On October 25 the Asian Development Bank (ADB) released a report on Asian Economic Integration and commented on the lessons learned after the Asian financial crisis 20 years ago.
It stated that growing trade and investment linkages in Asia and the Pacific have helped to improve the region’s economic resilience to uncertainties in the global economic environment. Asia’s intraregional trade rose in 2016 and acted as a buffer against headwinds from uncertainties in global trade and policy. Subregional trade integration was strongest in East Asia, followed by Southeast Asia and Central Asia.
Amid a decline in global foreign direct inflows to Asia, intraregional investment flows continued to rise, increasing as a share in total FDI to 55 percent in 2016 from 48 percent in 2015. In fact, Asian economies have continued expanding their global presence with FDI originating from Asia rising through investment in renewable energy, natural resources, semiconductors and information technology. The report stated that Asia and the Pacific is leading a recovery in world trade that will help the region to maintain strong growth momentum.
This, indeed, is good news when juxtaposed against the Asian financial crisis 20 years ago. It was a major turning point for many in the region’s economies. The crisis exposed structural weaknesses and policy distortions along with poorly planned financial liberalization, thus prompting a wave of major economic and financial-policy reforms. These reforms laid the foundations for periods of sustained high growth, and today Asia has a stronger economic outlook.
Most of the crisis-affected countries then have greatly reduced their dependence on external financing and strengthened their overall financial stability with sound macroeconomic fundamentals and policies, flexible exchange rates, adequate international reserves and strong regional cooperation. This has been the experience of the Philippines, which has bounced away from being an international debtor and actually becoming a lender to the International Monetary Fund.
Although briefly disrupted by the 2008-2009 global (or should I say developed Western) crisis, improvements in macroeconomic management and financial regulatory frameworks have remarkably fostered the region’s growth and stability.
Three key lessons drawn from the Asia’s crisis experience were pointed out by the ADB: (1) maintaining sound macroeconomic fundamentals is a prerequisite for economic and financial resilience; (2) deepening and broadening financial systems is essential to boost both financial efficiency and resiliency; and (3) greater regional cooperation efforts are needed to reinforce regional financial safety nets for financial resilience.
The report also offered and expanded the foregoing recommendations so as to strengthen responses to future crisis, which include: (1) strengthening national regulatory and supervisory frameworks and institutional capacities; (2) further development of local currency bond markets; (3) strengthening regional regulatory cooperation, including resolution mechanisms for interconnected regional banks; and (4) reviewing and strengthening existing financial safety nets against potential contagion and spillover effects.
For the Philippines, the Bangko Sentral ng Pilipinas governor highlighted in a recent speech the bank’s interest-rate policy as supporting the development of the capital market by promoting money-market transactions and active liquidity management among banks. The financial sector has shown stability and sustained growth. Carefully calibrated and well communicated monetary policy has anchored market expectations, enabling the maintenance of price stability, while providing support to economic expansion.
This robust ability of the Philippine banking system to provide credit support to the economy is the result of a long and systematic reform process, boldly implemented since the Asian financial crisis. These reforms included asset cleanup, industry consolidation, continuing enhancement of corporate governance and risk management standards, and strengthening of compliance and enforcement networks.
Today, the BSP continues to pursue prudential reforms that promote financial stability and enhance guidelines, raising the bar on corporate governance, and emphasizing the role of the board of directors and shared responsibility of all officers and personnel. These reforms will ensure that the Philippines remains a promising investment destination.
Southeast Asia, as mentioned in the ADB Report, is one of the most economically dynamic and fastest-growing regions in the world. In the Philippines economic growth is expected to be sustained and is dedicated to outpacing regional growth, which is already faster than global economic growth.