ASEAN agrees to speed up integration

Posted on April 11, 2011

FINANCE ministers have approved measures to hasten the economic integration of the Association of Southeast Asian Nations (ASEAN) to strengthen the region in the face of new threats to its growth.

The 15th ASEAN Finance Ministers’ Meeting was concluded in Bali, Indonesia on Friday, with officials resolving to implement regional initiatives to achieve "deep financial integration" to sustain the bloc’s projected growth of 5.7% to 6.4%, a joint statement released to reporters said.

Risks have emerged in the previous months, and finance ministers were wary that they could possibly threaten the rebound of ASEAN countries from the economic crisis.

Among the concerns discussed were the current surge in capital flows, emerging inflationary pressures and strong commodity price volatility.

Coordinated responses to these problems were deemed necessary given the high interdependence among ASEAN economies.

"Integration will not only increase the efficiency of production and consumption, but will also expand the economies of scale and accelerate investments in physical capital, technology and people -- the key elements for achieving a stronger and more sustainable growth in the region," the statement said.

A monitoring facility called the ASEAN+3 Macroeconomic and Research Office (AMRO) is set to be established in Singapore in early 2011 by the Ministries of Finance, Central Banks and Monetary Authorities of ASEAN countries, China, Japan and Korea.

The $120-billion facility will serve as the region’s economic and financial overseer and will address the member countries’ problems with their balance of payments, Bangko Sentral ng Pilipinas (BSP) deputy governor Diwa C. Guinigundo told BusinessWorld in a telephone interview yesterday.

The AMRO director will be announced soon and staff members will follow, he added.

Moreover, the meeting set milestones for ASEAN integration, such as the integration of capital markets and the liberalization of capital accounts.

These milestones identified steps to be taken by member-nations for integration, Mr. Guinigundo said, and the pacing of the steps will depend on each country’s legal, supervisory and infrastructure setup.

To integrate capital markets, an action group will be set up to identify specific impediments toward an integrated bond market. An implementation plan will then be developed to address these gaps.

"We agreed to use our bond market development scorecard as a live document for our officials to measure the state of ASEAN’s bond market development, openness and liquidity on an ongoing basis," the statement explained. The scorecard will also measure the extent by which our capital markets comply with ASEAN standards and common framework in facilitating cross-border offerings and investment.

Southeast Asian finance ministers also said that the $700-million Credit Guarantee and Investment Facility for regional bond markets will be implemented by this May.

The ASEAN Forum on Taxation (AFT) is also set to be established this year, as officials recognized the "importance of addressing tax-related impediments to integration."

"The AFT will provide a platform to support regional dialogue on taxation issues for regional integration, particularly related to withholding tax and double taxation.

This will also serve as a mechanism to strengthen cooperation in tax matters," the statement said.

In a separate telephone interview, Finance Undersecretary Rosalia V. de Leon said the Philippines will be spearheading work for the AFT.

"The Philippines is taking the lead for the technical working group of the ASEAN’s taxation initiatives," Ms. de Leon said. "Existing agreements in terms of double taxation...will be put under review. We will draw best practices from each other in terms of withholding tax, among others."

BSP’s Mr. Guinigundo was confident about the integration efforts of the ASEAN, as well as the readiness of the Philippines to adhere to these.

"Basically, we have a generally liberal policy environment. Some issues are present but we are moving forward to achieving the milestones. Along with Singapore, Malaysia, Thailand and Indonesia, we are ahead in terms of achieving integration," he said.

Economists, though, were not as optimistic about the dream of an integrated ASEAN community, patterned after the European Union.

"Such promise has been somewhat discredited by what happened to European member-countries during the recent world crisis," University of the Philippines economist Benjamin E. Diokno said in a text message yesterday, referring to the sovereign debt crises that originated in Greece and spread to nations such as Portugal, Ireland, Spain and Belgium because of the bloc’s interconnectedness.

University of Asia and the Pacific economist Cid L. Terosa added in a text message: "Theoretically, [integration] is a good idea, but it is a gradual process that requires similar standards for countries. The uneven levels of economic and institutional development makes integration a difficult task. I don’t think it can be achieved soon." -- Diane Claire J. Jiao with Antonio Siegfrid O. Alegado