Gerald de Cruz was a prolific writer. These two articles provide a taste of the subjects that interested him, and his style of writing.

New Nation, 21 September 1971

THEIR LEADERS MAY CHANGE, BUT SINO-SOVIET DISPUTE LOOKS SET TO GO ON FOREVER

“A Communist is a Communist is a Communist.” said the bright and brash young man. “All the Russians and the Chinese have really been involved in, is a couple of skirmishes over their common border — and what's so inflammable about that? Isn't it normal on the part of neighbours to squabble?

“All the rest of it is merely verbal fireworks, a diversionary tactic to fool us into believing that they're enemies. At the right time they'll appear in their true light as fanatical Communist partners intent on world domination.”

This question of the true relationship between the Soviet Union and the People's Republic of China is one of the most vital questions of the day.

It has become even more important in view of the modifications in Chinese foreign policy, the gradual emergence of detente between the United States and China, and the steady withdrawal of American forces from the Asian mainland.

If the bright young man is correct, then China will be able to bring tremendous concentration to bear soon on East and South- East Asia; if he is wrong, if the Soviet Union and China are really deeply involved in a contradiction of fundamental dimensions, then it is on its northern and north-western borders that the Chinese will have to focus their main attention.

I think he is completely wrong: I think that irrespective of what type of regime exists in either area, the contradictions between the two countries are of a fundamentally serious nature, with the deepest roots imaginable in geography, history, and contemporary imperatives. Mao has come and Mao will go, but the Sino–Soviet dispute bids fair to go on forever.

What is the Great Wall of China but man's longest (1500 miles) monument to fear and insecurity? Begun in 300 B.C. which is 2,300 years ago, it was first linked into a continuous line in the second century B.C. by the great unifier, Shih Huang Ti, first emperor of the Chin Dynasty.

What is the Great Wall of China but the strongest evidence possible that for the last 2000 years China has feared invasion from the north-west?

A week before the British surrendered Singapore to the Japanese on 15 February 1942, Gerald de Cruz, who was working as a reporter for The Straits Times, covered the arrival of the last British convoy. Part of it consisted of a group of Sherwood Foresters Anti-Tank Gunners. They looked extremely miserable. He asked one of their officers why. He said that although they were an anti-tank regiment, the ship in the convoy that was carrying anti-tank guns had been diverted around the Cape of Good Hope to the Middle East. So here they were, an anti-tank regiment without anti-tank guns. Although they had handled rifles many years ago, they were being given rifles and sent to the front line. The reality sank into the young reporter: The Far East was expendable, but not the Middle East. So much for Singapore being an Impregnable Fortress. He decided that,

That moment of realization saw the birth in de Cruz of nationalism and socialism, followed soon after by the need for armed resistance to the Japanese.

Between 1971 and 1974, de Cruz was a columnist for the New Nation, of which he was also Diplomatic Editor. His columns and occasional editorials, whether on international or domestic affairs, are marked by a combative humanism that takes on a range of issues from communism and race to sex and juvenile delinquency. Invariably trenchant, often wry and irreverent, sometimes controversial, occasionally contentious and at times spoiling for an intellectual fight, his writings revel in the columnist's art — to provoke the reader to some purpose. His favourite enemies are ignorance and hypocrisy in society. Cant and humbug passing off for tradition and orthodoxy are a standing invitation to his jousting rejoinders, while pompous piety over matters of sex and religion arouses his cynical indignation and attracts sharp, withering rebuttals. His style is convivial and occasionally anecdotal — the aromatic air of a coffee shop conversation lingers deliciously over it — but there is a clear conclusion which reflects long and clear thinking presented logically and impassioned by the courage of conviction.

His columns dismiss the ideological claims of both Bolshevism and Chinese communism. In a defence of the ideological legitimacy of revisionism, which communists revile, he compares them with “all good ‘Bible-thumping’ fundamentalists” who have “an extraordinary litany of abuse for heresies and heretics”. Recalling the revisionism of the socialist Eduard Bernstein, de Cruz supports his critical approach to Marxism. Bernstein “heavily decried the Utopian element in communism — all the guff about heaven on earth being realised eventually under the communist system, when the state would wither away, and, as Lenin said, every cook could become Prime Minister and every Prime Minister could cook”. However, de Cruz's break with communism did not blind him to the opportunities being created in Asia by fundamental shifts such as the Sino–American rapprochement of the early 1970s, the Vietnam War, and consequently the prospects of the Association of Southeast Asian Nations (ASEAN). He took a keen interest in geopolitical and diplomatic trends that would influence the fortunes of Singapore. Thus, he sounds a discordant note in the midst of the general rejoicing over China having lifted the bamboo curtain to admit table-tennis players and journalists from America.

The Republic of Korea is passing through three “years of Southeast Asia”, starting in 2008. A variety of anniversaries, summits and initiatives are scattered across these years. Korea and Thailand celebrated fifty years of diplomatic ties in 2008. The following year brought the sixtieth anniversary of Philippine-Korean relations and the twenty-fifth anniversary of ties between Brunei and Korea. Malaysia and Korea will in 2010 commemorate the establishment of diplomatic relations fifty years ago. In late 2008, the ASEAN countries and Korea signed a memorandum of understanding to establish in Seoul an ASEAN-Korea Centre to facilitate socio-cultural and economic interaction between those countries and Korea. The centre began operation in early 2009.

