Keynote Address Session The 8 th ASEAN Finance Ministers Investor Seminar Jakarta, 8 November 2011 Keynote Address Growth and Resiliency: The ASEAN Story H. E. Agus Martowardojo Minister of Finance of the Republic of Indonesia Assalaamu alaikum Warahmatullahi Wabarakatuh, H. E. Fellow Ministers, H. E. Secretary General of ASEAN, H. E. Ambassadors of ASEAN Member States Distinguished Investors and Guests, Ladies and Gentlemen, Let me begin by extending my warmest welcome to all of you. As the host of the Asian Finance Ministers Investor Seminar (AFMIS) in 2011, I am honored and pleased to deliver this keynote address. Prior to commencing my remarks, I would like to take this opportunity to convey my deepest and heartfelt sympathy to all in the region that have faced adversity from natural disasters in the recent past and at present. To the people of Thailand allow me to convey our heartfelt condolences and deepest sympathy to those affected by the ongoing flood disaster. I am heartened by 1
the tireless efforts of the Thai Government and its people who have been working hand-in-hand to mitigate the impact of the floods. I am sure that, through their remarkable resilience, Thailand and its people will rebuild and recover. Let me express my sympathies also for the peoples in Cambodia, Lao PDR, the Philippines, and Vietnam who have also experienced damaging floods. Distinguished guests, ladies and gentleman, As many of you are aware, AFMIS started in 2004 and is an annual event providing an opportunity to showcase the economic and social developments of ASEAN. But this is not the same as any investment forum; what makes AFMIS special is the opportunity for ASEAN Finance Ministers and investors to come together. As Ministers, we are of course eager to hear of your plans to invest in the ASEAN region; but we are policy makers and so we are here to exchange views on the actions that we can take that will make ASEAN an even more attractive investment destination. The theme of AFMIS for this year is Growth and Resiliency: The ASEAN Story. This theme is timely from several perspectives. The global environment has become more challenging over recent months and the outlook is uncertain in many respects. Yet, the ASEAN region has proven resilient throughout this period and its prospects remain strong. The global environment offers challenges and opportunities for ASEAN. 2
Global growth has been scaled back to 4 percent for this year and next. I think we could thrive if we knew that this growth was certain. The greater concern is the uncertainty about the outlook and that the predominance of risks to this forecast is to the downside. We are looking for a comprehensive and durable solution to the Euro zone crisis and well-defined and credible plans for the debt challenges in other advanced economies, including the US. The slow progress in tackling these globally important policy challenges has sapped market confidence about the capacity of these countries to address these challenges and has certainly contributed to the uncertain outlook. Nonetheless, we welcome the progress that has been made while actively encouraging greater resolve on the part of policy makers in the advanced economies to get ahead of the curve. Later this week, ASEAN Finance Ministers will meet with US Treasury Secretary Geithner and this will be one of the messages that we will convey to him. We take a realistic view of these global developments. On the one hand, we recognize that the talk about the decoupling of Asia from the rest of the world is too simplistic. We live in a highly integrated world in which developments in one part of the world can quickly find their way to others. For ASEAN, the main channels of influence are clear. Lower advanced economy growth translates into lower demand for our exports and our 3
financial markets are affected by global investor perceptions that wax and wane with the progress in reaching solutions to the global economic problems. And these issues can pose real challenge for our economies. On the other hand, the global economy is not the simple model of the past; we live in a so-called multi-polar world. In decades past, Asia was viewed as the factory that produced goods for the advanced economies. When the advanced economies caught cold, Asia would suffer as much if not more. The world has changed. The emerging world now accounts for well over half of global growth and much of that growth is sourced from within the emerging world. We see from our own experience in Indonesia how this is transpiring. It comes from macroeconomic stability, accelerating investment, favorable demographics, and a rapidly increasing middle-income class that boosts domestic demand. In our case, the share of our population in the middleincome class has increased by about twenty percentage points to almost 57 percent between 2003 and 2010. By any standard this is a dramatic change over a short period. It is these types of developments on a larger scale that are transforming the world. I want to suggest to you that ASEAN is one of the important poles of growth and investment in this multi polar world. It is a region of about 600 million people and a GDP of $1.85 trillion. Foreign direct investment flows into ASEAN were about $76 billion last year. With favorable demographics and a high level of investment, its share in the global economy will increase rapidly. Seen from this perspective, the slowdown and uncertain prospects in the advanced 4
