A step in the right direction
All eyes are on the Association of Southeast Asian Nations (ASEAN) as the ten-member bloc continues to work towards the creation of a single market. Designed to allow a free flow of goods, services, and investments, the ASEAN Economic Community (AEC) should also allow companies based in ASEAN to secure better access to raw materials, and to leverage a freer flow of capital and labour. In fact, a report released by the International Labour Organisation (ILO) and the Asian Development Bank last year suggested that the AEC could create 14 million new jobs and see the region’s annual growth rise by 7.1% over the next decade.
In an effort to meet the 31st December 2015 deadline that has been set for the launch of the AEC, ASEAN finance ministers and central bank governors have recently signed a landmark agreement to allow member nations’ banks to operate in each other’s markets. They will also be accorded flexibilities similar to those of domestic banks in the host country.
The ASEAN Banking Integration Framework (ABIF), as the agreement is known, took five years to prepare and looks set to deliver numerous benefits, including greater access to secure funding across the region, and help to stem hot money inflows. Of course, as ASEAN moves closer to the realisation of the AEC, ABIF will also help to accelerate the pace of regional financial integration and boost cross-border trade and investment.
Before any ASEAN bank can begin to operate in another member’s jurisdiction, regulators from both countries must agree on a set of rules that will bind the institution – which, if approved, will be known as a ‘qualified ASEAN bank’. The aim of the collective finance ministers is to have at least one QAB up and running by 2018.
Talk of a single currency across the bloc surfaced again on the back of the ABIF, but has since been played down. In the words of Dr Zeti Akhtar Aziz, Governor of the Malaysian Central Bank: “We are too diverse and we don’t have the preconditions for a single currency. We are going to approach it differently via financial integration to achieve the same objectives of greater growth, collectively.”
And whilst full financial and economic ASEAN integration by the end of the year might be a stretch, for now, the ABIF represents an important step in the right direction.