THE region’s strong economic performance, as a whole in recent years, does not guarantee the success of economic and banking integration of Association of Southeast Asian Nations (Asean) members.
Amid preparations for the integration of both markets and banking systems in the region, the diversity of economic and banking environments remain one of the key challenges most especially for the implementation of the Asean Banking Integration.
In a conference titled Asean Financial and Banking Integration: Opportunities and Challenges, James Villafuerte, Asian Development Bank (ADB) office of regional integration economist, explained that the integration is faced with important challenges to hurdle-particularly the gap between economic performances of Asean countries and the possible costs on the individual economies with regard to the Asean Economic Community.
Villafuerte said the Southeast Asian nations, as a region, showed strong economic performance over the past 10 years in terms of gross domestic product that contributed to the increase of per-capita income.
In the grass roots, however, he pointed out diversity among the countries.
But despite the very strong performance in the region, each economy in the region are quite diverse-some are advanced, specifically the middle income Asean members, while others are lagging behind, Villafuerte said.
Likewise, he said that diversity is most felt and most crucial in government effectiveness, volume of foreign direct investment (FDI), remittances and quality of education.
The Philippines is very low in terms of governance as compared to Malaysia or Thailand, Villafuerte said.
While the Philippines has been getting more FDI, it is known to lag behind peer countries, owing to several reasons, including-as some local economists repeatedly pointed out-the foreign ownership restrictions in the country.
However, the Philippines boasts of the robust remittances amounting to some $23 billion annually.
In 2011 the governors of the central banks of Asean countries agreed on the Asean Financial Integration Framework.
Villafuerte also said that this financial integration could possibly trigger contagion, debt vulnerability and capital misallocation that could lead the asset bubble to collapse.
If you open up your capital market, what happens is that any movement in the global market and regional markets will affect you, Villafuerte explained.
Similar to the strength of the economy, the stability of the banking system of the region, in general, can still be overshadowed by the diversity of the state of banking systems in the region.
Despite that stability, the financial sector in the region is quite small, specifically for the small Asean countries-Brunei [Darussalam], Cambodia, Myanmar, Lao PDR, Vietnam and even the Philippines. They are quite small and quite segmented. They are also susceptible to shocks from outside, Villafuerte added.
If you compare the asset per capita, we’re about less than 1 percent the asset per capita in Singapore. That’s how far off the banking sector in the Philippines is, he also said.
So even for the Philippines that we consider ourselves advanced to the financial system relative to our neighbors, like Myanmar and Cambodia, even the extent of banking sector development is at an early stage, Villafuerte said.