Speech by SMS Josephine Teo at the OCBC Global Treasury Economic & Business Forum, 14 July 2016

           Thank you, Sam. It is a pleasure to be here. Friends and colleagues, thanks for inviting me to join you for the OCBC Global Treasury Economic and Business Forum 2016.

        Singapore has just hosted the fifth edition of the World Cities Summit.  The inaugural summit took place in June 2008.  That inaugural summit brought together 800 senior delegates – government ministers, city mayors, civil society leaders, captains of industry to share perspectives on public governance and sustainable development of cities.  The 2016 edition saw over a thousand delegates from 63 countries, also with very diverse participation. Besides the World Cities Summit, the annual calendar of events in Singapore is now dotted with conferences of varying scale and focus.  Earlier this year, we had the Singapore Airshow and Aviation Leadership Summit; that was followed by the Singapore Maritime Week. More recently, there was the Shangri-La Dialogue.  And next week, the FutureChina Global Forum.

        Leading corporations like OCBC too host such events in Singapore.  That is the key advantage of being in a city that is globally plugged in, that seeks out many points of connections with the world.  It is also because many events are happening simultaneously, and key decision-makers such as yourselves hope to have a better grasp of the complexities, so your organisations are not caught on the backfoot, and you have a chance to stay ahead of the curve.

        For my presentation today, I shall speak about ASEAN, and what ASEAN has tried to do to stay ahead of the curve. I know you have a discussion on ASEAN later in the day, I hope that what I am going to tell you will be helpful as you make sense of all that is going on around us, in our region especially.  

Evolution of ASEAN

        Some of you may have read Mr Lee Kuan Yew’s memoirs. In his second memoir “From third world to first”, Mr Lee had a chapter on ASEAN and he had described ASEAN’s “unpromising start” in August 1967.  As Mr Lee noted, it took a full 10 years before the grouping developed cohesion and direction in its activities. But the cohesion is challenged from time to time, as we continue to witness.  This is to be expected, as we are each a sovereign state with our own national interests.  But I think we should remember that the formation of ASEAN itself was anticipatory in nature. It was an attempt to forestall divisions in the region way back in 1967, and prevent the chance downward spiral into chaos for the region. That was the beginnings of ASEAN.

        From 1978 to 1991, ASEAN’s solidarity was put to the test by Vietnam’s occupation of Cambodia.  Neither were ASEAN Member States at the time. Complicated by the threat of communism in North Vietnam, China and the Soviet Union. The Soviet Union existed then. But eventually, the threat was overcome.  Vietnam became a member of ASEAN in 1995 and Cambodia in 1999.   

        It was only in 1992, nearly a quarter century since the inception of ASEAN, that then Prime Minister of Thailand Anand Panyarachun mooted the idea of an Asean Free Trade Area.  Against the backdrop of peaceful and stable conditions since the threat of communism was overcome, when ASEAN was able to focus on a more positive agenda, that economic cooperation took off and our peoples have benefitted greatly from it.  For example, between 1988 and 1996, the average real GDP growth of the five founding members which are - Indonesia, Malaysia, the Philippines, Singapore and Thailand - grew between 6.5% - 9.2%, among the highest in the world in any region at that time. 

        Over the years, working together has helped the ASEAN Member States to further anchor the region’s peace and stability.  This in turn, created the conditions for the ASEAN region to become one of the most economically dynamic regions of the world.  As our trading and investment links intensified, each ASEAN Member State also saw the benefits of economic integration for our businesses and our peoples. And so, despite the occasional ups and downs, integration within ASEAN is happening slowly but surely. 

        In particular, economic cooperation will continue to broaden and deepen.  Through the ASEAN Economic Community, member states have laid out a framework and roadmap to combine the factors of production, in order to leverage on our different advantages and strengths.  Conceptually, it means that factories can be concentrated in one place, whereas fund-raising and capital needs can be done in another place, and advisory and business services in yet another.  For instance, given Singapore’s well-developed infrastructure and institutions for financial services, we can serve as a launch pad for foreign capital seeking out regional opportunities.  Singapore, as well as regional businesses and investors will benefit from these opportunities.  Far from being a zero-sum game among the ASEAN Member States, integration creates win-win opportunities for the entire region by making us collectively more competitive vis-à-vis other continental sized economies.

Developments in financial services

      One area that shows promise is financial services.  In banking, for example, under the ASEAN Banking Integration Framework, ASEAN Member States can enter into bilateral agreements to liberalise their markets.  This will allow qualified ASEAN banks to enjoy greater market access and operational flexibility, and be in a position to better serve their customers across borders. In insurance, eight ASEAN members have agreed to fully liberalize the cross-border supply of Marine, Aviation and Goods in International Transit (MAT) insurance, which will help to lower the cost of insuring cross-border business risks and spur intra-ASEAN trade.  In capital markets, there is ongoing work to harmonise prospectus requirements for companies to raise cross-border equity and debt capital issuances through the ASEAN Disclosure Standards. Another initiative is the ASEAN Collective Investment Schemes (CIS) Framework, which will facilitate the cross-border offering of funds to retail investors under a streamlined authorisation process.  As these two initiatives are more widely adopted in ASEAN, capital markets will work more efficiently for businesses and investors.

