Local Business and the ASEAN Integration

Posted on Posted in 2014-2015
By Jake Cureg

In the year 2000, the heads of state of the Association of Southeast Asian Nations (ASEAN) formally launched the Initiative for ASEAN Integration (IAI) with the goal of providing support to ASEAN’s newer and lesser-developed member states, namely Cambodia, Laos, Myanmar, and Vietnam. The initiative aims to narrow the development gap between them and the more developed ASEAN nations and thus accelerate the process of regional integration.

The advent of regional integration brings with it an integrated economic environment. The ASEAN Economic Community (AEC), according to its blueprint adopted in 2007, envisages the future of ASEAN as having a single market and production base, equitable economic development, and full integration into the global economy. It will become a highly competitive economic region. In short, the establishment of the AEC will free up the movement of goods and capital and bring the economies of Southeast Asia closer to its Western counterparts.

As well and good as it may seem, the IAI has its fair share of critics, many of whom doubt its effectiveness. In a feature with the Philippine Star, BDO Unibank President Nestor Tan says that the integration would be more of a threat to local firms, insisting that local businesses are simply not yet ready for integration. It is a view shared as well by PLDT chairman Manuel Pangilinan, who in an interview with local news channel TV5, mentions that while the objectives are laudable, the country should be aware of the impact on jobs, income, and food security, with particular emphasis on the agricultural sector.

Credit rating agency Standard and Poor’s are also wary of the effects the IAI will have on local banks. In a recent report entitled Philippines’ Banking System: The Good, The Bad and The Ambivalent, the agency concludes that “while local banks have sufficient capitalization and ample liquidity, structural weaknesses continue, particularly a shallow revenue bench and a family-owned structure that has defied regulatory attempts to address overcrowding.” Furthermore, while banks in other ASEAN countries, such as DBS and Maybank, have positioned and prepared themselves for integration, local banks would be hard-pressed to retain domestic market dominance.

The Philippine government meanwhile remains on a positive note, touting that the integration will bring benefits that will slingshot the domestic economy to greater heights. The Department of Trade and Industry undersecretary, Adrian Cristobal Jr., states in an interview with the Philippine Star that the IAI “would mean vast opportunities for intra-ASEAN investments, dynamic competition, as well as complementation.” As of now, both arguments remain speculations; however, with 2015 coming ever closer, it won’t be long before we can see which side turns out right.

Sources:
http://www.asean.org/communities/asean-economic-community/category/overview-ndg-iai-iai-work-plan-iai-task-force-idcf#

http://www.asean.org/communities/asean-economic-community

http://www.asean.org/archive/5187-10.pdf

http://www.philstar.com/headlines/2014/04/24/1315836/news-analysis-asean-economic-integration-2015-draws-conflicting-views

http://www.interaksyon.com/business/90952/mvp-worried-for-ph-on-asean-economic-integration

http://www.interaksyon.com/business/85152/are-ph-banks-ready-for-asean-sp-shows-the-good-the-bad-and-the-ambivalent

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