Regional Leaders Push for More Financial Integration in ASEAN Ahead of AEC

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While the pace of ASEAN trade integration has progressed on schedule, financial integration is still not yet up to par. This is becoming of increasing importance as the ASEAN Economic Community (AEC) nears its January 2016 implementation deadline. Regional leaders, such as Ravi Menon, managing director of the Monetary Authority of Singapore (MAS) have expressed their disappointment at the slow pace of the ongoing integration process.

ASEAN Finance Ministers and central bank governors have pledged to continue moving ahead with liberalization in the post-AEC phase leading up to 2020.

At the recent 26th ASEAN summit, held in May of this year, leaders from the member nations expressed their optimism that the AEC will be ready for full implementation by January 1, 2016. Chief among the trade measures of the economic community is the elimination of tariffs. The ASEAN-6 countries have already eliminated tariffs on 99.65 percent of tariff lines. The remaining CLMV countries have reduced tariffs to a zero to five percent range on 98.6 percent of their tariff lines, and will eliminate tariffs on these goods by the end of this year.

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The financial integration process has proven to be an increasingly complex undertaking due to the wide differences in the 10 member nations’ economies, governments, etc. At a recent meeting of the ASEAN Banking Council, Mr. Menon explained the problem: “More so than in trade integration, financial integration requires a certain degree of convergence in the development of financial markets in the respective economies. The financial systems across ASEAN are at very different stages of development and sophistication.”

In particular, Mr. Menon would like to see the stock markets of Singapore, Malaysia, and Thailand develop linked up post-trade systems. This should encourage market participants to engage in cross-border trading on a wider scale. The systems will involve the establishment of clearing, settlement, and custody links that would help build the ASEAN Trading Link into a “full-fledged end-to-end platform across the three ASEAN markets”. The original ASEAN Trading Link was implemented in 2012 and included the creation of an electronic “order routing” system, however, the system did not spur the hoped for financial integration it was intended to.

Despite its slow progress, there have been some successes in ASEAN financial integration. These include the establishment of a Banking Integration Framework, Insurance Integration Framework, and the establishment of the ASEAN Trading Link among Thailand, Malaysia, and Singapore

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ASEAN has also issued a number of future milestones that it is determined to meet; the key focuses of these changes will include:

  • Helping banks with operations across ASEAN to share and transmit information across borders
  • Liberalizing catastrophe insurance and reinsurance markets
  • Deepening links across ASEAN exchanges

According to the ASEAN Banking Council, the regional bloc will see a five percent growth rate during 2015. This healthy growth rate is expected to help increase the development of banks throughout the region, but it is clear that there will be much more work to be done towards true integration in the years to come.


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