How can we trust Asean integration?

THE Asia News Network website posted this headline on March 11: “Asean [the Association of Southeast Asian Nations] displays solidarity as region suffers.” The commentary accompanying it noted that Malaysia’s neighbors responded without hesitation to the missing Malaysia Airlines Flight MH370, saying this “is testing relations and cooperation among Asean friends and partners.”

Differences, if any, were set aside in order to focus on finding the plane. Each Asean member gathered whatever resources it has at its disposal to help, even if it has nothing at gain from it, except more goodwill. This is true for the Philippines, which had no citizens on board that plane.

It was a proper and humane response to a baffling incident that any country would appreciate and any regional bloc would expect from its members. But as the days pass, a darker side to the search-and-rescue effort emerges that may have long-term consequences.

Like business relationships, the progress to Asean economic integration—which will take a major leap next year—is based on trust. In the past, regional partnerships have been secured with threats, with one country forcing a partnership to serve its objectives. The Roman Empire comes to mind; so does the Greater East Asia Co-Prosperity Sphere in the early 1940s, when Japan “liberated” its neighbors from Western economic influence.

The Asean integration plan is modeled, in part, on the efforts of European nations to create the European Union (EU). While the Asean initiative has yet to go as far as EU integration has, the principles are basically the same. Some measure of national sovereignty is being sacrificed by individual countries in the hopes that a union will provide more economic benefits than every nation trying to earn them by itself.

EU members have discovered that trust is a primary foundation of the union. After the banking and financial crisis struck Greece, it was learned that Athens had lied about its financial affairs in order to join the EU. The Greek government understated its debt to reach the fiscal benchmarks necessary for full EU membership. Other EU nations suffered as a result of that.

While other Asean members were spending huge sums of money—and putting lives on the line—searching for Flight MH370, it appeared that the Malaysian government was not completely honest with them. Consider: The search was concentrated on the last-known point of contact, but it turns out the Malaysian authorities knew full well that the plane had already turned westward and reached Malaysia’s eastern coast.

Are the other Asean members going to express confidence that their co-members will be trustworthy in dealing with some details of Asean integration, such as passport and employment-credential control? Are we going to be comfortable with the potential integration of the region’s stock markets, with the regulators of other nations auditing their companies’ financial records?

The Bible says if a person cannot be trusted with minor matters, how much more with major ones. Malaysia has failed the first practical Asean integration test.

source:  Business Mirror

The Strength of Retail: in a Wider ASEAN Economy

Date: 03.19.2014

Place: Mandarin Manila, Makati City

Occasion: CTB Annual Convention

Speaker: Governor Amando M. Tetangco, Jr.