ASEAN and the Republic of Korea celebrated two decades as dialogue partners in 2009. To mark this milestone, an ASEAN-Korea Commemorative Summit was held on Jeju Island in June. The national leaders of Southeast Asia and the Republic of Korea met again only four months later at the ASEAN+3 Summit in Thailand in October 2009. Korean president Lee Myung-Bak announced a “New Asia Initiative” (NAI) in March 2009, during a trip to Indonesia. Southeast Asia is one of the central foci of the NAI. It epitomized the way in which the events, anniversaries and initiatives of the 2008–10 period augur well for future relations between Southeast Asia and Korea.

Although not widely appreciated among members of the general public in Korea and Southeast Asia, practical contacts and exchanges between the two surpass what is easily imaginable. Southeast Asian countries and the Republic of Korea have cooperated closely in the political-security field. Southeast Asian countries, individually and collectively through ASEAN, have supported the Republic of Korea's position in efforts to address problems on the Korean peninsula. In return, Korea has not spared its support for ASEAN integration.

Since the beginning of ASEAN+3 regional cooperation, space for cooperation between Southeast Asia and Korea to shape the newly emerging regional order has grown. Both Southeast Asia and Korea share similar strategic interests in a region where two great powers, China and Japan, compete for hegemony. Solid cooperation among middle powers such as the Southeast Asian countries and Korea can mediate, veto and lead the great powers, shaping a regional order rooted in principles of equality.

The Cold War provided a stable and simple bipolar global structure within which East Asian states organized their security and foreign policies. The end of the Cold War removed this adversarial but stable global order while the shift of global economic and strategic power now means that how East Asian states organize their strategic affairs will increasingly shape global security.

Destabilisers

1. • As anticipated by theorists, the speed and scope of the power transition centred on East Asia is transforming relations between the rising major powers, China and India, and the previously more powerful ones, the United States and Japan. India's growing capacity, its ambition and increasing interest in East Asia have deepened and diversified India's strategic relations with the United States and Japan. The opposite is largely true when it comes to China's strategic relations with the United States and Japan.

2. The US has been the region's pre-eminent power for decades, and has a wide range of alliance and security partners who depend on it for their security. The US-China strategic relationship is the most important facet of the power transition process. High-level voices in Beijing regularly describe the US alliance system in the region as a Cold War anachronism. Washington in turn is rebalancing its strategic policy toward Asia with a focus on strengthening and expanding this network. This is indicative of the increasingly competitive basis of current US-China strategic relations and their regional ramifications.

3. • East Asia's long-standing territorial dis-putes are flaring up and becoming a more central part of bilateral and regional relations in the region. This is a symptom of an increasingly competitive region and is fuelling a sense of regional insecurity.

4. China is the focus of much of the concern. The China-Japan dispute is the most threatening. Both are major powers with advanced war fighting capabilities and Japan's administration of the disputed islands draws the US into the strategic calculus because of the US-Japan security treaty.

Stabilisers

1. • Non-military threats are a growing focus of regional states’ strategic and defence policy and of defence force deployment nationally and regionally. These non-traditional security issues range are diverse and range across many ministerial portfolios, and tend to require inter-state cooperation to be addressed.

The situation in the South China Sea during 2013 remained essentially unchanged. Tensions between the claimants continue to fester, fuelled by rising nationalist sentiment over ownership of the disputed atolls, the lure of potentially lucrative energy resources under the seabed, spats over access to valuable fisheries in overlapping zones of maritime jurisdiction and moves by most of the claimant states to bolster their territorial and sovereignty claims by issuing new maps, conducting military exercises and launching legal challenges. Indonesian Foreign Minister Marty Natalegawa observed that the South China Sea was characterised by a ‘sense of anarchy’.

The primary axis of contention this year has been China and the Philippines. Bilateral relations nosedived in 2012 when superior Chinese maritime assets forced Manila to concede control of Scarborough Shoal. In January 2013, the Philippines angered China by unilaterally challenging its expansive claims in the South China Sea — represented by the so-called nine-dash line — at the United Nation's (UN) International Tribunal of the Law of the Sea (ITLOS). China went on to accuse the Philippines of illegally occupying atolls in the South China Sea, being confrontational and encouraging the United States to “meddle” in the dispute; Manila responded that China's “massive” military presence around the shoals within the country's 200 nautical miles exclusive economic zone (EEZ) posed “serious challenges” to regional stability. Beijing even withdrew an invitation to Philippine President Benigno Aquino to attend the 10th ASEAN-China Expo in Nanning in August 2013 because he refused to withdraw the UN legal challenge. As that case proceeds — even without China's participation — China and the Philippines will remain estranged. In contrast, relations between Vietnam and China were relatively cordial.

