GOOD PROGRESS BUT…: Asean has moved fast enough towards economic integration, but needs financial integration as a complement, says Mr Menon.

ASEAN is expected to remain one of the world’s fastest-growing regions in the medium to long term, Monetary Authority of Singapore managing director Ravi Menon said on Friday.

“Barring shocks, overall growth in ASEAN should remain firm this year – at about 5 per cent, not spectacular, but very respectable, considering the state of the global economy,” he said in his keynote address at the ASEAN Banking Council Meeting.

Last year, ASEAN’s combined gross domestic product was nearly US$2.5 trillion (S$3.3 trillion) – larger than that for India, he noted.

The World Bank had on Thursday cut the global growth rate for this year to 2.8 per cent, from 3 per cent in January.

But for East Asia and the Pacific region (excluding China), the World Bank has pegged growth to hit 4.9 per cent this year and 5.4 per cent in the next two years, driven by the large ASEAN economies.

The ASEAN 4 – namely, Indonesia, Malaysia, Thailand and the Philippines – are projected to grow by at least 4 per cent per annum on average over the next five years.

But Mr Menon said that growth could be as high as 6 per cent – on condition that the region becomes more integrated, and if these countries implement domestic structural reforms to raise their productivity and competitiveness.

Aside from the ASEAN 4 and Singapore, the other ASEAN states are Brunei, Cambodia, Laos, Myanmar and Vietnam.

The key to higher growth lies in integration – both economic and financial, he said.

Substantial progress has been made towards economic integration in the implementing of the blueprint for the ASEAN Economic Community (AEC).

This was adopted in 2007 as roadmap towards achieving a free flow of goods, services, investments and skilled people within the region by 2015.

More than 90 per cent of the key deliverables targeted for completion by 2015 have since been implemented; virtually all goods traded within ASEAN are at zero tariff.

“There are agreements in place to enhance protection for investors, liberalise sectors for investment and to provide greater transparency on investment rules,” he said.

“The pace of financial integration has, however, lagged behind trade integration,” he said, noting that this is despite financial integration being a strong complement to trade integration and a critical component of the overall AEC project.

The ASEAN Financial Integration Framework, adopted by ASEAN’s central bank governors and endorsed by ASEAN finance ministers in 2011, envisages the financial markets in the region being more linked up by 2020.

“In part, this is deliberate. In part, this is disappointing,” said Mr Menon of the slow progress.

“The slower pace is deliberate in the sense that financial integration is more complex than trade integration and requires more time.”

He added that the financial systems across ASEAN are at very different stages of development and levels of sophistication.

But policymakers are intent on making up for lost time, he said.

ASEAN’s finance ministers and central bank governors are therefore determined press ahead with liberalisation in the post-AEC phase leading up to 2020. he added. –Siow Li SenThe Business TimesMonday

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