BRICS move prompts calls for an Asean bank
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The decision to create a development bank last month by the five major emerging economies of Brazil, Russia, India, China and South Africa, known as BRICS in short, was an interesting development.
The move was seen as an alternative venue for funding to the existing global financial lenders like the International Monetary Fund (IMF), the World Bank and other regional development banks in Africa, Asia and Latin America.
These countries have in principle agreed to create a development bank to provide initial funding for infrastructure projects worth US$4.5 trillion (about Bt128 trillion).
The announcement of the creation of the BRICS Bank in Durban, South Africa was viewed by many commentators and industry observers as the shifting of the economic power from the West.
Although the proposal to create a BRICS development bank was well received by its member countries, the mechanism in which it would operate was not spelt out in detail.
Organisation for Economic Co-operation and Development (OECD) secretary-general Angel Garra was reported in the foreign press as saying one of the important things which the proposed bank needed to consider was its criteria for loans and the policy for the conditions of the loans.
So, if the BRICS nations are pushing for such a bank to be established, then should Asean also consider developing an Asean bank? Local economists are quick to point out that its establishment would depend on its mandate. A local prominent economist feels the setting up an Asean bank is less compelling if its focus is on development financing given the presence of the long-established Asian Development Bank (ADB).
Moreover, regional initiatives such as the Asian Bond Markets Initiative, Asian Bond Fund and Credit Guarantee and Investment Facility were already in place to increase the flow of the region’s surplus savings into infrastructure and private investments via the regional bond markets.
However, the economist says if the proposal for an Asean bank is aimed at accelerating financial integration to support the creation of the Asean Economic Community by 2015, then it could be a worthwhile pursuit given the relatively small and segmented banking markets as well as the slow pace of financial integration.
While the concept of an Asean bank is appealing, its sources of funding, mandate and implementation approach would have to be thought out carefully given the smallish and highly segmented domestic banking markets in the region.
Who knows, maybe a few years down the road, the Asean regulators and governments may announce the establishment of such a bank if its mandate and objectives are met in view of the growing importance of Asean as the region’s powerhouse.
A recent study by the Economist Corporate Network (ECN) and sponsored by Baker & McKenzie suggested that global companies were optimistic about the AEC.