Every year, your industry comes together to exchange views on the prospects for the year ahead. With your theme this year “Thrift Banks: Preparing for 2015 ASEAN Integration”, the thrift banking industry is recognizing a development that has quietly evolved through the years and will soon crystalize. ASEAN integration – broadly through the ASEAN Financial Integration Framework or AFIF and more specifically through the ASEAN Banking Integration Framework or ABIF –will come to fruition in line with the ASEAN 2020 vision that was enunciated way back in 2007. It is, in this sense, imminent and the Chamber is being responsive by preparing for this eventuality.  In fact, for this Convention, the organizers have lined up experts to tackle different facets of integration. My role this morning is to describe the broad economic landscape, including the challenges and opportunities, that the thrift banking industry currently faces against the backdrop of ASEAN integration. The Chamber is being strategic in this way, for clearly, understanding one’s starting point and initial conditions is just as important as defining one’s final destination. The Economy at Large Let me begin therefore with the economy at large. It is tempting to simply cite the array of indicators that show that the macro-economy is strong. In 2013, we again saw the convergence of high growth and stable prices as the country posted a real gross domestic product growth rate of 7.2 percent amid an inflation of three percent. This is on top of the real GDP growth of 6.8 percent and a 3.2 percent inflation rate in 2012. We need to appreciate these numbers not just because they are better than the performance numbers that came out of 2011 (which were 3.6% real GDP growth and 4.6% inflation rate). Instead, these are excellent numbers because of the calamities that befell us during the period.1 On the external front, the balance of payments position was at USD5.1 billion for 2013. And the Gross International Reserves at almost 12 months’ worth of imports of goods and payments of services continues to provide ample cushion against external vulnerabilities. We should certainly point out that the growth of the real economy is supported by and feeds into a banking industry whose strength is well documented. Standard & Poor’s latest banking outlook (February 2014) notes that “Philippine banks will likely continue to benefit from the country’s buoyant economic prospects in 2014”. And in Moody’s own banking report (2014 Outlook dated December 2013), the Philippines is the only jurisdiction whose banking system they rate to have a positive outlook. Thrift banks as an industry may be small when compared to its universal and commercial bank peers. But it is by no means left behind. Peso deposits mobilized grew by 22 percent in 2013, loans expanded by 13 percent, total resources rose by 16 percent, while profitability increased by 18 percent. The Challenges that Lie Ahead All these should be more than enough reason to be optimistic about the future of the banking industry.  But financial markets can swiftly change course… Everyone here is more than aware that the saving that takes a long time to put together could be the investment that loses value in a “mark-to-market” second. And when financial markets get shocked, the impact leaves a mark in both depth and breadth. As an industry then, your stereotypical challenge is to maximize your strengths while addressing your weaknesses…  This brings us to the question of what a thrift bank represents… This is a question of “character” which would define the path that you will take as well as those side roads that you ought to avoid. As I look at your Asset-Liability structure, I note that 86 percent of your liabilities are peso deposits and 66 percent of assets are in loans. Although your universal and commercial bank peers have peso deposits at roughly the same magnitude (72 percent), U/KBs only have 47 percent of their assets in loans. This fact is material. Without another avenue for generating revenues, the viability of the thrift bank model must rest in the balance between sourcing retail saving and deploying the same as loans. And as you dig deeper into the loan portfolio, it becomes readily evident that the bulk of the credits lie in consumer finance. From this perspective, consumer finance is therefore at the very crux of what defines thrift banks. The Promise of the Filipino Consumer The good news is that several indicators suggest that the prospects of our consumer finance market remains promising. Like all other jurisdictions in ASEAN, our population growth has actually slowed substantially from 3.35 percent per annum in 1960 to 1.72 percent in 2012.2  Despite this, some 35 percent of Filipinos are younger than 15 years old as of end-2012.   This percentage is much higher than the rest of ASEAN which averages at only 25.8 percent. It is also much higher than those of China, Japan and South Korea which average 17.7 percent, that of North America at 19.3 percent and the euro area at 15.3 percent. What these numbers mean is that the Philippines will see a greater proportion of its population becoming consumers in the next few decades.  