«Bangkok, Thailand, 27-28 April 2009 The Southeast Asian region is one of the most dynamic areas in the world; it is also one of the most diverse. ...»
THE 2ND OECD-SOUTHEAST ASIA REGIONAL FORUM
“ENHANCING COMPETITIVENESS THROUGH REGIONAL INTEGRATION”
Bangkok, Thailand, 27-28 April 2009
The Southeast Asian region is one of the most dynamic areas in the world; it is also one of the most
diverse. This diversity is manifest in numerous ways, including levels of economic development, economic
regimes and income levels. The region has experienced remarkable economic dynamism and it is actively engaged on an ambitious path of regional integration. Before the recent downturn, economic growth was robust and trade and investment flows soared as a result of increasing international division of labour.
However, in the current climate, there is a real need for faster regional economic integration to cushion the impact of the global economic downturn.
Southeast Asia is a region of strategic importance to the OECD. Following a Ministerial mandate in 2007 to strengthen relations with the region, the Organisation is pursuing a dual track approach combining regional initiatives with country specific work, in close co-operation with regional organisations including the ASEAN and the Asian Development Bank. The OECD held the 2nd OECD-Southeast Asia Regional Forum to help achieve this goal.1 OECD co-hosted the Forum with the Royal Thai Government and in cooperation with the ASEAN Secretariat. The Forum was opened by the Thai Vice Minister of Foreign Affairs Panit Vikitsreth, the ASEAN Secretary-General Surin Pitsuwan, and OECD Deputy SecretaryGeneral Mari Amano.
The theme of the Forum was ―Enhancing Competitiveness through Regional Integration‖. Session I addressed economic prospects and challenges for regional integration, with a discussion of the OECD’s Southeast Asia Economic Outlook and a special focus on the ASEAN Economic Community. Session II discussed the impact of the global crisis on SME and entrepreneurship financing in Southeast Asian countries. Session III dealt with creating an attractive investment climate in the region using the Policy Framework for Investment. The session also addressed investment promotion agencies and international investment agreements. Session IV examined competition law and policy with a focus on the role of competition policy in structural reform and the OECD Competition Assessment Toolkit. A final session looked at future co-operation between the OECD and ASEAN.
The Forum provided an important opportunity to discuss and share views on economic and social aspects of regional integration and co-operation in Southeast Asia. Over 120 participants attended the meeting, representing 8 of the 10 ASEAN countries, 14 OECD countries and the EC, the business and trade union associations, academia and international and regional organisations, ASEAN, APEC, ADB, UNESCAP, UNCTAD, UNDP. It also served as a platform for launching a new phase of strengthened co-operation based on mutual interest between SoutheastAsia and the OECD. At the Forum ASEAN SecretaryGeneral Surin Pitsuwan and OECD Deputy Secretary-General Mari Amano agreed to launch the Southeast Asian Economic Outlook as a joint collaborative product.
In January 2007, the OECD organised the 1st OECD-Southeast Asia Regional Forum on the ―Peer Review Mechanism for Policy Reform‖. The Forum was hosted by the Government of Indonesia in co-operation with the ASEAN Secretariat and the Asian Development Bank. The purpose of the meeting was to discuss OECD experiences with the peer review mechanism and to share lessons learned from multilateral and regional experiences in the region. This high-level meeting brought together policy makers and other stakeholders from OECD member countries and several Southeast Asian countries. The Forum also benefitted from contributions from ASEAN, ADB and APEC.
Session 1: Macroeconomic Perspectives and Challenges for Regional Integration The first session addressed i) recent macroeconomic prospects including the impact of the recent global financial crisis on the region and ii) challenges for regional integration, with a discussion of the Southeast Asia Economic Outlook to be launched in 2010.
This session was chaired by Ambassador Argimon-Pistre, Permanent Representative of the European Commission to the OECD. The ASEAN Secretariat, Thailand (NESDB and the Securities and Exchange Commission), Indonesia (Co-ordinating Ministry) and the OECD Development Centre contributed keynote speeches and the representatives from the European Commission and the ADB provided useful comments based on their experiences.