      In payment systems, ASEAN member states will adopt a common international standard for their respective domestic retail payment systems, to allow for the interoperability of different applications and systems.  This will set the stage for member states to build cross-border linkages as part of the regional payments integration.  These cross-border linkages will allow ASEAN retailers and consumers to make cheaper and faster payment transactions while promoting financial inclusion by offering access to a more efficient remittance channel.  To be sure, these are modest first steps which may disappoint those who prefer more spectacular moves.  But better that we make progress in a consistent direction, than to have to back-track every now and then.

Deepening economic linkages with the world

      As ASEAN is now the 7^th largest economy in the world, with 650 million people, and an estimated economy of the size of 2.4 trillion US dollars, our partners are keen to deepen links.  For example, China has set up the Asia Infrastructure Investment Bank (AIIB) and invested more than 100 billion US dollars in the bank. ASEAN also forms the “Road” in China’s “Belt and Road” initiative, and China had earlier invested about 40 billion US dollars into the Maritime Silk Road Fund, which aims to improve connectivity in East Asia.  Japan has a Partnership for Quality Infrastructure project and pledged 200 billion US dollars for infrastructure development in the region. 

      Trade wise, ASEAN and our six partners with whom we have FTAs, are also negotiating a 16-party Free Trade Agreement, which is known as the Regional Comprehensive Economic Partnership (RCEP).  RCEP’s membership comprises 45% of the world’s population and accounts for about one-third of global GDP.  When concluded, it may potentially be the largest trading bloc in the world.  Four ASEAN Member States, including Singapore, are also members of the Trans Pacific Partnership (TPP), which is estimated to account for about 40 per cent of global GDP and about one-third of world trade.  The door is open for other ASEAN countries who share the vision and ambition of the TPP to join in the future.  The TPP and RCEP are envisioned as pathways to an eventual Free Trade Agreement of the Asia Pacific (FTAAP).

      Beyond trade, ASEAN has also broadened its links with other regions. For example, in air connectivity. We have for example the ASEAN-China Air Transport Agreement (AC-ATA),  as well as the EU-ASEAN Comprehensive Air-Transport Agreement that is about to be negotiated.  These initiatives are examples of attempts by ASEAN to stay ahead of the curve. They augur well for the longer-term prospects of ASEAN and its member states.

Why Singapore should remain on your radar screen

      Turning now to more domestic interests, and why Singapore should remain on your radar screen.  Singapore as a member of a dynamic ASEAN can be a gateway to the growing opportunities in the region.  There are three areas of particular interest in financial services that I would like to suggest to this community:

(i)                The first is in infrastructure financing. The Monetary Authority of Singapore (MAS) is actively consulting the industry on establishing an infrastructure debt takeout facility to improve institutional investors’ access to infrastructure debt investment opportunities. There are also ongoing efforts to encourage greater investment allocation into infrastructure, and enhance project bankability in the region.

(ii)             The second area is the RMB ecosystem. Singapore has developed a vibrant offshore RMB market which is the second largest after Hong Kong.  This has facilitated the region’s use of the RMB as a trading and settlement currency, supporting the expanding China-ASEAN trade.  In addition, there are new channels established to allow Chinese corporates in Chongqing, Suzhou and Tianjin which are the three flagship government-to-government projects between Singapore and China - to obtain financing in Singapore and fully repatriate the funds for onshore use.  Singapore also has a quota of a 100 billion RMB to invest onshore under the Qualified Foreign Institutional Investor (RQFII) scheme. Be part of the RMB ecosystem.

(iii)           The third part is an exciting new area that no one knows exactly how it will pan out. That is in the area of FinTech. We are cultivating a FinTech ecosystem through the Singapore FinTech Festival, the FinTech Office, the MAS Lab, and the FinTech Innovation Village. These are initiatives by the MAS. Besides introducing Regulatory Sandbox Guidelines, the government is also partnering the industry on (1) supportive infrastructure such as cloud computing, blockchain and application programme interface; as well as (2) strategic payment projects like the central addressing system for FAST payments, unified point-of-sale terminals, and the electronic direct debit system.

A promising future

      In conclusion, there is a lot happening in ASEAN and Singapore.  Mr Lee Kuan Yew had said ASEAN’s start was unpromising.  But actually in his title for the chapter, he also said it had a promising future.  That has been true for nearly half a century and remains so today.  So I urge you to watch this space and get more deeply invested.  Thank you very much.

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