REGIONAL COOPERATION IN FINANCE
ASEAN Finance Cooperation
ASEAN economies are now recovering from the global financial crisis, due to the effective economic stimulus measures that the various ASEAN governments have implemented to support domestic demand, restore market confidence and stabilise financial markets. As a result, ASEAN grew by 1.5 percent in 2009 and is expected to grow further by 4.9-5.6 percent in 2010. Going forward, the challenge for ASEAN is to sustain the economic recovery by implementing appropriate monetary and fiscal policies and strengthening the various reform measures that have been in place since the Asian financial crisis in 1997/98.
At the 14th ASEAN Finance Ministers Meeting (AFMM) in Nha Trang, Viet Nam, in April 2010, the Ministers committed themselves to further promote financial stability in the region. Despite the region’s dynamism, robust financial system and strong economic frameworks, the Ministers agreed to remain vigilant against the uncertainties in major advanced economies and committed to maintain growth momentum in order to achieve a stable, efficient and resilient financial system in the region. The Ministers also reaffirmed their commitment to implement policies that favour strong and sustainable growth as well as promote domestic demand, boost productivity and enhance the integration of ASEAN’s markets.
ASEAN Surveillance Process (ASP)
- The ASP started in 1999 as a mechanism for peer review and exchange of views among the senior officials (central bank and finance) and Finance Ministers on recent economic developments and policy issues in ASEAN. Since then, it has evolved into an important mechanism in ASEAN on regional economic monitoring and surveillance.
- Key achievements to date include: establishment of a dedicated unit at the ASEAN Secretariat (ASEC) to conduct regional surveillance and facilitate regional cooperation activities in finance; establishment of national surveillance units in selected countries (Indonesia, Cambodia, Lao PDR, Philippines, Thailand and Viet Nam) to assist in building capabilities in surveillance related work; capacity building training programmes for ASEAN finance and central bank officials on regional economic monitoring and surveillance, conducted by the Asian Development Bank (ADB); conduct of technical studies and policy papers on finance and economic issues (e.g., fiscal sustainability, banking and corporate restructuring, and monitoring of capital flows).
- At the Special AFMM in Tashkent, Uzbekistan, in May 2010, the Ministers endorsed the Terms of Reference and initial budget for the establishment of the high-level finance and macroeconomic surveillance office at ASEC, called the Macroeconomic and Finance Surveillance Office (MFSO). The MFSO will be responsible for implementing surveillance in ASEAN and monitoring regional economic integration initiatives such as financial integration. The MFSO is currently being set up at ASEC and is expected to be fully operational in 2011.
Roadmap for Monetary and Financial Integration of ASEAN (RIA-Fin)
- Endorsed by the AFMM in Manila in 2003, RIA-Fin consists of steps, timelines and indicators of activities in four areas: (a) Capital Market Development, (b) Liberalisation of Financial Services, (c) Capital Account Liberalisation and (d) ASEAN Currency Cooperation, with the ultimate goal of greater economic integration in ASEAN by 2015.
Capital Market Development: Intended to build capacity and lay the long-term infrastructure for development of ASEAN capital markets, with a long-term goal of achieving cross-border collaboration between the various capital markets in ASEAN. Key achievements to date include the adoption of a proposed “Medium-Term Strategic Framework (MTSF)” to guide the work of the Working Committee on Capital Market Development and to align capital market development to the ASEAN Economic Community (AEC) Blueprint; enhancing market access, linkages and liquidity through such proposed initiatives as ASEAN Exchanges linkages, Bond Markets linkages; and promoting credit ratings comparability between domestic and international credit rating agencies. A Bond Market Development Scorecard is currently being developed to identify market gaps and to develop a framework for ASEAN to take stock of the progress of its work in relation to the agreed priorities.