Macroeconomic perspectives of the region
Southeast Asian economies are closely integrated with the global economy and have been severely affected by the current global financial crisis. Macroeconomic perspectives in the region include a large degree of uncertainty as many economies are dependent on exports of large markets such as the US and Japan. In general, economic growth in 2009 is still expected to be weak.
Compared with the Asian Crisis in 1997-98, both Thailand and Indonesia have become more resilient to external financial shocks this time. Southeast Asian governments reacted swiftly through fiscal and other relevant measures. The Thai representative emphasised the importance of successive fiscal stimulus packages. In Indonesia, the main elements of the response include: strengthening infrastructure networks, providing stronger protection of the poor and vulnerable, tax incentives and encouraging entrepreneurship and SMEs development.
Challenges for regional integration
Some participants expressed concerns that the current crisis might weaken or slowdown the regional integration process. However, most agreed that ASEAN regional integration will continue and should even be strengthened and accelerated. It was noted that regional integration can provide cushions against the current global crisis and increase the resilience of the economies including through stronger intra-regional trade. Enhancing regional integration is the right response to the crisis.
The framework for this is in place: the ASEAN Charter has been ratified and the Blueprint for the ASEAN Economic Community has been adopted. In the current global context, it was suggested that it is critical for ASEAN to improve its monitoring tools, if it is to achieve the ASEAN Economic Community according to schedule. The role of the ASEAN Secretariat should be strengthened.
With the increase of cross border financial transactions, strengthening ASEAN capital markets integration is increasingly important. The representative of the ASEAN Capital Markets Forum (ACMF) explained an implementation plan which has several concrete strategic components that were broadly supported. ADB’s role to foster capital market integration was also recognised as important.
The Southeast Asian Economic Outlook was welcomed in response to the need for sustaining regional growth dynamics and monitoring the integration process. Focusing on the ASEAN 10 countries with a combination of both regional initiatives and country-specific activities, the Outlook will help identify potential risks and challenges ahead in the region and monitor the progress towards an ASEAN single market and the effect of integration on growth and stability. This Outlook also intends to encourage regional policy dialogue and peer learning.
The way forward: possible next steps/actions OECD expertise in governance and reform offers great potential for co-operation in the present context of crisis for ASEAN countries, particularly with a view to completion of the ASEAN Economic Community.
It is critical to ensure a more timely and effective sharing of information among Southeast Asian countries in order to identify economic challenges in the region: appropriate monitoring/risk management mechanisms/tools should be further developed. Sharing of experiences between the OECD and ASEAN including with the Economic Research Institute for ASEAN and East Asia (ERIA), both on policy issues and on the most appropriate monitoring mechanisms is important.
The launch of the Southeast Asian Economic Outlook will provide opportunities for organizing several roundtable meetings in the region in 2009-2010 to encourage policy dialogue and peer learning. The co-operation between OECD and Southeast Asia can also be strengthened through country- specific activities on selected issues of mutual interest.
The development of more dynamic and attractive capital markets in the region was also seen as a potentially fruitful area of co-operation.
************* Session II: Financing SMEs and the Global Crisis The second session of the Forum addressed the impact of the global crisis on SME and entrepreneurship financing in Southeast Asian countries. It also examined policy responses which can soften the impact of this crisis and lay the foundations for a stronger global economy.
This session was chaired by Mrs. Salinee Wangtal, Senior Director, Bank of Thailand. Thailand (the business sector), the Philippines (Department of Trade and Industry), and the OECD Centre for Entrepreneurship, SMEs and Local Development (CFE) contributed keynote speeches. Representatives from Thailand (National Economic and Social Development Board) and Malaysia (Economic Planning Unit of the Prime Minister) provided useful comments.
