard infrastructure development.

On the financial integration side, he said, ASEAN has a target of creating a financial integration framework by 2020 that includes banking, insurance, capital markets, payments and settlement. At present, however, there are still significant gaps in the levels of regulation.

Looking at key opportunities for ASEAN, McKinsey Partner Vinayak HV said game changers could include capturing a greater share of global trade flows, a near-doubling of the consumer class within ASEAN due to urbanization, and the deployment of disruptive technologies.

The ASEAN Economic Community (AEC) Blueprint, he said, is to create a competitive economic region that can sign trade pacts and remove non-tariff barriers. With intra-ASEAN trade at only 23 percent compared to 60 percent in Europe and infrastructure development plans estimated to total US$7 trillion by 2030, there is excellent potential for growth.

The challenge, Vinayak said is making integration, changes in regulatory frameworks and economic development actually happen amidst restrictions in areas including labor and investment.

Challenges to integration

A key challenge to integration, said World Bank Senior Financial Economist Jose De Luna Martinez, is that the thinking in each country within ASEAN is still nationally driven, not regionally driven. Each ASEAN country wants to have its own stock exchange, for example, even though only 3-5 companies are listed on some exchanges. “This is a big barrier to speeding integration.” Martinez said. “There needs to be a recognition that we don’t need ten capital markets.” Infrastructure is also driven by national considerations even though some infrastructure projects are actually regional, such as highways and railways. “We still see a lot of resistance and a mindset that keeps them from thinking on a regional level.” What the World Bank is doing, he said, is to work with ASEAN working groups and help them think of medium-term plans.

Another barrier to integration is that ASEAN countries often negotiate as separate countries when they’re negotiating externally With China, for example, EU-ASEAN Business Council Executive Director Chris Humphrey said there are ten free trade agreements (FTAs) stitched together. Since they are competing for investment, each country is also offering separate tax breaks and some are providing money. “ASEAN as a region is FDI-hungry,” he observed.

While the intentions for integration clearly exist, the actual practices on the ground may well mean that integration takes longer than many would hope.

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