This leaves the future market for consumer needs very potent. This is not to say that the current consumer market is not already attractive. World Bank data show, for example, that cellular subscriptions per 100 individuals is already at nearly 107 in the Philippines, higher than the 94 subscriptions average for the BCLMV countries (Brunei, Cambodia, Lao, Myanmar and Vietnam), and the 66 subscriptions for China, Japan and Korea. Our internet penetration rate is not that far off, where we have about 36 internet users per 100 individuals versus the 40 on average in China, Japan and Korea and the 45 users for Singapore, Thailand, Malaysia and Indonesia collectively. But as we develop our young population to be more tech-savvy, one surely expects our numbers to keep on rising. I really do not have to mention the bigger ticket items since this is your area of focus. But to put it on record, we have seen outstanding auto loans, credit card receivables and residential real estate loans booked by thrift banks increase by Php 33 billion, Php 253 million and Php 29 billion respectively over the past three years alone. This translates to annualized growth rates of 15 percent, 14 percent and nine percent respectively. ASEAN Integration and the Consumer Market Ladies and gentlemen, clearly, demographics favor you. Furthermore, ASEAN integration opens up a bigger regional market.   After all, the economic prospects of ASEAN as a whole have always been premised on its retail market. ASEAN has a base of over 600 million individuals in 10 jurisdictions whose collective GDP in 2012 amounted to USD2.27 trillion. While this amount only represents 3.13 percent of the world’s nominal GDP, ASEAN as a collective aggrupation would be the world’s 8th largest economy, only following the US, China, Japan, Germany, France, UK and Brazil.3 Prospects for Philippine Thrift Banks On the whole then, an integrated ASEAN is a natural treasure trove for the consumer finance market. With ASEAN gross saving as a percentage to GDP just above 30 percent while the world is at under 22 percent, the potential for ASEAN is not just its size but also its saving.4 As an industry structured to mobilize retail saving and generate credit exposures to the consumer finance market, the prospects seem tailor-fit for you. In fact, within that framework, the Philippines does stand out even further because of the specific demographic profile that I described earlier. Does this mean then that your corporate future is secured? Unfortunately, the potential that is ASEAN and our own demographic advantages do not, on their own, create balance sheets. There are still strategic decisions to be made and tactical plans to be executed for these identified positives to be reflected as reality on your balance sheets. What is clear at this juncture is that market competition is changing the traditional niches.   Internally, the larger banks are extending their network into areas where smaller banks traditionally operate while banks have increasingly tapped into the consumer finance space. Externally, ASEAN is poised to further integrate under the mantra of an ASEAN that is for ASEAN. Just as we will be exposed to the opportunities of a bigger regional market, our economic prospects will also be targeted by interested regional entities. In both cases, they create competitive pressure for TBs and this, in our view, presents the main strategic issue for thrift banks. Despite all the gains achieved in recent years, you and I will agree that status quo cannot be an option. The ideal solution is to “right size”, getting bigger so that you are better equipped to handle competitive risks while getting smaller in risk exposures where the bank cannot develop a competitive advantage within a reasonable period. This is all about managing risks, a familiar point that the BSP has raised at every opportunity. The difference between today and last year’s convention, however, is that the financial market has re-calibrated towards higher interest rate levels… the much awaited Fed taper has begun and the normalization in easy money conditions has commenced… Furthermore, the ASEAN’s collective resolve to transform into an economic community is upon us. Ladies and gentlemen, the prospects for thrift banks in the Philippines indeed appear to be very strong. But the attractiveness of those prospects is also catching the attention of other banks in the Philippines and most likely, also of banks in the region. You simply have to get stronger to compete in this evolving market. How you become stronger and in what form remains the critical issue before you. I would like to believe that a thriving domestic economy, supportive demographics and your traditional strength in consumer finance should give you a healthy level of confidence as you find your place under the ASEAN sun. These, along with the innate Filipino ingenuity and talent in thriving amid challenges, should serve you well in this journey. I am sure that your resource speakers today will provide various insights and direction during their respective presentations. I then wish you a very productive convention and I thank you for your attention. Maraming salamat po sa inyong lahat. ----------- 1Typhoon Pablo is the strongest tropical cyclone to ever hit Mindanao. The Zamboanga crisis was a 30-day stand-off. The earthquake in Bohol was the deadliest earthquake the Philippines has experienced in 23 years while Typhoon Yolanda is the most devastating typhoon on record. 2All the data in this section are taken from the World Bank’s World Development Indicators 2013 edition. 3Based on nominal 2012 GDP denominated in USD. The ranking is consistent across tables provided separately by the United Nations, the IMF and the World Bank. 4Raw data from the World Development Indicators

