ASEAN targets slower growth, faster integration

Finance ministers from the Association of Southeast Asian Nations (ASEAN) have targeted a slowdown in growth and redoubling of efforts to boost regional integration as the best way of maintaining the region's economic rebound.

The ministers concluded their discussions late last week in Bali, Indonesia, where they approved a joint statement.

A target to reduce the region's economic growth rate from 7.6 per cent last year to between 5.7 per cent and 6.4 per cent reflects the region's confidence that economic growth will settle at a more sustainable rate this year but there are growing concerns about over-heating in emerging economies.

It is obvious that rampant inflation is posing a growing threat to economies in the region. In his opening speech, Indonesian President Susilo Bambang Yudhoyno showed a deep understanding of the challenge, warning that the region's more successful economies were close to "boiling point".

Vulnerabilities arising from a surge in capital flows and emerging inflation pressures combined with strong commodity price volatility are among the concerns that have forced regional financial sectors to ensure systematic stability and avoid disruptive fluctuations in capital flows to sustain growth.

In its joint statement last year, ASEAN finance ministers said economies had rebounded strongly from the global financial crisis due to the resilience of domestic demand, a robust financial system, sound economic frameworks, recovery in global trade and financial markets as well as swift and appropriate policy responses.

But this year, they stated: "Our economies proved to be resilient. However, risks remain."

In the statement released recently on its official website, ASEAN financial members said economic activity in the region remains buoyant. Many countries have returned to, or even surpassed their pre-crisis growth rates.

Now, co-ordinated responses to problems have been deemed necessary, given inter-dependence among ASEAN economies.

Fortunately, we can be confident of reaching our target as the bloc has recognised that "deep financial integration is a vital objective and significant policy".

The establishment of a US$700-million Credit Guarantee and Investment Facility to be implemented by this May, a new infrastructure fund worth $450-480 million and the ASEAN Forum on Taxation, which is set to be established this year, are among the measures to help the bloc ensure better integration.

Finance ministers agreed to support regional dialogue on taxation issues for regional integration, particularly related to dealing with tax avoidance, as this will serve as a mechanism to strengthen co-operation in tax matters.

ASEAN has confirmed the importance of integration saying that it will not only increase the efficiency of production and consumption, but also expand economies of scale and accelerate investments in physical capital, technology and people — the key elements for achieving stronger and more sustainable growth.

In addition, the meeting set milestones for ASEAN in the area of integration of capital markets and the liberalisation of capital accounts. An action group will be set up to identify specific impediments toward an integrated bond market and an implementation plan will then be developed to address remaining gaps.

Vietnamese efforts

Viet Nam supported efforts to reach a regional growth rate of between 5.7 per cent and 6.4 per cent this year, said Vietnamese Deputy Minister of Finance Tran Xuan Ha.

Ha, who led a Vietnamese delegation to the meeting, said the country has made an active contribution to the regional initiative on launching the ASEAN infrastructure fund by earmarking $10 million for the fund.

Malaysia is the biggest contributor to the fund (set to top $485 million in total) with $150 million, followed by Indonesia with $120 million and the Asia Development Bank, whose contribution was not specified.

Viet Nam has also joined the Credit Guarantee and Investment Facility (CGIF) as a way to express the country's willingness to integrate with the region and world economies, said the deputy finance minister.

Ha said CGIF membership will help Vietnamese businesses set up an effective credit guarantees.

"Moreover, the CGIF will allow Vietnamese enterprises to diversify their capital promotion channels through low cost bond issuance," Ha said.

Participation in the CGIF will not increase risks to the state budget as bonds issuance has been guaranteed by the CGIF, he added. — VNS