In 2003, ASEAN finance cooperation continued to focus on consolidating the economic recovery of the region. The region registered a GDP growth of5 percent from 4.5 percent in 2002. Accommodativemonetary and fiscal policies continued to underpin growth, as structural reforms were actively pursued,such as corporate restructuring and fiscal consolidation. The year 2003 saw the gradual return of foreign investments in the region, as evident in rising stock prices in most countries and expanding capital markets. Stable prices and currencies also helped strengthen the region’s financial systems.The prospects for growth in ASEAN economies are stronger in 2004 with a projected GDP growth of 5.5 to 5.9 percent. Growth is expected to be broadbased, with domestic and external demand providing impetus for expansion.
ASEAN Surveillance Process
The Finance Ministers conducted their ninth Peer Review in April 2004, with a stronger commitment to keeping the region within a sustainable growth path. While recognizing the increasing resilience of the region’s economies, they also recognized the need to broaden and strengthen the recovery. Last year, the region remained dependent on global growth, which made it vulnerable to fluctuations in global demand. In the light of this urgency to create a domestically sourced growth, policy initiatives to strengthen domestic demand have been emphasized.
Among other issues, accelerating domestic investment has become an important issue for the region last year. In view of the continued uncertainty in global economy, most countries have undertaken measures to promote SME activities and rural enterprises, in addition to policies that aim to strengthen legal and regulatory systems, tighten prudential oversight and improve disclosure and governance in capital markets. Improvement in investment climate has also been addressed by promoting security of property rights, enforcing contracts, business regulation and taxation, and ensuring well-functioning labour and financial markets.
To build capacity of member countries in undertaking surveillance-related matters, two more training programmes on regional economic monitoring were conducted by Asian Development Bank for ASEAN finance and central bank officials. To improve policy analysis and formulation, a study on fiscal sustainability for Cambodia, Indonesia, Laos and the Philippines was completed by the ADB in March 2004.
Roadmap for Monetary and Financial Integration of ASEAN
Efforts to achieve greater financial integration of ASEAN have been progressing well. A capital market training model has been adopted to assist countries in developing their domestic capital markets, particularly in the areas of legal, regulatory and supervisory framework, liquidity enhancement, risk management and market infrastructure for trading, clearing and settlement. In relation to this, a study has been conducted to explore ways to enhance a collaborative network of capital market training and research in the region. To promote cross-border collaboration among regional markets, a task force has been set up to explore ways to forge alliances and linkages within the ASEAN securities markets.
Financial services liberalisation under the current third round of negotiations has been actively pursued with a view to conclude it by the end of 2004. A workshop was held to review the accomplishment of financial services liberalisation under AFAS and discuss other issues of financial integration including an exchange of views with market participants. Progress has also been made in finalizing the guidelines for negotiation under the positive list approach modality that will govern the fourth and succeeding rounds of negotiations starting next year. On capital account liberalisation, a stocktaking exercise of existing regulations in Member Countries’ capital account regime has been ongoing since December 2003, while a list of prudential policies and measures is currently being compiled and expected to be completed by June 2004.
Meanwhile, other initiatives to promote regional financial stability remained on track. The Protocol governing the implementation of ASEAN harmonized tariff nomenclature was amended through a protocol signed by the ASEAN Finance Ministers in May 2004. ASEAN insurance regulators also continued their efforts to harmonize insurance laws in the region and increase compliance with core principles of insurance supervision, in addition to implementing insurance training and research programmes under the ASEAN Insurance Training and Research Institute. A study on the analysis of double-taxation issues in the region has been completed, while efforts to combat terrorist-financing and overcome problems of money laundering have been further strengthened with new laws enacted and international standards implemented by most countries.
East Asian Finance Cooperation
The activities of the six working groups under the Asian Bond Markets Initiative (ABMI) continued to make progress. A study on credit guarantee mechanism in the region is being conducted by ADB experts to analyze demand for guarantee and explore various options for guarantee mechanisms based on international best practices. Two additional studies on regional settlement and clearing mechanism (Asia Link) and on the impediments on cross-border bond investments and issuance have also started. To enhance understanding of each country’s regulatory framework with regard to issuance of supranational bond, a survey was conducted in October 2003. To facilitate the dissemination of information on ABMI, an Asian Bond Online Website was launched in May 2004.
On capacity building, work programmes for the development of bond markets in Indonesia, Malaysia, Philippines, and Viet Nam are currently being developed, while bilateral technical assistance has been extended to support bond markets development in Cambodia, Laos, Thailand and Viet Nam.
Significant progress was made in the implementation of the Chiang Mai Initiative (CMI). The network of bilateral swap arrangements has been expanded from 12 to 16 agreements since August 2003, bringing the total size of the network to US$36.5 billion. To enhance its effectiveness, a review of the CMI was initiated in May 2004 and expected to be completed by end of 2004, with the outcome of the review to be presented to the ASEAN Finance Ministers Meeting (AFMM) Plus Three in 2005.
The first set of studies under the ASEAN Plus Three Research Group has been completed, focusing on regional financial architecture and exchange rate arrangements for East Asia. For the year 2004/2005, four new topics for research have been identified, namely, (a) Economic Surveillance and Policy Dialogue in East Asia; (b) Trade, Investment, and Financial Integration in East Asia; (c) Exploring Ways to Enhance the Functions of the Chiang Mai Initiative in the Medium Term; and (d) The Role of Private Sector Development in Regional Economic Growth and Financial Integration. Meanwhile, to develop capability in regional early warning system, software is being developed and expected to be operational in mid-2004.