Countries that make up the ASEAN community are at varying stages of economic maturity
To date, as the deadline looms towards the establishment of the ASEAN Economic Community, the road to implementation has been a long and painful one. The crux of the establishment at each and every stage is getting consent from participating countries.
Countries that make up the ASEAN community are at varying stages of economic maturity, and the whole is made up of highly fragmented financial markets. For example, in 2011 the GDP of Malaysia stood at several dozen times that of Laos. With massive variation such as this, countries have been wary of contributing towards the project as a whole.
The main objective of any market integration initiative is to achieve a state of free capital flow among member countries, usually via financial institutions. This will allow the movement of funds in real time, thanks to pre-approved and agreed upon legal and administrative legislation. Such liquid flow of funds will naturally be a massive boost to regional trade capabilities. To this, there must be the infrastructure and capability for an integrated payment and settlement system.
More challenges ahead?
Due to various occurrences in the global money markets, there has been in place strict restrictions on capital flow by many members of ASEAN. Some restrict cash outflow, while others focus on current account payment restrictions.
Endorsed in 2010, The ASEAN working committee on payment settlement systems (WC-PSS), of which Bank Negara Malaysia has naturally been a major contributing member, has been coordinating the region’s payment and settlement infrastructure to exactly address the abovementioned issue of infrastructure.
Policy, legal framework, instrument, institution and infrastructure have been worked and reworked multiple times, laying the ground for ASEAN integration. Yet despite all of the extensive efforts being made to lay the ground rules, nothing will be really achieved until capital flow restrictions are removed.
Diversity is the light of Asia and ASEAN. It is one of a myriad factors that make us unique. Yet this is never a positive factor in regional integration efforts. Be it in regulations, standards, operational requirements or anything else. Diversity is the killer of economic integration.
If ASEAN truly wishes to achieve true regional financial integration, it should take a close look at the Eurozone and not only consider its mistakes, but also the highlights of its successes. The risks are not minimal, and currency fluctuations and increasing asset prices combined with decreasing quality of open capital accounts will limit the effectiveness of individual macroeconomic policies.
In Europe, there is the Single Euro Payments Area (SEPA) and the European Union (EU) payments integration initiative. How successful the ASEAN payments and settlement system will be is as yet uncertain.
The region-wide implementation of such a system must take into account the extreme diversity in terms of both culture and development of ASEAN member countries. Also, unlike SEPA, ASEAN does not have a single currency.
ASEAN 2015 and beyond
“One Vision, One Identity, One Community”, that is the motto of ASEAN, and the establishment of the community is with an intent to provide greater financial stability to the region as a whole. While individual countries naturally wish to safeguard their interests, ASEAN must remember that it is no more immune to global economic tides than areas like the Eurozone.
Holding the 2015 Chairmanship of ASEAN, Malaysia has the reputation, experience, and capability to be a driving force towards regional integration. Regional cooperation will enhance safeguards and mitigate the risks, as long as there remains transparency in both oversight of financial institutions as well as well as regulation.
As stated by Malaysian Prime Minister Datuk Seri Najib Tun Razak, “We are conscious that the formation of the ASEAN Community will happen on our watch, and we will work tirelessly towards that ambition.”