What does Asean need to do to elevate itself as a distinct asset class in the eyes of global investors? And what are the key shortcomings, and remaining hurdles to the Asean Economic Community 2015?
The global operating environment has changed for the worse. We are in the midst of a simultaneous global banking, financial markets and economic crisis that, in the last few months, has taken on dangerous socio-political dimensions in Europe, with high unemployment, rapid changes in governments and growing diplomatic tensions at the international level.
The political paralysis in Europe and the United States, to a lesser extent, means that it will probably take a severe trigger event before decisive steps are taken to distribute all the pain that has to be suffered and to begin the recovery process. Until then, strategies to contain the crisis are set to prolong uncertainty for financial markets, deny banks the economic environment they need to breathe properly again and restrain economic activity.
Even closer to home, there are concerns over the two Asian giants of China and India, with growth slowing in China and a potential foreign exchange crisis bubbling in India.
Against this bleak backdrop, the Asean region shines brightly. But can our region find new levers for growth in the face of stalling external demand? Yes we can, but we need to make concerted efforts to increase intra-Asean activity. In detail, we must work in three major areas:
1. We must vigorously grow trade by pursuing free trade agreements, whether individually or as Asean, and by bringing down barriers, especially non-trade barriers within Asean.
2. We must capitalise on our demographic dividend. We are blessed with a young population that is urbanizing rapidly. The key bottleneck in tapping this is infrastructure, particularly in logistics and connectivity. If our relevance lies in being the crossroads of Asia, the meeting place and connector, then we must make sure our connectivity infrastructure is up to the task, and our cities are capable of absorbing and channeling the productive energies of millions of new entrants every year into the global workforce. According to an ADB estimate, Asean countries will need to invest approximately US$ 60 billion per year in roads, railways, ports, energy, water and sanitation and other infrastructure.
3. And relatedly, we must work to unblock the key bottleneck to building this infrastructure, which is not the availability of financing but financial intermediation. We lack the finance infrastructure to optimise our region’s high savings levels. Our financial markets are not deep enough or integrated enough to fund these large infrastructure projects, even though we have large reserves. The countries of Asean have already applied the hard lessons learned from the 1997 Asian financial crisis to ensure relative stability in our individual economies in the midst of this volatile global economy. The challenge now is to start acting as one region, to evolve policy coordination into a common framework for managing and growing a regional economy. In particular, I would like to see agreement on an Asean banking framework, the creation of a single Asean stock exchange and greater regional collaboration to strengthen domestic currency bond markets.
*Datuk Sri Nazir Razak is Group Chief Executive, CIMB Group. This is an excerpt of his opening remarks at the recent 2nd CIMB ASEAN Conference.
By Datuk Sri Nazir Razak*
01 July 2012