The session was enriched by the findings of the recent Turin Round Table on the same theme held in Italy on 26-27 March 2009 under the auspices of the OECD Working Party on SMEs and Entrepreneurship (WPSMEE) and hosted by Intesa Sanpaolo Bank.
SME perspectives in the region SME and entrepreneurship issues and policies are of great relevance for ASEAN integration. Indeed it is important to recall that they account for 95-99.9 % of all enterprises in any economy, OECD or ASEAN, 40-60 % of GDP, 70 % of employment and, 25-35 % of exports.
Because of this economic importance and their contribution to social cohesion and local development, regional entities such as the European Union (EU) have found it necessary to enact common measures in terms of directives and programmes for the promotion of SMEs and entrepreneurship. Last year, in order to further level the playing field for SMEs, the EU adopted the European Small Business Act.
In working toward integration, ASEAN countries know that greater openness will put pressure on their SMEs. ASEAN countries may find useful the OECD experiences on how SMEs can benefit from trade liberalization (i.e. internationalization) as well as how OECD countries are currently assisting their SMEs to survive the current global crisis. In terms of policy responses to the global financial crisis, it appears that the SME agencies in the ASEAN region became involved at a very late stage in the management of the crisis.
Similarities and differences in financing SMEs between OECD and ASEAN countries
Difference: ASEAN banks are well capitalized as they have capital adequacy ratios between 15 and 18 %; most large banks in OECD countries are rebuilding their balance sheets.
Difference: ASEAN banks are making profits of over 15 % which is very helpful in times such as these; 35 % of their loan portfolio goes to SMEs and some would like to raise this to 50 %. Banks in OECD countries are not enjoying such rates of profit and there is little data available on the composition of their loan portfolios.
Similarity: banks in both OECD and ASEAN countries therefore are overly cautious and hence are not lending to SMEs, or have tightened their credit terms in regard to interest rates, collateral requirements, and duration of loans.
Similarity: the most common government response to end the stagnation in bank lending has been to increase their loan guarantee programmes.
Similarity: banks in OECD countries are not taking up the guarantees as hoped, even though their risk is reduced to very low levels; governments have responded by creating credit mediators and codes of conduct, as well as undertaking monthly/quarterly monitoring of bank lending to SMEs.
In ASEAN countries, the loan guarantee programmes are more limited than in OECD countries and banks also have been slow to participate in the loan guarantee schemes. Two reasons were given by bank and
Banks must implement the programme through a large network of local branches which takes time Banks say they have an ―appetite for lending‖ but cannot find good, creditworthy SMEs. So commercial banks have stopped lending to SMEs while state SME banks face a huge amount of non-performing loans (40 %)
Challenges for regional integration
The discussion in Session II highlighted the lack of interface between the banks and SMEs. In the words of the Chair, a director from the Band of Thailand, ―Banks look at credit risk; SMEs look for money. There is no bridge between them‖. Also while ASEAN banks are healthy, ASEAN SMEs are not as robust. Given the diversity among SMEs in terms of their size and sectors, some of them may be more vulnerable to pressures of globalization and integration. However, given the lack of timely and reliable SME data and indicators, it is difficult to assess their situation, formulate policies on a regional basis and evaluate them.
The way forward: possible next steps/actions
ASEAN countries may wish to consider the following:
Create or strengthen the channels for tri-partite consultations among SMEs-Banks-Governments.
For instance the chambers of commerce, business associations or councils could be the vehicles for this consultation.
Consider using “credit mediators” to ensure that banks which have been assisted by governments during this global crisis respond effectively to the requests from SMEs and entrepreneurs for finance. There is evidence that this mechanism is bearing positive results in OECD countries.
Create partnerships between banks and business service providers to assist banks in identifying credit worthy SMEs—as recommended by The OECD Brasilia Action Statement for SME and Entrepreneurship Financing. This recommendation was highlighted during the discussions of the recent Turin Round Table.
Consider setting up “credit bureaus” that can provide information to reduce the risks of bank lending to SMEs as some ASEAN countries have already done.