Financial Services Liberalisation: Intended to achieve free flow of financial services by 2015. Liberalisation is carried out based on a positive list approach modality, where Member States will prepare an indicative list of financial services sub-sectors and modes for liberalisation. Negotiations are undertaken based on the combined unilateral and/or request/offer mechanisms. To date, four rounds of negotiations have been completed, including the package of commitments and offers. In April 2010, a new modality for financial services liberalisation which is based on pre-agreed flexibilities was endorsed by the Finance Ministers. This modality will guide the negotiations for the fifth round of financial services liberalisation to be completed by end-December 2010. The Working Committee is also involved in negotiations of financial services with several ASEAN Dialogue Partners.
Capital Account Liberalisation: Intended to achieve freer flow of capital by 2015. Member States agreed to take stock of current status of, and prepare, and implement national work programmes for capital account liberalisation, including capacity building. The progress of implementation of national work programmes will be monitored annually. To date, Member States have finalsed their self-assessment and identification of rules appropriate for liberalisation of regulations related to foreign direct investment (FDI). The results of that assessment indicate that most Member States have been open in their FDI regimes. Assessment and identification of regulations for portfolio flows is currently being undertaken.
ASEAN Currency Cooperation: Intended to explore ways that could further facilitate intra-regional trade and investment and economic integration, including through some forms of currency arrangements. As preconditions for closer currency cooperation, efforts would be made toward maintaining appropriate macroeconomic policies and foster greater macroeconomic convergence.
ASEAN Plus Three (ASEAN+3) Finance Cooperation
Chiang Mai Initiative Multilaterisation (CMIM)
- The Chiang Mai Initiative (CMI) was established by the ASEAN Plus Three Finance Ministers Meeting (AFMM+3) in 2000 as a network of bilateral currency swap arrangements to: (a) address short-term liquidity difficulties in the region and (b) supplement the existing international financial arrangements. The CMI has two phases. In 2004, the AFMM+3 agreed to have a more advanced framework for liquidity support that focuses on the multilaterisation of CMI (CMIM).
- An enlarged US$120 billion swap arrangement under the CMIM took effect in March 2010. The CMIM signifies the most significant collective response of ASEAN, China, Japan and the Republic of Korea to the global financial crisis. To support the implementation of the CMIM, an independent regional monitoring and surveillance unit, called the ASEAN+3 Macroeconomic Research Office (AMRO), will be established in Singapore in early 2011.
Asian Bond Markets Initiative (ABMI)
- ABMI was launched in 2003 with two objectives: to (a) develop local-currency denominated bond markets, and (b) develop more accessible and well-functioning regional bond markets both for issuers and investors.
- Following the new ABMI Roadmap endorsed by the 11th ASEAN+3 Finance Ministers Meeting (AFMM+3) in Madrid in May 2008, the four ABMI Working Groups have evolved into Task Forces addressing the four key areas namely: i) promoting key issuance of local currency-denominated bonds; ii) facilitating the demand of local currency-denominated bonds; iii) improving regulatory framework and iv) improving related infrastructure for the bond markets. The Technical Assistance Coordination Team (TACT) has continued to provide technical assistance in bond markets to interested members. One of the key initiatives under the ABMI framework is the establishment of the Credit Guarantee and Investment Facility (CGIF) aimed at supporting the issuance of local currency-denominated bonds in the region. The CGIF is expected to operate by the end of December 2010.
- Under the new Roadmap, Task Forces have been streamlined to develop work programmes and focus on key priorities under each area. ASEC has been assisting the ABMI as administrator of technical assistance programmes being implemented by the Japanese Ministry of Finance under the Japan Technical Assistance Fund (JAFTA). The technical assistance focus on building capacities of ASEAN countries in various aspects of bond market development (e.g., infrastructure support).
