Integration challenges tagged

COUNTRIES IN ASIA must continue working on developing their economies further as the region becomes more interconnected, the Asian Development Bank (ADB) said.

The multilateral lender, in its Asian Economic Integration Monitor report released yesterday, said integration within Asia had strengthened over the past few years.

“Regional trade and financial integration have ratcheted up over the past decade… and this will continue to drive growth in Asia moving forward,” said Iwan J. Azis, head of the ADB’s Office of Regional Economic Integration, in a briefing.

This interconnectedness, however, calls for a stronger and more effective kind of integration amid a changing Asian and global economic landscape.

“Deepening economic links imply more significant spillovers and increased contagion during crises,” Mr. Azis said. “Closer cooperation is needed to counter geopolitical risks while surveillance and financial safety nets can address contagion.”

With individual countries having their own strengths and weaknesses, national-level measures to support economic growth and further competitiveness are of foremost importance, he noted.

“All efforts towards closer, effective integration will firstly need stronger individual countries,” Mr. Azis said.

“Better policies at the national level will also help the region in addressing the urgent need to improve integration in disaster risk management and, also, in efforts to address lingering inequality among Asian economies despite growing incomes.”

Diwa C. Guinigundo, Bangko Sentral ng Pilipinas (BSP) deputy governor, echoed this sentiment at a panel discussion following the launch.

He noted that domestic policy actions were important, especially in addressing risks to financial stability that could result from the US Federal Reserve’s tapering of its massive stimulus program.

“No doubt, the ASEAN member countries have been most affected by negative market sentiment since the US QE (quantitative easing) announcement in December 2013,” he noted.

“Movements in regional equity prices were quite erratic and capital flows have become more volatile. If combined with domestic weakness, the result could be substantial capital outflows and sharp exchange rate adjustments,” he added.

“In this regard, policy buffers are needed and have to be used wisely to balance financial stability and growth.”

ASEAN economies, he said, have been implementing measures such as fiscal consolidation and monetary policy tightening to address the downside risks from the Fed’s actions.

“The bottom line of this is that even as the ASEAN member states approached the global challenges to growth and stability based on their own national perspective and priorities, the resulting strength and resiliency would actually promote the broader cause of regional integration,” Mr. Guinigundo said.

“Stronger ASEAN member states are in a better position to look outward and pursue handholding together.”

Trade, financial, and banking integration also call for strengthening markets from within in order to become competitive.

“Open regionalism has risks: volatility, uncertainly, complexity, and ambiguity,” Asian Institute of Management professor Federico M. Macaranas said during the discussion.

“Challenges in individual markets must be addressed. In the banking sector, for example, financial integration could be challenge for weaker banks in individual countries as bigger institutions could end up eating their market share,” he noted. — Bettina Faye V. Roc, Businessworld