Chamber of thrift banks gears up for expansion due to ASEAN integration

MANILA - The Chamber of Thrift Banks (CTB), the umbrella organization of the country's 71 thrift banks, gears up for the upcoming Association of Southeast Asian Nations (ASEAN) Integration by preparing its members for bigger opportunities to expand into new markets, its president said in a news release.

“We want our members to improve their services to our micro, small, and medium enterprise clients as we prepare for a free-market implementation once the integration starts,” said CTB president Jose Teodoro Limcaoco.

“CTB will familiarize SMEs on the integration, what industries will be opened in 2015 and 2016 and make them competitive in the open, integrated economy. To be more competitive, they might need to put up more CAPEX, invest more on infrastructure, or increase manpower,” he added.

The ASEAN Integration comes at an opportune time for local thrift banks, CTB said, as confidence in the industry remained high in the past year, with deposit liabilities growing by 19.3 percent year-on-year to reach P623.431 billion as of December 2013.

CTB First Vice President Rommel Latinazo projects that thrift banks expect the same kind of performance for 2014, when total loans grew by 14 percent.

“We are diverse in terms of focus, some of us are into consumers, (as) the independent thrifts tend to be more of the SME type of clientele. Both these sectors have continued demand for financing and that would be the outlet for the thrift bank industry,” Latizano said.

‘Trickle-down’ from multinationals
“What’s significant to us is that a lot of the loan growth in 2013 came from multinational and top corporates and we believe that there’s eventually a trickle-down effect to the SME sector because the SMEs provide a lot of the products and a lot of the services to these top corporates. The top corporates raised their loan levels in 2013 to expand and you should see the same expansion going forward to the SMEs. That’s why we’re very positive about the prospects for SME lending in 2014 and forward,” Limcaoco said.

In a move to further boost the thrift bank sector, CTB will mount a national convention on March 19, at the Mandarin Oriental Hotel in Makati City.

“The upcoming national convention will help thrift banks prepare for the challenge of market expansion, as well as our MSME market, who stand to be affected by the changes brought about by ASEAN integration,” said Convention Chair Alberto Emilio Ramos.

"The CTB is one with the Bangko Sentral ng Pilipinas (BSP) in its effort to achieve a strong financial system. We support policies and programs of the BSP that address the concerns and challenges surrounding the industry," Limcaoco  added.

Speakers at the national convention will be led by BSP Governor Amando Tetangco, Jr. on “Economic Prospects and the State of the Thrift Banking Industry,” BSP Deputy Governor Nestor Espenilla, Jr. on "ASEAN Banking Integration Framework," Sen. Allan Peter Cayetano on the “Political Thrust of the Senate on the ASEAN integration,” Sen. Paolo Benigno “Bam” Aquino IV, on "How the ASEAN Integration may affect the MSME sector" and "Proposed Amendments to the MSME Law," and Department of Trade and Industry (DTI) Assistant Secretary Rafaelita Aldaba on "General Overview of the impending ASEAN Integration."

source:  InterAksyon

The need for strong financial regulatory foundations in Asean Economic Integration

NEXT year will mark a significant step forward in the framework for the economic integration of the 10 Asean member-countries.  There are several economic benefits that come with economic integration and we have started to see this in the rise in the level of trade of goods and services among the Asean countries.  Free trade within a region of counties and a uniform tariff policy vis-á-vis the rest of the world presents opportunities for economies of scale for both our resource and consumer markets.  Given the 600 million population base of the Asean region, its dynamism and diverse resources, it is expected that more investments will locate in the region to capitalize on the opportunities presented by the process of regional economic integration.  However, the process of economic integration can be quite complex and fraught with many challenges.  One need not look hard for examples of how problems of economic integration can occur.

Some lessons from the European Union

The most well advanced and well-known example of economic integration of countries is the European Union (EU) where it has reached the stage of having a common currency, the euro, for the majority of its members.  They also have a European central bank and a European Investment Bank.  As a matter of fact, it has even achieved some semblance of political integration with the existence of a European Parliament.   However, the recent crises presented by the economic problems of Greece and the other so-called PIIGS countries indicate how serious problems can crop up when countries’ economic performances move in disparate ways.  The key variables to watch are fiscal performance, the status of the banking system, the balance of payments and the unemployment rate.  These variables move interactively and the performance of one directly affects the others.

The case of Greece is the most succinct and serious example of how chronic and substantial fiscal deficits can cause a crisis in a regional economic integration framework.    Greece was simply spending more than it earned and borrowing to finance the deficits until it reached a point that it could not borrow any longer in the normal credit markets.  It was at the brink of default and being kicked out of the EU and it took a very hard political process and painful economic measures to avert this.

