Speeches

Accelerating ASEAN Integration and Strengthening Capital Markets

1 Good morning and a very warm welcome to Singapore. Let me begin by thanking Citigroup for organising this conference and inviting me to share my views about regional integration and capital market developments in ASEAN.

2 I hope that the conference will serve as a forum not just for an exchange of thoughts and views on the region, but also the generation of new ideas and private sector initiatives.

ASEAN After the Asian Financial Crisis

3 Asia is witnessing robust growth, led by sustained growth of the Chinese and Indian economies and the welcome recovery of Japan - now into its fifth year of expansion. The regional economy is consistently growing at a much faster pace than the rest of the world. In 2006, the combined GDP of the region grew by just over 5% - the fastest since the 1997 financial crisis which saw growth in the region stagnate. The combined GDP of the 10 ASEAN economies is estimated to grow by a healthy 6% this year.

4 Asia's recovery has been founded on structural reforms put in place by regional governments who realised the pitfalls of relying too heavily on the banking system following the crisis. Exchange rate regimes are by and large now more flexible. Many capital controls and restrictions - some of which were put in place during the crisis - have been eased. Trade and investment are also proceeding apace. The region is increasingly integrated in trade and investment, and in financial flows, albeit to a lesser extent.

5 However, the stronger growth momentum is accompanied by more challenges from the increasingly globalised environment. While ASEAN had the advantage of being a preferred investment destination for global investors previously, it is now facing stiff competition from large emerging markets and financial centres such in China, India and the Middle East. Competition for high-value investments can only intensify. China is moving from low-cost manufacturing into higher-value-add industries. Shanghai will become a big financial centre, first serving the Chinese domestic market, and very soon positioned as an international financial centre. Mumbai and Dubai also aspire to be international financial hubs. India will grow employ technology in a big way and make its presence felt in the export market. 6 All countries, including Singapore, will have to adapt to these realities. Can we sustain the current pace of regional growth? That will depend on how we work at integrating the economies both intra-regionally as well as between Asia and the global economy. The growing awareness of the interdependence among countries in the region, and the importance of regional cooperation in managing the challenges of globalisation, has led to important steps being taken to enhance regional economic cooperation initiatives.

Accelerating ASEAN Integration and Capital Market Development

7 ASEAN is pressing ahead with closer and deeper economic integration to strengthen its role as an investment hub. To grow and benefit from the external linkages further, we have established Free Trade Agreements (FTAs) and investment agreements with other economic centres.

8 Most recently, ASEAN Leaders had agreed to speed up the establishment of the ASEAN Economic Community (AEC) from 2020 to 2015. They also agreed to transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital.

9 For the businesses, an integrated ASEAN means greater market access and more harmonised rules and standards. For investors, an integrated market of half a billion people will be an attractive investment destination and proposition. After all, ASEAN's GDP of US$1 trillion in aggregate is not insignificant, bigger than India's US$890 billion and more than a third of China's US$2.6 trillion. With the ASEAN Economic Community, ASEAN will eventually evolve into a single market with free flow of goods, services, investment and talent. An integrated ASEAN is expected to boost the region's GDP by 10%.

10 Within the ambit of the ASEAN Economic Community, the Finance Ministers have separately identified capital markets as a key pillar for fast-track integration. In the past, capital markets in Asia were relatively under-developed. Since the Asian financial crisis, however, many governments have recognised the vulnerabilities of undeveloped capital markets and have taken steps to address this. Apart from individual efforts to build liquid and efficient local currency bond markets, governments are also collaborating to improve cross-border capital market activity. This is evidenced by the establishment of the Asian Bond Market Initiative under the ASEAN finance process and the creation of the Asian Bond Fund under the Executives' Meeting of East Asia and Pacific Central Banks (EMEAP in short) central bank process. The ASEAN governments are clearly committed to further enhance the attractiveness of ASEAN as an investment destination. We recognise that it is important to promote ASEAN integration consistently so as to capture the mind-share of global investors.

