April 2016

1. Overview

In 2007, ASEAN Member States (AMSs) declared in the “ASEAN Economic Community (AEC) Blueprint 2015” for establishing the AEC that they would aim to build a well-integrated and smoothly functioning regional financial system through free flow of services and freer flow of capital. In working towards regional financial integration, each AMS needs to take into account its national policy objectives and level of economic development in order to avoid any disruptions to the financial and capital markets caused by abrupt capital movements. In line with this thinking, AMSs have promoted regional initiatives such as the liberalization of financial services in insurance, banking and capital market sub-sectors, and the establishment of linkages between stock exchanges in the region.

In the "AEC Blueprint 2025" which was adopted at the ASEAN Summit in November 2015, AMSs set a medium-term vision for regional financial integration towards 2025. As part of this vision, the AMSs outlined three strategic objectives, namely, financial integration, financial inclusion and financial stability, and three cross-cutting areas (capital account liberalization, strengthening payment and settlement systems, and capacity building) to complement the implementation of measures under the AEC Blueprint 2015, which remain unfinished. The "AEC Blueprint 2025" is thus viewed as the standard for narrowing the development gap in the region and taking into account the population that have not been able to fully enjoy the existing financial services.

2. Financial cooperation between Japan and AMSs

Japan has been promoting several regional financial cooperation initiatives with AMSs as well as China and Korea under the ASEAN + 3 Finance Ministers and Central Bank Governors’ process. One of the major initiatives is the Chiang Mai Initiative Multilateralization (CMIM). This arrangement allows for the swapping of local currencies for US dollars in countries that are facing difficulties in foreign currency payments as a means to prevent the regional spread and expansion of a financial crisis. In addition, ASEAN + 3 countries are promoting the Asian Bond Markets Initiative (ABMI) that aims to develop efficient and highly liquid bond markets that would enable a better utilization of regional savings for investments.

The ASEAN + 3 Macroeconomic Research Office (AMRO), which began its operations as a general corporation in Singapore in April 2011 to monitor and analyze the ASEAN + 3 regional economy and support the operation of the CMIM, successfully obtained the status of an international organization when the Agreement Establishing AMRO was entered into force in February 2016. As a result, AMRO is expected to play a greater role in stabilizing the regional economy.

Signing Ceremony for the Agreement Establishing AMRO (October 2014)

In addition, Japan and five of ASEAN countries (Indonesia, Malaysia, the Philippines, Singapore and Thailand) agreed to enhance bilateral financial cooperation in May 2013. Since then, we have continuously carried out discussions by setting up Joint Working Group in order to proceed with various initiatives.

The key outcomes achieved so far through these bilateral discussions include the expansion and renewal of bilateral swap arrangements, the development of cross-border collateral arrangements between monetary authorities, the facilitation of local currency financing for Japanese enterprises, the provision of support for the activities of small and medium enterprises, and the exchange of letters on technical cooperation in the financial sector between financial supervisory authorities.

3. The way forward

AMSs will develop a work plan to determine the details for the steady implementation of each item included in the "AEC Blueprint 2025" at the ASEAN Finance Ministers and Central Bank Governors’ Meeting in April 2016. Japan will continue to cooperate towards developing the financial system in the ASEAN region while taking the work plan and the economic and financial development of respective AMSs into account.