The case of Spain was not as serious but it was a much bigger economy.  The fiscal concerns of Spain were notably aggravated by concerns in the banking system.  The drop in property prices in Spain hit the capital of its banks and the Spanish government had to bail them out.  Spain had to borrow this money and it caused increases in its borrowing costs to what was feared were unsustainable levels of interest rates.  It is also a good thing that this concern simmered down due to the measures taken by Spain and the EU and the European Central Bank (ECB).

The problem of Ireland was essentially a problem of its banks being recapitalized by the Irish government.  This resulted in the state needing to borrow to fund the requirements of its banks to the extent that it adversely affected its sovereign borrowing capability.

The need for alignment of the regulatory and open market operation powers of the Central Bank.

The opportunities afforded by Asean integration must be matched by having strong foundations of our economic institutions in both the private and government sectors.  In the case of the financial sector, the Central Bank needs to align its charter to the challenges of cross border issues and systemic risks that may come from within or without the Asean region.  Among the issues to be considered are: competition from financial institutions of the Asean, the expected increase in the flow of investments into and within Asean and the “know your customer” requirements that this entails and the need for more tools to deal with inflationary and deflationary forces that may originate from within Asean or imported into Asean. Proposed amendments to the Central Bank Charter is now in the legislative process in Congress that should strengthen the foundations for the global competitiveness and capabilities of our financial system in Asean and globally.  Among the amendments being proposed are the increase in capitalization to 200 billion pesos, the power to issue debt instruments and organizational strengthening.

source:  Business Mirror Column of Valentin Araneta

Is the country ready for ASEAN economic integration?

THE ASSOCIATION of Southeast Asian Nations (ASEAN) Economic Community (AEC) is scheduled to achieve its integration goals by end-2015. The integration is expected to transform the world’s fastest growing region into a more competitive, unified player in the world economy.

The ASEAN region consists of 10 diverse economies, with a significant consumer market of 620 million.

ASEAN economic growth is expected to slow slightly to 4.7% in 2014, down from estimated 5% in 2013. But future growth is expected to be robust based on a rapidly growing middle class, strong expansion in intra-regional trade and massive investment in public infrastructure and urban development across the region over the next 20 years.

With such high growth prospects, the ASEAN region is expected to attract high foreign direct investments (FDIs) and assistance from foreign governments and financial institutions. But the ability of each member country to attract FDIs would depend on each country’s economic and political state.

In the past, the Philippines’ record in attracting FDIs had been dismal. Among the ASEAN-5 peers, it has received the least FDIs. With the ASEAN economic integration, would this change?

ZERO-SUM GAME
The ASEAN economic integration by end 2015 won’t change the economic landscape overnight. But attracting FDIs is a zero-sum game: FDIs going to Vietnam or Malaysia or to any of the other nine ASEAN countries are FDIs diverted away from the Philippines.

There’s bound to be keener competition among nations. Some countries lag behind because of their poor public infrastructure, uncompetitive tax regimes, protectionist policies, and high costs of doing business. They better fix these disadvantages or perish.

The single biggest disadvantage of the Philippines versus its ASEAN-5 counterparts is its poor state of public infrastructure. Compared to Indonesia, Malaysia, Thailand and Vietnam -- there’s no sense comparing the Philippines with Singapore -- the Philippines has the second worst overall infrastructure.

In terms of port infrastructure and air transport infrastructure, the Philippines has the worst public infrastructure. This is tragic since the country is archipelagic, with more that 7,200 islands, making efficient and reliable sea travel extremely necessary.

Costly and unreliable power supply is a major constraint to the development of manufacturing and tourism sectors. But energy capacities can’t be built overnight.

Traffic congestion imposes huge costs to the economy. A 2012 study by the Japan International Cooperation Agency (JICA) estimates that the annual costs of traffic congestion in Metropolitan Manila is approximately equal to 7% of gross domestic product (GDP).

Yet, improvements in urban transport remain bogged down. The much-vaunted public-private partnership (PPP) program that includes many urban transport sub-projects has been a colossal failure. There is a strong likelihood that none of the large-scale urban transport projects will be completed by the end of the term of President Aquino III.

