ASEAN KEY DESTINATIONS
ASEAN puts last touches to economic community
With most of the high-priority measures in the ASEAN Economic Community (AEC) blueprint already adopted, policymakers and businesses need to work closely on the remaining challenges to achieve benefits of full economic integration beyond 2015, a new report recommends.
The report from Ernst & Young (EY), titled Trade Secrets: ASEAN Economic Community, recommends five priorities: focus on effective implementation, eradication of infrastructure bottlenecks, improvement of labour mobility for professionals, building taxes into the AEC agenda, and push for financial integration.
"More than ever, policymakers and businesses across ASEAN need to work closely together and share best practices as implementation moves into full play across the region," Mildred Tan, EY's Asean Government and Public Sector Leader, said.
Tan said that more than 90 per cent of AEC's high priority measures have been achieved, showing the tremendous effort and commitment of ASEAN policymakers and stakeholders. The journey to full regional economic integration is highly complex and will require close collaboration between the public and private sectors, according to the report.
Infrastructure development is a crucial component in building a competitive econ-omic region and the AEC Blueprint has focused its efforts on better connectivity in transport and energy. The pace of development is hindered by differences between regional and national government priorities; lack of access to funding; local budget constraints; government bureaucracy; land acquisition issues; the absence of well-structured public-private partnership regulatory frameworks and policies; and domestic political issues.
Lynn Tho, EY's Asean Infrastructure Advisory Leader, said that some ASEAN countries had taken important steps to establish the necessary frameworks and demonstrate the political commitment to push through reforms to overcome funding and non-funding bottlenecks.
Given that infrastructure development in individual countries have historically been driven primarily by the respective government's priorities and constraints, better coordination among government agencies across countries will be needed to effectively achieve the regional agenda.
"The availability of regional funding support is critical. Given the scale of funding required, greater private sector investment and expertise will be key," the report said.
The report noted that some of the key requirements to achieve infrastructure delivery success in the region include establishing appropriate public-private partnership (PPP) regulations and frameworks and dedicated PPP units; simplifying and centralising, where appropriate, government decision-making processes; and building the public sector's capacity to deliver and manage complex infrastructure projects.
The AEC is intended to be a smoothly functioning region-al financial system, with more liberalised capital account regimes and interlinked capital markets that will facilitate greater trade and investment flows in the region.
However, given the varying stages in financial systems maturity and development across ASEAN, achieving financial integration is inevitably one of the most challenging goals.
Financial integration in ASEAN will require three broad imperatives: financial services liberalisation; capital account liberalisation; and the harmonisation of payments and settlements systems. In developing an integrated banking system, the report recommends a double-track implementation, where ASEAN 5 (Indonesia, Malaysia, Philippines, Singapore and Thailand) proceeds on a faster track compared to the BCLMV (Brunei, Cambodia, Laos, Myanmar and Viet Nam) countries.
Such a dual-track approach will enable certain financial services liberalisation measures to move forward while existing domestic financial institutions and systems in the other markets strengthens and develops.
Liew Nam Soon, EY's Asean Managing Partner for Financial Services, said: "This dual-track implementation of the banking integration plan can mitigate the risk of excessive deregulation contributing to the development of an overly complex banking system.
"ASEAN should focus on developing banking services that matter for the real economy – and not whether ASEAN banks will be able to become internationally leading banks. Ultimately, it is better to have banks with a strong regional foothold than globally active super banks, of which their activities can pose a serious threat to financial stability."
"It is likely that full financial integration may not be realistic for several years given the risks around protectionism of domestic interest. The AEC will need to promote a mechanism for financial sector development that is orderly, transparent and fair to all players across the private and public sector, so as to increase trust and ensure smoother collaboration and implementation process," Liew added.
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