A resolution to the dispute looks further away than ever. Because the claimants have dug in their heels over perceived territorial and maritime rights, the compromises and concessions that would be required to achieve a legal or negotiated settlement are currently out of reach. Indeed the political climate has become so ill-tempered that even the proposal to shelve the sovereignty disputes in favour of joint development of resources — which China gives lip service to — is unworkable.

Notwithstanding this bleak, and widely shared, assessment, few observers envisage a major war in the South China Sea.

The Association of Southeast Asian Nations (ASEAN) is not a major power in its own right; instead, the imperative of this collection of relatively small countries is to diversify its dependencies by engaging simultaneously with a range of great powers, not to exacerbate its dependence on only one great power. In particular, ASEAN's push for greater regional integration has been justified as a way to both retain and grant regional legitimacy to U.S. strategic involvement in the region, and to engage and incorporate China as a responsible regional power. The two strands are intrinsically linked: the engagement of China is built upon the reassurance of continued U.S. strategic commitment to the region. For instance, ASEAN's increasingly enthusiastic bilateral and multilateral engagement with China is underpinned both by its members’ existing relationships with the United States and their desire to use the “China card” to persuade Washington to deepen these relationships.

Despite this broad agreement, differences in strategic preferences must be expected from a grouping of ten diverse countries. ASEAN does not want to enter exclusively into a Chinese sphere of influence. At the same time, governments with significant Muslim populations, such as those in Indonesia and Malaysia, have faced domestic political pressures against identifying too closely with the U.S. “war on terror”; and most ASEAN leaders have also expressed concern with Washington's apparent obsession with counterterrorism at the expense of other issues such as economic development. The result is occasional tension, such as the row over participation in the East Asia Summit, inaugurated in 2005. Some ASEAN members, such as Malaysia, backed China's wish to limit the summit to strictly East Asian states. Yet, Japan, Singapore and Indonesia eventually prevailed in their insistence on including Australia and New Zealand as representatives of “Western,” or American, interests.

ASEAN is an aspiring major power in East Asia. The association continues to face many collective-action problems even as it moves toward formally institutionalizing its collective identity. Yet it does not pose a fundamental challenge to American dominance. Instead, one of its key aims is to ensure the continued deep strategic and economic involvement of the United States in the region as a means of diversifying its member states’ dependence on great powers.

The process of East Asian regionalism received a shot in the arm in 2008 with the proposal made by Australian Prime Minister Kevin Rudd about restructuring the Asia-Pacific regional architecture. This was followed by the proposal made by Japanese Prime Minister Yukio Hatoyama on an East Asian community. There are substantive differences between the two concepts (one being that the former has been much more developed over time while the latter has been left for further discussion). Both, however, have attracted quite a bit of attention, not primarily because of their substantive content but more because of their implications for how currently existing regional institutions seem to be falling short of expectation thus creating the need to explore alternative arrangements. In an indirect way, this is reflective of how much its partners are beginning to grow weary of the ASEAN Way and of the way ASEAN has driven the process.

The very success, however, of ASEAN in managing intra-ASEAN relations to the point of being able to make the prospect of conflict between ASEAN member states unlikely (as well as its involvement in the Cambodian conflict) gave it an international stature out of proportion to the status of its individual member states. This was in fact recognized by its dialogue partners when they accepted the idea that the Association should chair the post-Cold War forum that would oversee discussions and dialogue on the security of the Asia-Pacific region. The fact that it was also called the ASEAN Regional Forum (ARF) when it was established in 1994 more than stamped the ASEAN mark upon it — it signified the adoption of ASEAN norms (especially the consensus-based method of decision-making) as the foundation for what was effectively a nascent attempt at extra-ASEAN regionalism. That it did so with much misgiving did not detract from its determination to show the applicability of the ASEAN “model” to a wider Asia-Pacific scope. This started ASEAN on its way to a significant shift in the evolution of its identity — from an association dedicated to keeping the Southeast Asian region free from being enmeshed in great power rivalries to one which accepted its “centrality” in a wider East Asian and Asia-Pacific regionalism, a process that would entail accepting the involvement of and engaging the major powers in the context of the region.

EVENTS AND TRENDS DRIVING OUR COUNTRIES TOWARD CLOSER UNION

Both security issues and economic opportunities are driving the ASEAN states toward closer union. The first of these security issues is increasing instability and conflict in the region. We are seeing a distinct worsening of ethnic, cultural, and religious tensions in Eastern Indonesia, Southern Thailand, and Southern Philippines. All of these conflicts are liable to spill over across national borders and into the region. Already a regional terrorist movement objectifies the emergence of ideological-religious fundamentalism among our Muslim communities.

Yet another problem is Southeast Asia's rise as a strategic playing field of the long-term political competition between the United States and China, in the context of Beijing's apparent effort to recover its traditional centrality in East Asia.

An ASEAN security community will enable the countries of the region to assert their collective interest before the big powers more forcefully than anyone of them could do on its own.

Increase in Regional Trade is both a Problem and an Opportunity

The sharp increase in regional trade and East Asia's emergence as an autonomous region of vigorous growth pose both a problem and an opportunity. In 2004 alone, the International Monetary Fund (IMF) expects emerging East Asia — China, Hong Kong, