Asean Needs Exit Strategies
|Aladdin D. Rillo,
Assistant Director, Head of Division for Finance
Integration, Asean Secretariat, Jakarta
Q: Do you think the stimulus packages rolled out by the governments in Asean are adequate to support economic growth and sustainability?
A: Looking at the improvement in economic conditions in most Asean countries, I think the various fiscal measures implemented by the governments have been quite appropriate in mitigating the negative impact of the crisis. For example, through timely and large fiscal measures, the three most affected countries in Asean (namely, Malaysia, Singapore and Thailand) have been able to avoid a deeper downturn in their economies. Since the second quarter, the rate of GDP decline in these economies has started to slow, as a result of increased spending in the individual economies.
Of course, we also know that these are just short-term solutions. There are limits to what fiscal measures can do because of their implication on debt sustainability. Thus, it is critical that during the recovery period, Asean countries should also carefully think of exit strategies to ensure that there are no premature withdrawals that can undermine the recovery. Key here is for each country to implement fiscal policy work within its medium-term fiscal sustainability framework.
Q: What does Asean need to do in strengthening its financial markets?
A: Since the volatility began in July and August last year, Asean policy makers have been closely monitoring signs of emerging risks and strains in their own financial institutions. Policy discussions related to this issue have also been strengthened in recent months. These include the following:
Strengthening surveillance of the region’s financial system: In light of the prominence of financial sector risks in the region now, policies that support resilience of the financial system are warranted. Key priority actions include: (i) maintaining the financial soundness of institutions and ensuring that they can carry out their intermediation function smoothly; (ii) improving risk management practices in banks and other financial institutions; (iii) monitoring liquidity situation in the banking sector; (iv) strengthening accounting standards; and (v) improving governance and disclosures by banks and capital markets to keep investors informed of the risks of their investments.
Managing capital flows: In the face of continuing volatility in global financial markets, polices should continue to focus on reducing vulnerabilities associated with capital flows. Among key policies are the deepening capital markets in the region through the various initiatives already in place such as (i) development of liquid bond markets; (ii) strengthening of market infrastructure; (iii) development of local investor base; (iv) building sound legal and regulatory framework; and (v) improvement in market transparency.
Monetary and financial integration of Asean: In addition to the ASP, various initiatives have been implemented to promote financial stability in ASEAN. The most important of these initiatives is the Roadmap for Monetary and Financial Integration of Asean (RIA-Fin), which tracks the region’s integration efforts through the following priorities: ....
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