The Philippines has the highest marginal tax rates for both the corporate profits and personal incomes. This has to be harmonized with its ASEAN-5 counterparts.

The restrictive economic provisions in the Constitution have to be amended.

The Philippines has a long way to go in improving its image as an investor-friendly country. While it has moved up the ease-of-doing-business ladder, it remains to be the most bureaucratic among ASEAN-5 countries.

The ASEAN economic integration is a work in progress. If we want to be benefit from it to the fullest, we have a lot of catching up to do. This challenge should be in the mind of the next President of the Republic.

(The author is Professor of Economics at the UP School of Economics and former Secretary of Budget and Management.)

source:  Businessworld

P24 M allotted for entry of Pinoy professionals in Asean

MANILA, Philippines - At least P24 million has been allocated for the forging of an agreement that would allow doctors and other Filipino professionals to freely practice their profession in the ASEAN (Association of Southeast Asian Nations) region, the Department of Labor and Employment (DOLE) reported over the weekend.

The ASEAN community will pave the way for the free movement of professionals in the 10 member-countries, including Philippines, Indonesia, Malaysia, Singapore, Brunei, Myanmar, Cambodia, Thailand, Vietnam and Laos.

For the next two years, Labor Secretary Rosalinda Baldoz said the government would undertake negotiations and other necessary measures for the forging of the mutual recognition agreement (MRA) for the country’s 46 professions.

“This year, we allocated P7.5 million for the MRA for five professionals, including medicine, dentistry, accountancy, nursing and surveying,” Baldoz said.

She said the government also allotted a total of P16.6 million for the conclusion of an MRA for the remaining 27 professions, adding that the DOLE had forged the MRA for 14 professions as of last year.

The DOLE chief said the government is also hoping to come out within the year with the Philippine Qualifications Framework (PQF) and to be able to develop the required work force competencies.

 

“With PQF in place, it is assured that the qualification issued in the country will be recognized by other countries, which means our licensed professionals can freely practice their professions and get salaries equal to the nationals of host countries,” she said.

Baldoz said DOLE is currently working on the Skills Occupational Shortage List (SOSL) to determine the foreign professionals who would be allowed to practice in the country.

She said the DOLE would consult with stakeholders and would conduct an industry-to-industry inquiry in order to be specific and precise on the needed skills that should be included in the SOSL.
Baldoz said the agency would work with the Technical Education and Skills Development Authority (TESDA), the Professional Regulations Commission (PRC) and the Commission on Higher Education (CHED) in addressing the shortage and shorten the employment of foreign workers in the country.

source:  Philippine Star

Asean economic ministers to meet in Singapore

MANILA, Philippines - The Association of Southeast Asian Nations (ASEAN) economic ministers are meeting this week to outline plans for the year in line with the region’s economic integration in 2015.
Trade Secretary Gregory Domingo told reporters he is meeting with other ASEAN economic ministers in Singapore this week to discuss plans for the year.

 “This (meeting) is to determine what we want to achieve this year. Part of the discussions will be the RCEP (Regional Comprehensive Economic Partnership) and the AEC (ASEAN Economic Community) 2015,” he said.

The RCEP aims to consolidate all ASEAN plus agreements into one regional free trade network.
The AEC, to be established in 2015, would transform ASEAN into a region with free flow of goods, services, investments, skilled labor as well as capital.

In line with the aim of regional economic integration, the ASEAN-6 member states Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand eliminated duties on 99.65 percent of traded goods since 2010.

The other four member states Cambodia, Lao People’s Democratic Republic, Myanmar and Vietnam meanwhile have 98.86 percent of their traded tariff lines reduced to zero to five percent.

For the AEC, Domingo said the economic ministers would focus on services and investments.
He said discussions would also cover banking and financial services.

“These are the difficult areas,” he said.

He noted that while the Philippines may have some restrictions in terms of entry of foreign investors, other countries in the region also have their own set of limitations.

 “The Philippines is not unique in terms of that limitation,” he said.

source:  Philippine Star