ASEAN Beyond the Crisis: Prospects and Challenges of Recovery Aladdin D. Rillo Head, Finance Integration Division The ASEAN Secretariat Regional Conference on Impact of the Global Economic and Financial Crisis to the Vulnerable Sectors in the Region July 2009 Jakarta, Indonesia

The ASEAN Secretariat ASEAN has not decoupled from the global financial crisis, with impact on real economy more severe than expected … Real GDP Growth (% change) Source: ASEC database Contribution to Growth: ASEAN5 (In percent, per year)

The ASEAN Secretariat … with decline in economic growth now more evident in 1 st Quarter 2009 Real GDP Growth: ASEAN-5 and Viet Nam (year-to-date; % change) Export and Import Growth: ASEAN-5 and Viet Nam (year-to-date; % change)

The ASEAN Secretariat … as asset prices and currencies have fallen sharply Currencies * (year-to-date, % change) Stock Price Indexes* (year-to-date, % change) *Latest closing as of 30 September 2008 Source: Bloomberg * Latest closing as of 31 December 2008, based on US$ value of local currency (quarterly average ). Negative values indicate depreciation of local currency Source: Bloomberg

The ASEAN Secretariat … and liquidity and financing conditions have come under pressure JP Morgan EMBI Sovereign Stripped Spreads ( basis points) External Balances: ASEAN-5 (Percent to GDP) Source: ASEC database Source: ADB Economic Monitor (December 2008)

The ASEAN Secretariat Amid the crisis, ASEAN has remained resilient so far but will continue to be tested this year  Countries in the region have responded with individual stabilization measures, comprising of monetary easing measures … measures … ASEAN Policy Rates (In percent)

The ASEAN Secretariat  … and well-targeted fiscal stimulus programs Fiscal Stimulus Packages in ASEAN (% to GDP; US$ billions)

The ASEAN Secretariat  Regional measures have so far been encouraging, but more coordinated responses are still needed Chiang Mai Initiative Multilaterization (CMIM) - US$120 billion swap facility as liquidity support - Supplementary to international financing arrangements Asian Bond Markets Initiative (ABMI) - focuses on local-currency denominated bond markets - increases the region’s resilience to external shocks

How can ASEAN contribute to global economic recovery? The ASEAN Secretariat  Rebalance growth away from external demand toward domestic demand - ASEAN needs to adjust by restructuring production away from exports to domestic markets - need to implement vigorous measures that promote domestically sourced growth - need to implement vigorous measures that promote domestically sourced growth - increase reliance on private investment as key source of growth - increase reliance on private investment as key source of growth

 Stabilize financial systems and promote financial market development - strengthen risk assessment, management and surveillance of financial systems - develop local currency bond markets by mobilizing regional savings (e.g., Asian Bond Markets Initiative) - develop local currency bond markets by mobilizing regional savings (e.g., Asian Bond Markets Initiative) - develop and integrate capital markets, including the need to strengthen supervisory and regulatory frameworks The ASEAN Secretariat

 Strengthen and deepen regional cooperation Trade Liberalization Trade Liberalization - maintain open trade and FDI regimes - rotation of demand away from exports to advanced markets in favour of regional sources (e.g., intra-regional trade) - promote existing integration initiatives (e.g., ASEAN Economic Community 2015) and free trade areas The ASEAN Secretariat

Financial Integration Financial Integration - information exchange to facilitate collective assessment of economic conditions, risks and vulnerabilities - strengthen financial and liquidity support by exploring other regional financing arrangements other regional financing arrangements Exchange rate coordination Exchange rate coordination - avoid “beggar-thy-neighbour” policies - movement toward greater exchange rate flexibility - movement toward greater exchange rate flexibility - The ASEAN Secretariat

 Participate in credible reforms of global and regional financial architecture - need to increase Asia’s participation and voice in international forums like G-20, IMF, WTO and BIS/FSF - need for reforms in key areas such as regulation and supervision; early warning systems; regulatory cooperation and coordination; and crisis management - need for reforms in key areas such as regulation and supervision; early warning systems; regulatory cooperation and coordination; and crisis management - need to act promptly and collectively to respond to changing financial and economic conditions The ASEAN Secretariat

- Key challenge: rejuvenate economic growth without derailing development strategies - Need to look beyond and not to lose sight of social impact of the crisis to vulnerable groups - Economic recovery must be accompanied by social development and social cohesion - But more coordinated responses are needed to facilitate recovery Final thoughts: crisis and challenges of development - Key challenge: rejuvenate economic growth without derailing development strategies - Need to look beyond and not to lose sight of social impact of the crisis to vulnerable groups - Economic recovery must be accompanied by social development and social cohesion - But more coordinated responses are needed to facilitate recovery The ASEAN Secretariat

Thank You!