11 But this will not be solely dependent on the efforts of the governments. While the governments need to play their part in shaping the investment and regulatory environment, complementary efforts by the private sector in developing the market and products are pivotal.

Private - Public Sector Collaboration

12 Unlike the case of the European Union, Asia does not have the same political imperative for economic or monetary union.

13 Asian policymakers are still debating the fundamental issue of the trade-off between the benefits of having a common currency from enhanced trade and financial integration, and the costs of losing autonomy over domestic monetary policy. Compared to the European experience, Asia will have more to contend with. Given the disparate stage of economic development, as well as the fundamentally diverse economic structures amongst Asian economies, care must be taken to ensure that the costs of integration do not outweigh its benefits.

14 With such diversity, our view is that Asian integration will be driven by a bottom up process, led primarily by the market.

15 This may not be a bad way to go since Asia's strength lies in its diversity. This diversity is what makes intra-regional trade an attractive and compelling economic proposition. It can also help in the diversification of financial portfolios across Asia.

16 The governments in the region must continue to encourage (i) the adoption of international standards of disclosure and international accounting standards, as well as (ii) the harmonisation of rules and regulations across Asia, so as to facilitate access and reduce costs for investors. Within this context, the private sector can play a significant role in shaping market activity based on the needs of each member country and the region.

17 There are currently several platforms for public-private sector interaction, such as the US-ASEAN Business Council annual lunch dialogue with the ASEAN finance ministers, a similar arrangement between the APEC Business Advisory Council and the APEC finance ministers, as well as private sector conferences like this one. These dialogues serve as conduits for the governments to consult with market participants. It helps us to better understand the market needs, as well as obtain feedback on the government initiatives that have been put in place.

18 Participation in such private-public sector dialogues have provided us with insights into the thoughts and challenges faced by the private sector. It is also a platform to bounce off new ideas and explore new business opportunities. Private sector participants at these discussions never fail to amaze me with their tenacity in developing new strategic niches for their businesses.

19 The focus of recent dialogues has been on intermediating Asian savings intra-regionally. In the past, Asian surpluses were intermediated through the developed financial markets, mainly outside of Asia. This is due to the inability of the underdeveloped and fragmented regional capital markets to provide the liquidity and depth that investors seek. As regional capital markets grow in maturity, depth and liquidity, more Asian surpluses can be and are now intermediated within Asia. This has also supported the growth of new asset classes such as infrastructure financing, securitisation and structured credit.

Singapore Story

20 For the past decade or so, Singapore has been committed to the development of capital markets through various initiatives. While we have developed our government and corporate bond markets to a satisfactory extent, continuing global financial innovation means that we need to develop the market beyond the plain vanilla products, to offer more options and diversification, essentially bringing our capital markets to the next level.

21 In this vein, Singapore has worked hard at developing itself as a hub for innovative equity-linked products, including Real Estate Investment Trusts (REITS), Business Trusts, derivatives and Exchange Traded Funds (ETFs). A promising emerging area of interest and focus is maritime-related trusts, consistent with Singapore's position as an International Maritime Centre. Singapore currently has 16 listed REITs and five listed Business Trusts with a total market capitalisation of about US$20 billion.

22 Given the huge physical and economic developments taking place in Asia, more foreign capital will be required. Singapore could be the hub to raise capital for Asian real estate, infrastructure and maritime players.

Conclusion

23 The immense yet unmet need for funding in Asia and the desire of Asian governments to develop their capital markets form an ideal combination for new private sector initiatives to take off. It is our belief that this transformation will play a key role in opening the Asian capital market to regional and global investors alike.

24 There is so much more that the government and the private sector can collaborate on in achieving the above. With so many ideas on the table that require the efforts of both parties to ensure success, we will no doubt be revisiting our discussion at many similar, thought-provoking platforms in the near future.

25 With that, I conclude this address and bid all delegates a fruitful conference ahead. Thank you.