economies do not change the fundamental drivers of the investment opportunities in ASEAN. [Joke] If I was a salesman I might put it this way. The best I can offer the investors among you is that if other investors stay away because of the global crisis, perhaps you might be able to enter the ASEAN market at a better price; in other words, it is a buying opportunity that you should not miss! Distinguished Guests, Ladies and Gentlemen, Let me now turn to the building blocks that are creating one of the global economy s important growth poles by updating you on the progress of ASEAN economic and financial cooperation. ASEAN Finance Ministers reiterate their commitment to enhance economic integration as a step toward the ASEAN Community. It is the effective integration of our region that will provide the market and scale of operations that will mean any serious investor must have a significant presence in ASEAN. ASEAN trade now exceeds $2 trillion of which about one quarter is within the region. I will cover three areas of integration and cooperation. The first area concerns the roadmap for monetary and financial integration in ASEAN. ASEAN Finance Ministers are intensifying efforts to integrate financial markets by 2015, focusing on three areas: 5
In capital markets, we are deepening regional capital markets through measures to enhance market access and liquidity. We are promoting ASEAN as an asset class. We believe these efforts will promote greater investment opportunities and enhance the attractiveness of ASEAN. In the area of financial services, we commit to undertake comprehensive financial services liberalization and will work to ensure a progressive integration of ASEAN financial markets. In respect of our capital account rules, we look to further liberalize the capital accounts consistent with the readiness of individual Member States. We continue to align our legal, operating, and regulatory frameworks to support capital flows in the region. The second area is strengthening ASEAN financial cooperation. This also has several aspects. Cross-border infrastructure and connectivity is a key to our integration success. It is of importance to investors both in terms of those wanting to invest in infrastructure as well as investors wanting to do business in ASEAN. Infrastructure financing must derive from public and private sources. Engaging the private sector and multilateral institutions to facilitate fund raising and to mitigate risks will be pivotal to support higher levels of infrastructure development. To this end, we established the ASEAN Infrastructure Fund (AIF) in September. 6
The AIF demonstrates the commitment of ASEAN to narrowing the infrastructure development gap in ASEAN. The Fund s total lending commitments through to 2020 are expected to be about $4 billion. With projected 70 percent co-financing by ADB, it is expected to leverage more than $13 billion in infrastructure financing by 2020. Private sector funding is essential for large scale infrastructure financing in ASEAN, yet the risk on long-tenor infrastructure transactions discourages private investment. The ASEAN Fund will help mitigate these risks, providing financing for a portion of public-private partnerships. On customs matters, ASEAN Finance Ministers are implementing initiatives to enhance the integration of customs and to support the establishment of a single market and production base. On tax issues, ASEAN Finance Ministers endorsed the establishment of the ASEAN Forum on Taxation (AFT) to provide a platform to support regional dialogue, particularly related to withholding tax and double taxation. The forum has commenced this year. On insurance, ASEAN Finance Ministers tasked officials to explore risk financing options and mechanisms for a regional framework for disaster management and disaster risk reduction. The regional financial safety net, Chiang Mai Initiative Multilateralization (CMIM), with our counterparts China, Japan, and South Korea, has been operationalized. 7
The third area is strengthening regional surveillance. As ASEAN economies become increasingly interconnected, strengthened monitoring is needed. Through the newly established ASEAN Integration Monitoring Office (AIMO), ASEAN Finance Ministers reiterated their call to enhance surveillance in support of economic integration. Distinguished Guests, Ladies and Gentlemen, Our next strategic goal is to increase ASEAN s competitiveness or simply put to make ASEAN a Global Investment Destination. To this end we will pursue actions under four pillars: Liberalization to achieve a free and open investment region, Protection for investors and their investments, Facilitation to provide more transparent, consistent, predictable investment rules, regulations, as well as policies and procedures, and Promotion of ASEAN as an integrated investment and production location. Perhaps in the course of this seminar we will hear from you on how we might best fulfill these goals. In concluding my remarks, let me leave you with a simple but I think compelling proposition. Investors tell us that they invest in ASEAN because of its strong track record of macroeconomic stability, its high growth and investment, large market, favorable demographics, and growing middle class. 8
If you think systematically through each of these factors, you will realize that none of these reasons for investment are affected by the current global economy concerns. In fact all of these fundamental drivers of ASEAN growth will remain intact irrespective of global developments. This brings me back to our AFMIS theme of Growth and Resiliency: the ASEAN Story. The ASEAN story is one of growth and resiliency and I invite the investment community to join us and be part of that compelling story. Thank you and I look forward to a successful Seminar. 9