Prasarn Trairatvorakul: Unleash prosperity through regional connectivity
Address by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the
"AEC+3 Summit and Expo", jointly sponsored by Kasikornbank, the International Trade
Promotion Department, the Board of Investment and The Economist magazine, Bangkok,
2 November 2014.
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Chairman Banthoon,
Distinguished Guests,
Ladies and Gentlemen,
1. First of all, I would like to thank Kasikornbank for inviting me to speak here at the
AEC+3 Summit. This event comes at an opportune time in light of the excitement
surrounding the ASEAN Economic Community.
2. As single entities, the countries of ASEAN are characterized by their diverse size
and development. As a unified bloc, however, the picture changes dramatically:
ASEAN is the world's third in terms of population and the world's fifth in terms of
trade and investment flows. Being the world's most diverse economic region is also
a key strength which has hurled ASEAN into an important player in the global supply
chain.
3. Much has been achieved already, yet much more is still within our reaches. But to
reach our potentials, we need to enhance on connectivity, not only within ASEAN
but also with our Plus Three partner countries. It is on this theme of connectivity that
I will focus this evening: I will first provide a snapshot of what has been achieved
under ASEAN financial connectivity. I will then use this as a platform to link with the
Plus Three partners and will conclude with ways to unleash mutual prosperity from
these connectivity initiatives.
Key areas in ASEAN financial connectivity
Ladies and Gentlemen,
4. Integration under the AEC, be it in trade or investment flows, has naturally called for
a robust financial integration framework to support such flows. We central bankers in
ASEAN have begun working on our ASEAN Financial Integration Framework
since 2011, which aims to create a semi-integrated financial market by 2020. Work
on this initiative is driven by various areas that currently define ASEAN financial
connectivity. Let me highlight two prominent ones:
5. The first is our work on banking integration through the establishment of "Qualified
ASEAN Banks" or QABs. While there are ASEAN banks currently operating in
other ASEAN countries, this has been the result of unilateral liberalization. The
increasing trade and investment flows in the region call for a more transparent and
open system. Our ASEAN banking integration will have a multilateral framework as
a broad basis. This will underpin bilateral agreements between home and host
countries as to which banks will become QABs. We have had a long discussion
among central banks of all ten countries on this framework, and I am glad to inform
you that the framework of the QAB is being finalized and bilateral discussions
should start once this is done.
6. The second one is on the linking of ASEAN capital markets: We have linked up
stock markets of Bangkok, Kuala Lumpur and Singapore since 2012, and more
exchanges are joining up. Right now, an investor in Bangkok can buy shares in
listed companies in these two bourses and vice versa. While a front-office platform
has been established, we still need to integrate their back offices to create seamless
trading, clearing, custody and settlement of shares. We are currently developing this
framework under the "ASEAN Capital Market Infrastructure Blueprint", which has
already received approval from our Finance Ministers earlier this year.
ASEAN as a platform to ASEAN+3 connectivity
Ladies and Gentlemen,
7. ASEAN does not see itself as an exclusive club but rather as a platform to increase
ties with our Plus Three partners in the region: China, Japan and Korea, which also
represent important global economic powerhouses. Let me now draw attention to
two key developments in this front.
8. First is the development under the ASEAN+3's Asian Bond Market Initiative or
ABMI. Recently, the ABMI has created a Credit Guarantee and Investment Facility
or CGIF which has supported the issuance of corporate bonds in ASEAN+3 by
providing credit enhancement to allow eligible issuers to access local currency bond
markets. Since its inception in 2010, the CGIF has guaranteed bond issuances
including a recent one that allowed a Singapore-listed and Hong Kong- based firm to
issue Thai baht bonds in the Thai market.
9. Work under ABMI has also focused on establishing the Asian Bond Online to
provide comprehensive information on sovereign and corporate bonds to both
regional and international investors.
10. Second, is on infrastructure financing: We have recently created the ASEAN
Infrastructure Fund or AIF with an initial endowment of almost half a billion dollars
and will be issuing bonds to finance its operations. It has already begun lending with
a $ 25 million loan to finance power links in Indonesia last year and is expected to
carry out about six projects each year throughout 2015 totaling $ 1 billion.
11. The AIF should be complementary to the Asian Infrastructure Investment Bank.
With initial groundwork laid in Beijing two weeks ago, it aims to give project loans for
infrastructure development. Thailand and 20 other countries in the region are
founding members of this bank, which will have an initial capital of $ 100 billion.
Once it begins operations in 2015, we hope to see a new wave of infrastructure
financing that will enhance connectivity in the whole region.
How can we unleash prosperity from regional connectivity?
Ladies and Gentlemen,
12. What I have just highlighted are some examples of region-wide initiatives by ASEAN
governments and central banks along with those of the Plus Three to spur
connectivity. Opportunities are already in store for ASEAN as the world's seventh
largest economy. Combined with the Plus Three countries will turn the whole region
to be the world's largest economy and market. However, trade flows among the
13 countries, only amount to 10% of global trade, hence there's much room for
further growth especially as our countries are increasingly inter-connected.
13. We from the public sector have created financial highways to link up our vibrant
economies and have found ways to finance physical roads and highways. To
recapitulate my message:
• Financial integration within ASEAN is targeted to support the large markets
of goods, services and financial products in the region. Financing economic
activities of ASEAN needs not only strong but also interlinked banks and
financial institutions. Financing opportunities grow significantly when
expanding these linkages to the Plus Three countries. Firms can tap on to
various modes of financing in equities and bond markets to expand their
businesses to match the growing trade and investment flows.
• The other area is on infrastructure development: While the barriers of tariffs
have fallen, trade among us cannot flourish if we are constantly facing
infrastructural bottlenecks. The ADB has estimated that Asia has a demand for
infrastructure to the tune of $ 8 trillion over ten years. This is where the Asian
Infrastructure Fund and the Asian Infrastructure Investment Bank come into
play to address these bottlenecks and open up vast potentials for
development and trade beyond the AEC to Plus Three. Through this, a new
regional logistics-based sector is about to take shape.
14. But, in the end, our region's economic dynamism is essentially driven by the
private sector, and this is why the key to unleashing mutual prosperity is in your
hands.
15. Whether you are a banker, an investor, or an entrepreneur, it is you who will be
using these financial and infrastructure linkages. I would therefore urge you all to tap
onto this tremendous opportunity that is arising by, for example,
• Venturing abroad to invest in new markets in ASEAN;
• Expanding your businesses through our linked capital markets; and
• Taking part in the new regional logistics based sector.
Ladies and gentlemen,
16. I am very pleased to learn that tomorrow you as representatives of 36 banks from
ASEAN+3 countries will be signing the "Bangkok Declaration" to bolster your mutual
cooperation. This demonstrates that the private sector has already taken the cue
from us in the public sector to tap on opportunities in the region. I congratulate you
all in advance and hope that other industries would follow suit.
Thank you very much for your attention.