Briefing at the 55th ASEAN-CCI Council Meeting,
Kuala Lumpur, 10 April 1998
Among ASEAN, s leading purposes are the progressive integration of the member-countries' economies and ever-closer cooperation among them. These would create a larger market, provide the conditions for economies of scale, offer opportunities for the pooling of resources, promote greater efficiency, lay the setting for networking among businessmen, and so on. This is obviously good for ASEAN business. As businessmen are the main beneficiaries of ASEAN integration and cooperation, so must they be - - and are -- the central actors in this process.
ASEAN' s leaders have repeatedly stressed the central place of the role of the private sector in ASEAN. It is in compliance with this mandate that we have made close contact and cooperation with the private sector one of the top priorities of my stewardship of the ASEAN Secretariat.
This is the position that I conveyed to some of the Philippines' top business leaders over lunch in Makati two weeks ago. It is the commitment that I have affirmed to Mr. Bakrie and Mr. Sentosa. It is the message that I give to you today.
This is no mere lip service to an ASEAN commitment that is repeatedly made. We are putting it into practice. Two weeks ago, we convened a roundtable among ASEAN's leading business associations and business-related professional organizations. Its purpose was to examine, from the point of view of the private sector, the financial turmoil ravaging our region's economies and businesses and to begin working out measures for ASEAN's private sector to undertake itself or to recommend to ASEAN's governments.
ASEAN-CCI was among the first associations that we contacted, and its representatives were among the most active and productive participants in the roundtable. The ASEAN Bankers Association and the ASEAN Business Forum also took part. So did the ASEAN Federation of Accountants and the ASEAN Forum of Credit Rating Agencies.
We thought that, since ASEAN businesses were, in one way or another, involved in and affected by the financial problem, they had to be part of the solution.
We brought in two excellent resource persons. One was Dr. Yilmaz Akyuz, Chief of Macroeconomic and Development Policies in the United Nations Conference on Trade and Development in Geneva. The other was Mr. Manuel Montes, senior fellow of the Institute of Southeast Asian Studies in Singapore, author. of a booklet entitled "The Currency Crisis in Southeast Asia."
The roundtable decried the severe effects of the financial crisis on ASEAN business and called for the restoration of stable exchange rates as a priority. At the same -time, the participants expressed their concern that some of the monetary measures being adopted in the region were "far too tight." They committed themselves to supporting the efforts of ASEAN governments to restore confidence and financial stability. They pledged to work together with the public sector while promoting cooperation- within the private sector. In particular, the roundtable supported the use of ASEAN currencies in intra-ASEAN trade, the establishment of an ASEAN monitoring mechanism for the regional financial situation, and the ASEAN governments' commitment to accelerate ASEAN economic integration and liberalization. The participants agreed to harmonize accounting and auditing standards and practices to improve transparency and to ensure greater accountability and the reliability of corporate financial information. They asked the ASEAN Secretariat to help organize future forums on cross-sectoral and specialized subjects, including a symposium on servicing corporate debt.
We in the ASEAN Secretariat look forward to continuing to work with this forum and with the ASEAN private sector generally on this critical matter.
ASEAN' s governments, of course, have themselves been, on an emergency footing, working feverishly on the situation - - individually, bilaterally, within ASEAN as a group, and with others in the international community.
Internally, the ASEAN countries affected have been working on the reform and strengthening of their financial and economic institutions, structures, rules and procedures. The ASEAN heads of government and ministers have been visiting each other with unprecedented frequency to consult and to offer assistance in the form of commodities, financial support, policy and technical advice, and moral encouragement. ASEAN's leaders, ministers and officials have been meeting intensively to address the crisis and devise measures to deal with it. They have sought and obtained the support of the international financial institutions, APEC, the governments of the Group of 7, China, and the European Union, as manifested in the outcome of last weekend's Asia-Europe Meeting in London.
ASEAN's Finance Ministers, in their meeting in Jakarta on the 28th of February, agreed on two specific measures to deal with the financial problem. One is the use of ASEAN currencies in the settlement of intra-ASEAN trade, which had been proposed by two or more of ASEAN I s leaders. The other is the establishment of an ASEAN monitoring mechanism to serve as an early-warning system for future financial problems.
The Finance Ministers approved and encouraged the use of ASEAN currencies for intra- ASEAN trade, with the specific modalities to be agreed upon by each pair of trading partners. This scheme will, of course, work only if the private sector, private traders, are willing to accept rupiah, ringgit, pesos and baht as payment for their exports instead of US dollars. Obviously, ASEAN's governments and Central Banks must make it attractive for the private sector to accept regional currencies in place of US dollars, but the private sector needs to make clear what it would take to make it worthwhile for them to do so. As a result of the roundtable at the ASEAN Secretariat, the ASEAN Bankers Associations will pursue this subject at its Council meeting on 17-18 April in Singapore. ASEAN-CCI, particularly those members who are significantly involved in intra-ASEAN trade, would do well to contribute ideas and suggestions to the development of this scheme. The scheme is not a cure-all. It is no panacea. But it should help in encouraging more trade among ASEAN countries, relieve somewhat the pressure on ASEAN traders to acquire US dollars for trade, and stimulate economic activity within the region.
The other initiative is the setting-up of the monitoring mechanism. This had been recommended in the Manila Framework drawn up last November by Finance Ministry and Central Bank deputies of six ASEAN countries, Canada, China, Hong Kong, Japan, Korea, New Zealand and the United States, plus the IMF, the World Bank and the Asian Development Bank.
