ASEAN dan Penguatan Rule of Law Hukum Hak Asasi Manusia di ...
Future Pm Di Asean
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Transcript of Future Pm Di Asean
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Outline
Where are our capital markets today?
How has Asian growth strategy shaped ourfinancial systems?
How have our financial markets performed theirfour key functions of resource allocation, pricediscovery, risk management & corporategovernance?
What are implications of global financiallandscape changes on Asian financial markets?
What conditions are required for regionalintegration?
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Asian Contrasts
Asia - More than half of globalpopulation, but only 1/3 of global GDP
and 1/4 of world exports , but only 16%
of global market cap [7% ex-Japan]
High savings - FX reserves exceed US$1trillion, but still importing capital
Asia accounts for 25% of global FX
trading [US 19% and EU 53%] Insufficient internal growth engines, still
awaiting growth from US and Europe
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MSCIPPP-GDP Exports Population Weighting
Japan 7.3 6.0 2.1 9.38
4 Tigers 3.3 9.4 1.3 1.82
China 12.1 4.0 21.0 0.26
India 4.7 0.9 16.7 0.12
Other Asia* 5.4 4.5 14.5 1.57
Total ASIA* 32.8 24.8 55.6 13.15
US 21.4 13.6 4.6 55.30
EU 19.9 37.7 6.2 17.14
Others 25.9 23.9 33.6 14.41
TOTAL 100.0 100.0 100.0 100.00
*Excluding Australia and New Zealand
Source: IMF, World Economic Outlook, April 2002
Asia in Global Economy(GDP, % of world, 2001)
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Asia still Dependent on BankFinancing (% of GDP)
Remark: *1999 figureSources: FIBV, CEIC, Bloomberg, various central banks and government websites
Bank Assets Equity Market Bond Market1998 2001 1998 2001 1998 2001
China 139 160 25 45 12 28
Hong Kong 214 215 206 313 32 28
India 69 133 24 26 21 28Japan 145 139 64 55 101 153
Korea 233 233 35 46 53 67
Singapore 220 243 112 135 20 41
Taiwan 226 262 97 104 41 20Thailand 176 134 30 32 23 39
Germany 273 155 51 58 97 90
US 65 63 158 136 141 148
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Asias Financial Structure
The financial system is a derivative of the real sector Dualist mercantilist model drove Asian development
Development led by highly efficient export sectoropen to international competitionFinanced by protection of domestic natural
resources, services and financial sectors Banking system protected from foreign competition,
mobilised bulk of savings and was guided in lending
Fish-trap mentality welcomed FDI, and delayed capital
account opening, resulting in periodic asset bubbles Stock markets were short-term speculative and also
restricted foreign listings
Corporate sector was state- or family-dominated, so
corporate governance reflected ownership behaviour
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Key Resource Allocation Issues
Too much savings in Asian banking systems: 80 140% of GDP, compared with 60% in US
Lack of credit culture, and collateral-based lendingbehaviour, coupled with excess liquidity caused byfish-trap policies fuelled property and stock bubbles
Huge NPLs represent waste of savings NPLresolution cost up to 50% of GDP in Asian crisiseconomies
Development of bond, equity and derivative markets
would help to diversify risk away from banking systemand impose greater market discipline in theintermediation of savings
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Poor Price Discovery
Openness to trade meant that traded consumer prices werestable at competitive global prices
But capital controls and supply distortions, eg lending/listingguidelines led to distortion in key financial prices, egexcessively low domestic interest rates relative to risks andhigh PE ratios
Bank herding with cheap loans fuelled property asset bubble,and small free float fuelled stock prices
Credit risk not properly priced with bank spreads of 1.5 2 %points with NPLs at between 1050% of total assets
Bond spreads have recovered close to pre-crisis levels,although NPLs have not been cleaned up
PE ratios remained around 80 in Japan, as the Nikkei 225plunged from 38,000 to 10,000. China: peaked around 60 in2001, now down to 30+
Mispricing meant that large Asian savings wasted ininefficient investments
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Weak Risk Management
Asian Crisis showed lack of risk diversification
avenues as savings were concentrated in bankingsystem and residents were not allowed to hold foreignassets
Bank-dominated systems with high NPLs and relatively
low capital carried high moral hazard risks throughexplicit/implicit deposit insurance
Lack of specialist and derivative markets, such asventure capital, futures and options markets, point toneed to develop a wide range of financial instruments
and markets, and allow participation of different typesof specialist market intermediaries
Choice of financial instruments improves assetallocation, and allows the hedging of market risks thatin turn increases the risk-bearing capacity of the
economy and, hence, growth
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Weak Corporate Governance
Structure of Asian markets reflect failure of financialmarkets to check against poor corporate governance
Need to upgrade accounting, auditing and disclosurestandards to improve checks and balances on corporategovernance
Dominance of SOEs or close corporate-bankrelationships marginalised minority shareholderinterests
Domestic institutional investors have close links withcorporations, while foreign investors not inclined toimpose governance
Entry barriers to foreign strategic investments protecteddomestic companies from takeovers/restructuring
Preference for merger of failing institutions than
liquidation or opening up to foreign participation.
