The Philippines is set to benefit significantly from financial integration within the Association of Southeast Asian Nations (ASEAN), according to a recent working paper from the International Monetary Fund (IMF). The report, titled “ASEAN-5: Further Harnessing the Benefits of Regional Integration Amid Fragmentation Risks,” suggests that countries with lower levels of financial development, such as the Philippines and Indonesia, stand to gain more from this integration.
The IMF estimates an average growth impact of about 3.5 percentage points for these countries. They also have room for improvement in various areas, including information technology integration, training and education, talent development, and regulatory framework enhancement.
In contrast, Thailand and Malaysia, which have smaller financial development gaps compared to Singapore, are projected to see lower but still noteworthy gains, at an average of about 1.2 percent additional growth. The study indicates that growth benefits from financial integration in the ASEAN-5 region—comprising Indonesia, Malaysia, the Philippines, Thailand, and Singapore—are substantial and will vary across countries and sectors.
The IMF's analysis also emphasized the role of capital account liberalization in shaping the gains from financial integration. This factor is particularly prominent in countries with relatively high degrees of restriction in capital flows, such as the Philippines, Thailand, and Malaysia.
In line with this regional integration effort, the Philippines has entered into tripartite cross-border agreements with Malaysia and Singapore through BancNet, a Manila-based interbank network operator that links ATM networks of local and offshore banks.
Despite these prospective gains, the IMF paper highlighted several challenges that could hinder global and regional integration. These include the vulnerabilities exposed by the COVID-19 pandemic and associated protectionism measures as well as recent geopolitical tensions since Russia's invasion of Ukraine.
The IMF noted that ASEAN-5 economies are highly susceptible to global economic fragmentation, particularly through trade-related channels. Supply chain disruptions could negatively impact sectors of their economies that are deeply integrated into global value chains, such as electronics.
Despite these challenges, the IMF highlighted the potential for further strengthening regional trade integration, especially with the recent ratification of the Regional Comprehensive Economic Partnership. The paper also emphasized that efforts toward more financial openness should be preceded by strong macroeconomic fundamentals and measures to fortify domestic financial systems. This could include enhanced information sharing, surveillance and crisis management, and a regional safety net to contain risks to financial stability.
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