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“Our nations are moving together“
– by Aladdin D. Rillo
School in Singapore
What are the benefits of financial integration for a region like Southeast Asia?
Financial integration makes the region more competitive. It can increase the efficiency of finance and contribute to greater financial stability. If the region is hit by a crisis and the countries do not have access to funds to support them, the whole region will be affected.
Which is the most important initiative on regional financial integration in ASEAN at the moment?
In my opinion, the most important is the Chiang-Mai-Initiative Multilateralisation, CMIM for short, which took effect on 24 March 2010. CMIM is a multilateral currency swap arrangement to help countries deal with difficulties in the balance of payments. CMIM is considered to be the most concrete action taken by ASEAN+3 countries – the ten ASEAN-members plus Japan, China and South Korea – in dealing with the recent global financial crisis.
How does the CMIM contribute to financial stability?
It can support liquidity. The participating countries committed to pooling a certain percentage of their foreign-exchange reserves. Should a country suddenly face problems concerning its balance of payments, it can access this pool.
How is the CMIM managed?
There are always two coordinating countries: an ASEAN-member, and one from the other three nations. At the moment the coordinating countries are Vietnam and China, next year it will be Indonesia and Japan. If, for example, Cambodia wants to borrow money from the pool, it can approach the two coordinating countries which will then contact the other members of the pool and decide whether Cambodia will get the money or not.
What risks are there to regional financial integration?
Financial integration means opening up the capital market for foreign investment. So one possible risk is that the rising capital inflow might lead to greater inflation and a volatile exchange rate.
Do you think that your region can cope with this risk?
I’m sure that we are well prepared. To prevent macroeconomic risks, the financial sector needs to be stable and the adequate regulations have to be in place to strengthen the banking, so that the sector is able to manage the additional capital. All these issues have been addressed by the member states of ASEAN. However, things are quite different from country to country. Singapore is a very rich country, it has a strong banking and financial sector and is quite advanced even in terms of regulations. In poorer countries like Myanmar, Laos or Cambodia, the financial sector has not developed much yet, and their levels of regulation do not meet the standards of the international community. But this is actually what regional cooperation is good for: it is about bridging gaps. Through integration, our economies will tend to converge.
What is the prospect of financial integration in ASEAN?
I think financial integration will advance, but very gradually. It is a daunting challenge to integrate Singapore’s financial sector with Cambodia’s, for instance. Our region will not be fully integrated in the next ten years, that will take more time. But integration will certainly move forward. We cannot reverse globalisation, and financial globalisation is part of it.
What is the difference between regional integration in ASEAN and Europe?
We have different approaches. Europe is integrating subsequently, starting with trade, moving on to financial integration and eventually establishing monetary integration. ASEAN is taking two steps at once: We are establishing trade together with financial integration. So far, monetary integration – a single currency for ASEAN – is not a topic, but we are working on cooperation in exchange rates.
You said that financial and trade integration will strengthen the national economies. But will this economic development reach the whole population – especially the poor?
The principle idea of regional integration is to create a more stable, prosperous and peaceful region. Therefore, ASEAN is not solely focusing on economic issues, but also on social, cultural and political ones. The ASEAN community consists of three pillars. Apart from the economic community, there are the political-security community and the socio-cultural community. The social-cultural community’s task is to address health, poverty and other development issues. But I would argue that even the economic community’s activities are addressing poverty. After all, its ultimate objective is to create a more progressive economy. And a more prosperous economy will eventually lead to a better life for the people.
In your speech at the InWEnt conference you said that a regional surveillance office should be based in the ASEAN-Secretariat. What is the role of the ASEAN-Secretariat and why should it host the surveillance office?
The ASEAN-Secretariat is in charge of implementing and coordinating regional programmes in ASEAN, including programmes related to finance, like the CMIM or the Asian Bond Markets Initiative (ABMI). Since 2008, every member country has ratified the ASEAN Charter, a constitution for ASEAN. So ASEAN now has a legal personality, which makes it more independent, and its participation in regional programmes has become more binding. The role of the surveillance office would be to monitor the economic and financial developments in the entire region. It should be based in the ASEAN-Secretariat, because it should be independent of national ?? in order to develop ideas and initiatives for the region.
What does the future hold for further regional integration in Southeast Asia?
I think it’s very promising. With the ratification of the ASEAN Charter and advancing economic integration, the region is becoming more competitive and international interest is growing. Thanks to ongoing integration, ASEAN will become one big market and investors will be even more attracted. But of course there are also challenges. The countries have to really commit to integration. Regional initiatives will only be successful if the member states implement them at the national level. Without the political will to do so, we can discuss anything at the regional level without solving anything.
Do you think the ASEAN member countries are committed enough to cooperate efficiently?
The countries are realising that we live in a interdependent world and that they cannot survive in isolation. Therefore the political will is improving and the level of cooperation is increasing. The ASEAN countries are really moving together.