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Self-discipline, Regulatory Disciplineand Market Discipline
Corporate governance requires all three disciplines toprovide checks and balances for healthy companies
Self-discipline works if controlling shareholders have highintegrity and treat minority shareholder fairly
Regulatory discipline acts as backstop when management
and board lack integrity and ethics, by setting out clearrules and through effective enforcement
Market discipline works best because global competitiondemands management professionalism and observance ofglobal standards of quality, code of conduct and accountingand disclosure rules
Markets buy or sell stocks based on company performancebenchmarked against transparent global standards.
Enhance management accountability to shareholders.
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Globalization means Dualistic Domestic
Sectors are also Marked to Market
Consolidation of Financial Intermediaries Advances in technology, de-regulation, and WTO opening of
domestic markets means huge competition to domestic financialinstitutions from large complex financial institutions offeringbanking, insurance, asset management & derivative services
Ability of domestic policies to protect domestic financial
sectors limited as:-WTO and IMF rules push for market openingSophisticated domestic investors seek global risk
diversification
Liquidity begets LiquiditySmaller domestic players do not have same capitalbase, technology and market reach as global giants
Improvements in accounting and disclosure meansdomestic inefficiencies are revealed as NPL etc
Smaller players are marginalized
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Trends in Domestic Exchanges
Vertical Consolidation - Exchanges aredemutualizing to align interests with market They are also merging or cooperating with Clearing Houses
to optimize fixed investment economies of scale
Horizontal Consolidation Exchange merge or allywith each other to optimize geographical and
product reach
Accenture estimates that merger of trading, clearing
and settlement in Europe may concentrate liquidityand reduce clearing and settlement costs by US$1
bn annually
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Global Three Time Zone Market
New York (US$12.8 trn or 50% of global marketcap) now services global + Latin Americancapital markets
European financial markets consolidating
under EU and euro Asia has tremendous savings, but fragmented
financial markets
Asias capital markets still retail driven -insufficient local institutional investors
Liquidity begets liquidity in a virtuous circlethat benefits issuers, investors, intermediaries
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East Asian Miracle is DemographicallyDriven
Source: Jeffrey G. Williamson, Demographic Shocks and Global Factor Flows
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Aging Population requires efficientPension and Retirement Fund
Management
North Asia aging, slowing growth and requiring moreretirement funding
South-east Asia still young, but must avoid North Asianretirement funding mistakes time to develop deep and
well diversified retirement institutional funds If retirement funds have over-priced bonds and equity,
the retiring generation pay for this generations fundingmistakes
Deep and well-diversified retirement funds will develop
institutional savings, improve liquidity of bond andequity markets, and play role in corporate governance
Existing retirement funds allow policy makers option tocover up mistakes [e.g. retirement funds helping in
corporate rescue]
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Relationship between Third World &OECD
The Third World & OECD in two differentdemographic cycles: former has laboursurplus & capital shortage, while latter hasscarce labour & capital surplus.
However, Asia has both labour surplus &capital excess, but excess is funding OECDmarkets
Would policy makers allow labour and capital
markets to make intergenerational transfers? How can Asia institutionalise savings within
Asia for better resource allocation?
