Introduction
1. We, the ASEAN Finance Ministers, convened our Fifth Annual Meeting in Kuala Lumpur on 7-8 April 2001 to discuss progress of the economic recovery and regional financial cooperation initiatives, development of self-help and support mechanisms through the Chiang Mai Initiative and noted the progress of capital market development and financial services liberalization.
2. H.E. Tun Daim Zainuddin, Minister of Finance, Malaysia, presided over the meeting.
Recent Economic Developments
3. We conducted a peer review and are pleased with the strong performance of our economies last year. ASEAN economies achieved a higher overall growth of 5.3% in 2000 compared with 3.4% growth in 1999. The strong economic performance was led by rapid growth in exports and continued recovery in domestic demand.
4. Global developments in 2000 were favorable, particularly the strong economic expansion in the United States and Europe, which led to very buoyant demand for the region’s exports, especially for electronic goods. At the same time, inflationary pressures were subdued with average inflation rate for the region at 2.5% compared with 9.7% in 1999. This provided the monetary authorities flexibility to pursue an accommodative monetary policy to maintain a favorable environment for domestic demand.
5. We made substantial progress in financial and corporate restructuring with most of our members achieving significant declines in the level of their non-performing loans. Further efforts were made to improve corporate governance and adopt international best practices and standards. Additional measures were also put in place to promote business activities of small and medium enterprises. However, some of our member economies experienced occasional bouts of volatility in the foreign exchange and stock markets during the year due to a number of factors, including political uncertainties.
Sustaining ASEAN Economic Recovery
6. This year, the global outlook has become significantly more adverse. The downside risks for the US economy have increased following the sharp fall in equity prices. Growth in the Euro zone is expected to moderate, although this will be mitigated by relatively robust domestic demand. The outlook for the Japanese economy remains fragile, given the structural problems within the financial sector. We noted with concern the recent volatility of financial markets and the major currencies, particularly the depreciation of the Japanese Yen, which has created uncertainty and instability in regional financial markets and could adversely affect the prospects for continued growth of the ASEAN economies.
7. In view of the expected slowdown in the global economy, the outlook for the ASEAN economies will be less favorable. Export growth in the ASEAN economies has moderated since late last year and foreign direct investments are expected to remain subdued in the near term. Under these conditions, most of the ASEAN economies are taking pre-emptive measures to mitigate the economic slowdown. Expansionary fiscal and accommodative monetary policies are being undertaken, while recognizing the need to maintain fiscal sustainability and financial stability in the medium term. For some countries, the process of privatization of state-owned enterprises would continue to reduce the financial burden on the government and to improve economic efficiency.
8. While significant progress has been achieved in financial and corporate sector restructuring, we are committed to persevere with our structural reforms. This has been and will remain our top priority. To reduce excessive reliance on bank financing, our officials are working together to develop the infrastructure, institutions and instruments that would lead to the emergence of a vibrant capital market in the ASEAN economies.
9. These measures to further strengthen domestic demand are expected to mitigate the negative effects of the slowing of regional exports and keep our economies growing, albeit at a slower average rate of 3-5% for the year 2001.
Regional Finance Cooperation
10. Our ASEAN Surveillance Process is an important mechanism for better monitoring of our economies and candid discussions on key policy issues aimed at preventing the recurrence of a crisis. ASEAN will further discuss with the +3 countries, namely China, Japan and the Republic of Korea, ways of enhancing the ASEAN Surveillance Process. In addition, we would like to express our appreciation to the Asian Development Bank (ADB) for its continued support for surveillance related activities including training of our finance and central bank officials, sharing their views on the global and regional outlook and providing the necessary support for some of our members’ surveillance units and the ASEAN Secretariat. The ADB agreed to assist us in stimulating economic activities through the acceleration of project development financing, and further enhancing our competitiveness through the provision of additional technical assistance, including in human resource development. The ADB also agreed to strengthen its advisory role so that ASEAN member countries can improve and differentiate their strategies in line with their strengths and have cooperative strategies to boost the regional economy as a whole.
11. We also wish to thank the International Monetary Fund and World Bank for sharing their assessments of global economic developments and outlook with our Deputies.
12. We are pleased to note the progress of the implementation of the Chiang Mai Initiative (CMI) to provide liquidity support in the event of temporary balance of payments difficulties. In this connection, the ASEAN Swap Arrangement (ASA) has been successfully enlarged to include all ten ASEAN countries and its size increased to USD1 billion.
13. An additional support mechanism is also being developed through a network of bilateral swap arrangements (BSA) and repurchase agreements with China, Japan and the Republic of Korea. There was consensus that the BSA would be complementary and supplementary to IMF facilities. To be beneficial to the individual ASEAN countries, the terms and modalities of the BSA should take into account the different economic fundamentals, specific circumstances and financing needs of individual countries.
14. To facilitate the implementation of the Framework Agreement on the Facilitation of Goods in Transit, we signed the Protocol 5 on ASEAN Scheme of Compulsory Motor Vehicle Insurance on 8 April 2001. We also note the significant progress made on Protocol 2 on Frontier Posts and Protocol 7 on the Customs Transit System. We further agree to harmonize insurance laws and regulations. We also welcome the establishment of the ASEAN Insurance Training and Research Institute which will serve as the main institute for training both regulators and practitioners as well as conducting research on insurance topics of mutual interests.
15. On financial services liberalization, the first round of negotiations was completed in 1998, resulting in further liberalization of financial services in a number of sub-sectors. Our Working Committee on ASEAN Financial Liberalization under the ASEAN Framework Agreement on Services is in the midst of negotiating further financial sector liberalization, with the current round of negotiations scheduled to be completed by the end of 2001. We resolve to further liberalize financial services.
16. In addition to the CMI, we noted the progress in enhancing other areas of cooperation with our +3 counterparts, under the ASEAN+3 framework. We will continue to strengthen finance cooperation in areas such as regional self-help and support mechanisms, and human resource development.
17. We exchanged views with representatives of the US-ASEAN Business Council on recent economic developments and US investment in ASEAN. We noted their commitment to the region and appreciated their willingness to provide training for ASEAN finance and central bank officials on various financial issues including risk management. Other proposed areas of cooperation include exchange visits and sharing of views on ASEAN economic development and regional cooperation activities.
