The integration of ASEAN’s financial sector will enhance economic growth in the Philippines.

The International Monetary Fund (IMF) stated that incorporating financial systems within the Association of Southeast Asian Nations (ASEAN) could potentially increase economic growth in the Philippines by 3.5 percentage points.

According to a working paper released in September 2023 by economists from the IMF Asia and Pacific Department, increasing trade and financial integration among ASEAN-5 countries could potentially strengthen the region’s ability to withstand global challenges.

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“According to the report, Indonesia and the Philippines, which have the least developed financial systems, would see a greater average growth impact of approximately 3.5 percentage points from financial integration.”

The ASEAN-5 region consists of the Philippines, Indonesia, Malaysia, Singapore, and Thailand. Financial integration refers to the process of blending or combining financial systems.fi

The financial markets of regional or global economies are highly interconnected.

Based on the IMF’s assessment, there has been minimal advancement in the region.fi

Financial integration is hindered by regulations and institutional limitations.

The International Monetary Fund stated that the use of digital technology can facilitate the process of regional integration by providing assistance.fi

Small and medium enterprises, including rms, participate in global value chains.

According to the IMF, digitalization can assist countries in improving their value chain by producing more advanced goods.

Nevertheless, the Philippines has the potential to enhance its digital competitiveness in comparison to other countries in the ASEAN region.

According to the IMF, Indonesia and the Philippines have opportunities for enhancement in multiple areas such as IT integration, education and training, skilled workforce, and regulatory framework.

The international financial institution also acknowledged the current efforts to facilitate cross-border payments in the area, where countries are connecting their domestic instant payment systems with those of neighboring nations.

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The IMF stated that there has been increased flow of goods and services across borders and enhanced connectivity within regions.

This includes the tripartite cross-border payment agreement between the Philippines, Malaysia, and Singapore through BancNet, Inc., which have been under discussion for implementation.

In June of 2022, President Fabian S. Dee of BancNet stated that the company is currently investigating methods for enabling cross-border transactions. They are also working together with the Bangko Sentral ng Pilipinas (BSP), the Philippine Payments Management, Inc., and InstaPay Automated Clearing House.

The International Monetary Fund cautioned that ASEAN economies must exercise caution to avoid compromising their financial stability.financial stability, as fi
There are potential risks and obstacles associated with financial integration.

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Financial openness requires solid macroeconomic foundations and stability.ff
Efforts to enhance the resilience of local communities.fi
The statement emphasized the importance of strengthening financial systems by improving information sharing, surveillance, crisis management, and implementing a regional safety net.

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The International Monetary Fund suggested taking a gradual approach to encourage greater regional integration in order to maximize advantages and minimize potential risks.fi

We aim to reduce risks while optimizing efficiency.

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“Striving for increased integration with the ASEAN-5 region could establish a level of strength for nations within the area, providing valuable support in a volatile global economy undergoing a policy-driven shift away from globalization.”fl
The IMF stated that the global economy is at risk due to increased fragmentation in geopolitical and economic factors.

In November of the previous year, the BSP entered into a partnership agreement with other central banks in ASEAN to enhance cooperation in regards to payment connectivity.

A Memorandum of Understanding (MoU) was signed among the Bank of Indonesia, Bank Negara Malaysia, Monetary Authority of Singapore, Bank of Thailand, and the State Bank of Vietnam to enhance cooperation in regional payment connectivity.

The collaboration involves various methods, such as QR codes and rapid payment, for conducting international transactions.

In order to enhance the benefits of incorporating finances, the IMF suggested promoting open trade in the area, enhancing regulatory and institutional standards, and lessening limitations on capital.flows.

At the same time, the International Monetary Fund stated that there is potential for enhancing regional trade integration within the Association of Southeast Asian Nations (ASEAN).   

“Non-tariffff measures

The Non-Tariff measures should be aligned with the goal of reducing barriers.fffi

The statement called for increased caution and stricter enforcement of simplifying and unifying trade-related rules and regulations.

According to the statement, enhancing international trade agreements, removing obstacles other than tariffs, reinforcing global supply networks, and promoting digitalization for easier cross-border online commerce are some strategies to enhance regional trade integration.

The authors of the IMF working paper are Nuri Baek, Kaustubh Chahande, Kodjovi M. Eklou, Tidiane Kinda, Vatsal Nahata, Umang Rawat, and Ara Stepanyan. – Keisha B. Ta-asan