The Finance Ministers decided that the monitoring system s to be operated initially within the ADB. The mechanics are now being worked out. If all goes well, it should start operations before very long. The ASEAN Secretariat is deeply involved in this process.
Like the use of ASEAN currencies for intra-ASEAN trade, the monitoring mechanism has to have the support of the private sector if it is to work. The core of the system would be a set of macroeconomic and financial indicators that would be regularly collected and monitored by the ASEAN Finance Ministers. The indicators are to serve as-an early-warning system to alert the Ministers to any impending imbalance in a member-country. Obviously, a great deal of information needs to be made available, much of it from the private sector. The cooperation of the private sector is, therefore, essential for the monitoring mechanism to function.
I am certain that the monitoring mechanism will receive the private sector's support and cooperation, since the mechanism is meant to prevent financial crises from developing in the future, and that is in everyone's interest.
The world's and the region's attention has been focused on the financial crisis. As I said earlier, ASEAN has responded directly to the crisis through closer cooperation and mutual support. However, the broader process of ASEAN economic integration and cooperation has not been neglected. Indeed, part of ASEAN's response to the financial crisis has been not only to maintain but, indeed, to accelerate this broader process. ASEAN's heads of government, Finance Ministers and Trade and Industry Ministers have categorically and publicly reaffirmed their commitment to this. They know that the enduring way to strengthen and stabilize the region's currencies and economies is to attract long-term investments by assuring those investments of larger and more open markets.
In the five years since the launch of the Common Effective Preferential Tariff scheme leading to the ASEAN Free Trade Area, almost 49,000 tariff lines have been included in the CEPT system, representing 82 percent of all tariff lines of the nine ASEAN countries. The average tariff rate is now down to slightly over five percent from almost 13 percent in 1993.
At the same time, ASEAN has stepped up efforts to make trading easier among its members, particularly through the elimination of technical barriers to trade and the harmonization of customs rules and procedures. The elaboration of the rules and disciplines governing the operation of the CEPT scheme should lead to a firmer rules-based system for ASEAN commercial interaction.
The effect of CEPT-AFTA has been quite dramatic. Exports of the original six signatories to the AFTA agreement to one another grew by almost 29 percent annually from 1993 to 1996. Within the first six months of 1997 alone, intra-ASEAN trade swelled from US$36.8 billion to US$44.8 billion, or by 22 percent.
As I indicated earlier, ASEAN has responded to the financial crisis by deciding to accelerate the AFTA process. ASEAN, s heads of government issued a mandate to this effect during their informal summit last December. The governments are now working on several ways in which this could be done. One is to reduce the number of products on the list of general exceptions and/or the sensitive lists. Another is to reduce the CEPT tariff rates to zero to five percent by 2000 and/or to zero by 2003.
The acceleration of AFTA's implementation goes beyond tariff-reductions. It also involves other ways of liberalizing trade and making it easier for all. With ASEAN-CCI's help and advice, ASEAN has also adopted the ASEAN Industrial Cooperation scheme, which extends full AFTA treatment to the products of a project located in at least two ASEAN countries and approved by them for inclusion in AICO. After some delay in starting its implementation, 26 AICO applications have been submitted and, of these, two have been approved.
The AICO scheme has since been modified to allow more investors to participate in the scheme. Unlike the original arrangement, AICO approval can now be granted even to applicants who have not yet invested in the region. The pre-investment approval will specify in detail the terms and condition that must be fulfilled by the investor. What this means is that an investor whose decision or commitment depends upon the assurance that his intended AICO arrangement will be granted approval can now submit his proposal to the national authorities of the participating countries before making the actual investment. Once pre-investment approval is given, the investor must make the actual investment within one year. Upon the establishment of the investment, the investor submits his official application for the AICO arrangement. The application will be approved almost automatically, provided that it is substantially the same as the one submitted at the pre-investment stage.
The private sector -- ASEAN-CCI in particular -- may wish to contribute ideas, from the point of view of business practitioners, on ways of comprehensively accelerating the AFTA process that would give balanced benefit to the region I s businesses, economies and peoples.
ASEAN cooperation is being intensified in other, broader, bigger ways. During their fifth summit meeting in Bangkok in 1995, ASEAN I s leaders decided to hold annual summits -- two informal meetings between the triennial formal summits. In December this year, the sixth formal summit will take place in Hanoi. The leaders have decided that the time is now past for declarations, and that it is time for concrete measures of implementation. The leaders, therefore, expect to agree on a plan of action to carry out the ASEAN Vision 2020 statement that they issued at their summit in Kuala Lumpur last December. This plan of action could include ways of achieving market integration in ASEAN that would encompass not only trade liberalization but also the development of transport and communications networks. It could also include a program on information technology. So could the development of the Mekong Basin.
The projected Hanoi Plan of Action and, in general, the accelerated progress of ASEAN cooperation should offer enormous opportunities to the private sector -- opportunities to contribute ideas and proposals for the plan of action itself, and opportunities for investment and other forms of profitable participation.
ASEAN-CCI has a vital role to play in all this - - the initiatives for preventing the recurrence of financial crises, the acceleration of ASEAN integration and cooperation, and the opportunities extended by summit actions.
ASEAN-CCI is the recognized channel of communication between ASEAN governments and the private sector. It has done great service in this regard in the past. The challenges of today should invigorate ASEAN-CCI to carrying out its unique mandate more energetically in the future.
ASEAN itself depends on it.