Source: Jeffrey G. Williamson, Demographic Shocks and Global Factor Flows
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Implications for Asian Market Models
Asian market distortions and barriers hindered itsability to intermediate its own savings and manage risk Yen/$ swings caused huge revaluation gains/losses Surpluses flow to US and Europe which return as FDI or
portfolio flows Risks remain concentrated in domestic economies
Japan is largest market, but financial market isrelatively inward looking China has law of large numbers and demand economies
of scale, but banking and enterprise reform still at aglobal selective opening stage
ASEAN markets are small, and face huge external entrypressure, with concerns about marginalization AU/NZ have sophisticated systems but not integrated
with rest of Asia Non-integration is not an option unless one wishes to
be disconnected from global markets
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Bank Reforms must go on - NPLs remain a drag Raise Corporate Governance standards - withfocus on market discipline
Higher standards of Transparency & Disclosure move to IAS, IAuS, & IDS
People - higher skills for investment banking,asset management and risk management Pricing - spreads have to reflect risk Products - wider choice for better risk
management
Platform - better inter-connectivity, inter-operability and common standards Political Will willingness to open up to regional
cooperation
Conditions for Regional Cooperation
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Improving Market Liquidity a Priority
Asias segmented markets fragment liquidity Negative feedback effects of declining liquidity
bad for capital markets
Liquidity depends on common products,
common rules and common markets Can we afford marginalization?
Are we ready to adopt international bestpractices, codes, and standards?
We have common competitive threats, but dowe have common goals?
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Global Markets and Standards
If one wants to be part of global market, one has to playby global rules and standards
Africa and Latin America have fallen behind, as inwardlooking strategies retard their competitiveness in tradeand financial services
Global financial markets are a network of local markets,and are as strong as the weakest link
For successful integration, equivalent standards areneeded to ensure stable, orderly and fair markets
US and EU today set standards for global markets.
Asia can be free riders on these standards, as long aswe can meet all the pre-conditions.
Can we work toward common Asian standards?
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Which Asian Standard?
Asia has no common voice to influence thesestandards. To have a say, we first need to havecritical mass to do proper research and lobby.
Current forums not conducive to common voiceASEAN + 3 not representative of Asia as long asmajor players such as Australia and HKSAR notincluded?
We should recognize that domestic interests
out-weigh regional interests But we must have common forum to debate
these issues, not political but technical
Standardize for liquidity, differentiate for valueadded
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Phased Approach? There is suggestion that four markets - Australia,
HKSAR, Japan and Singapore - work at free trade inservices first, before integrating with others
Not sure that phased approach will work, because itcauses greater market differences and tensions
More realistic to have common forum for technicaldiscussion first
Asian BIS or AMF probably too politically charged
Probably Asian Financial Institute more likely to bethe common forum for debate of issues, standards,
goals and processes EU integration indicates that it was not possible to
cooperate unless there there are not only commongoals, but also common channels of discussion atoperational level. Asia lack latter.
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Conditions for Increasing Liquidity
Common ProductsAre Asian exchanges willing to cross-list? Inter-operability
Common trading and clearing rulesAre they willing to share technology and standards?
Low transaction costStandard tax rates, services and operations throughcommon networks and infrastructure
Inter-connectivityWillingness to allow connections through common
custodians, common participants andintermediariesFree flow of capital by residents and non-residents
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First Steps in a Long Journey
While direction ahead may seem obvious, getting there
is dependent on sovereign decisions which are noteasy to make Requires recognition that it is win-win and not win-lose, or
Nash equilibrium for our markets.
AFI will make journey easier if Asia has an independent
and non-profit making research institute that studiesAsian issues from an Asian rather than a nationalperspective.
The conduct of research on issues with strategicsignificance for Asia would deepen our understanding
of the implications of global developments and providea basis for objective debate on win-win solutions for us.
Such cooperation would help in capacity building for theregion and in building trust, which is essential if we are
to be able to work together for the good of our markets.
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Concluding Thoughts
Asian dualist model must be re-written to globallyefficient and regionally fitting model, where marketsperform their functions well, inherent risks are reduced
Priority is to improve corporate governance, where trustis rewarded, and fraudulent behaviour is punished
The quality of all players has to be enhanced to improvethe quality of our markets
Non-integration is not an option, but we have to play byglobal standards and rules
We can cooperate to set our own standards, have a say
in international standards, and work together toimprove the liquidity of our markets
Or we can continue with our own individual agenda andsee continued marginalization of our markets