ASEAN+3 Research Group
- To identify policy issues and support exchange of views among ASEAN+3 finance officials, the ASEAN+3 Research Group has been undertaking policy-oriented studies since 2003. Since the establishment of the Research Group in 2004, a network of 22 research institutes in ASEAN+3 countries has been established, resulting in the conduct of major studies focusing on financial stability issues. In 2009/2010, the Research group has concluded research on two topics namely: i) Ways to Promote Foreign Trade Settlements Denominated in Local Currencies in East Asia and ii) Regulation and Supervision for Sound Liquidity Risk Management for Banks. For 2010/2011, the ASEAN+3 Research Group will tackle three issues namely: i) Possible Use of Regional Monetary Units – Identification of Issues for Practical Use; ii) Lessons from Asia’s Experiences with Sudden Capital Flows and iii) Fiscal and Financial Impacts of the Climate Change and Policy Challenges in East Asia. These studies are expected to be completed and endorsed by AFMM+3 in May 2011. To further access the Studies under the purview of ASEAN+3 Research Group, please click the following page.
- To promote financial stability in ASEAN+3 countries, the Ministry of Finance of Japan has been providing Technical and Research Assistance support (under the purview of ASEAN+3 Research Group) as well as capacity building programme for ASEAN Member States through the Japan – ASEAN Financial Technical Assistance (JAFTA) Fund. To date, JAFTA has provided technical assistance in Managing Capital Flows, Capacity Building for Macroeconomic Statistics and Developing Bond Markets (Phase I – IV) as well as Promotion of Medium Term Note Programme. Moreover, Symposiums on Development of the Corporate Credit Information Database and Credit Guarantee System were successfully held in Bali and Manila in June 2009 and June 2010 respectively.
Other Finance Cooperation Initiatives
- ASEAN Capital Market Forum (ACMF): Current efforts focus on projects to harmonise standards in capital market regulations in ASEAN in two areas: (a) disclosure requirements for equity securities; and (b) distribution rules. Two other projects on harmonisation of accounting standards and auditing standards, and mutual recognition of certification and qualification of market professionals, have been concluded last year. Following the endorsement in April 2009 of the “Implementation Plan to Promote the Development of an Integrated Capital Market”, disclosure standards for multi-jurisdictional offerings of securities have been adopted in Malaysia, Singapore and Thailand. A Memorandum of Understanding among six ASEAN Exchanges (Indonesia, Malaysia, Philippines, Singapore, Thailand and Viet Nam) was signed to establish an electronic link among ASEAN Exchanges and an ASEAN Electronic Board. Work on cross-border offerings, particularly on the development of a mutual recognition framework for market professionals as well as cross-border offerings of debt securities and collective investment schemes, is also underway.
- ASEAN Insurance Cooperation: Current efforts by the ASEAN Insurance Regulators Meeting (AIRM) include sharing of insurance statistics among countries with the end goal of achieving a unified form of statistics; exchange of views on regulatory issues and observance of core principles related to insurance markets; consultations with private sector (Council of Bureaux) to implement compulsory insurance for motor-vehicles under the Blue Card System; and conduct of research and capacity building programmes for insurance regulators through the ASEAN Insurance Training and Research Institute (AITRI).
- Cooperation with APG on Anti-money Laundering: Since 2006, ASEC has entered into a Memorandum of Understanding with the Asia Pacific Group (APG) Secretariat to coordinate training and capacity building programmes on anti-money laundering and counter financing of terrorism (AML/CFT) for ASEAN countries that are also members of the APG. Both ASEC and the APG Secretariat are in the process of exploring areas where coordination between the two secretariats can be further strengthened in order to identify/develop regional programmes on AML/CFT.
- East Asia Finance Cooperation (EAS): Cooperation in finance for the East Asia Summit (EAS) participating countries is still at its early stage of development. Currently, such cooperation takes the form of an informal dialogue among the EAS Finance Ministers and senior finance officials, where the Ministers and officials explore possible areas of cooperation under the EAS. At the inaugural EAS Finance Ministers Meeting held in Tashkent, Uzbekistan on 2 May 2010, the Ministers discussed the work of the G-20, including how the region’s economic development could better fit within the framework for strong, sustainable and balanced growth established by the G-20 Leaders, as well as EAS regional cooperation and capacity building. To date, two capacity building programmes under the EAS informal finance dialogue have been co-organised by Australia and Malaysia: in 2009 in Cambodia and in 2010 in Lao PDR.