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Staying in step with Asean
The financial sector plays an integral role in the well-being of any economy. In fact, it is often regarded as the lifeblood of the economy, as a smoothly functioning financial system is a necessary prerequisite for economic health and growth.
When the financial system is healthy, it allows for efficient allocation of credit to businesses and households, which creates an environment conducive for investment and growth to prosper. But if this vital blood supply is infected, it could instead lead to several malfunctions of the body and serious adverse consequences.
A smoothly functioning regional financial sector is important for the future of Asean. As Thailand is chairing the 10-country group this year, this article seeks to highlight the three key deliverables relating to the financial sector that will be in focus, under the overarching theme of “Advancing Partnership for Sustainability”.
Asean financial integration plays an integral role in achieving the ultimate goal of the Asean Economic Community (AEC), particularly in creating a “highly integrated and cohesive economy”. Regional cooperation in recent years has significantly strengthened financial integration, promoted financial inclusion and ensured financial stability. In this regard, Thailand aims to drive three key deliverables during its chairmanship: connectivity, resilience and sustainability.
Promoting connectivity is necessary to create a “seamless Asean” and “advance partnerships”. Enhanced connectivity will act to support financial integration and allow for financial services to become more interconnected, improving efficiency and convenience for businesses and investors.
One important aspect of connectivity is e-payment. Innovations such as PromptPay and standardised QR codes have made troublesome and expensive transactions a thing of the past. Today, we can make virtually all of our transactions and payments with just the tip of our fingers. Imagine how much simpler our lives would be if this interoperability applied across Asean countries as well?
In this regard, Thailand has already begun to promote cooperation by Thai commercial banks with their regional counterparts to connect real-time retail payment systems to make transactions faster, cheaper and more convenient.
Given the increasingly interconnected and digital environment that we aim to pursue, another key deliverable is resiliency. This is because the aforementioned potential benefits would be in vain without a financial system that is resilient to various shocks. Ensuring that the regional financial system remains stable and safe will not only provide benefits to consumers directly, but will also lead to sustained economic growth.
In this regard, cybersecurity represents a new challenge for policymakers given the rapid increase in frequency, variety and complexity of threats. As such, regional knowledge sharing and capacity building are critical, and Thailand aims to promote such developments during its role as the Asean chair.
Of course, it is necessary to weigh the benefits from a more connected and resilient Asean with the costs. In this regard, an important question we must ask ourselves is how do we ensure that these benefits endure for generations to come.
This brings us to the final key focus that Thailand aims to pursue, which is sustainability. This final deliverable emphasises the practices in the financial sector, including the banking sector and capital markets, that play an important role in capital allocation to the private sector.
This means shifting our focus more towards longer-term sustainability and paying increased attention to Environmental, Social and Governance (ESG) aspects as opposed to shorter-term gains. One way that this can be achieved is through promoting responsible lending and increased green bond issuance, as well as developing reliable indicators for green and social equity to induce more investor participation.
The key to achieving this is to make market participants integrate ESG-related considerations into their business frameworks to increase their social awareness and encourage them to implement policies that are more environmentally friendly.
The financial sector plays an integral role in promoting sustainable and stable real economic growth. Financial integration will be a key component in fostering Asean’s ultimate goal of an integrated and cohesive economy. As such, Thailand will continue to support financial integration for regional success.
Natapat Paruggamanont is a senior economist and Supphakon Damrongkitkanwong is an economist with the international department of the Bank of Thailand.
Source: https://www.bangkokpost.com/business/news/1640044/staying-in-step-with-asean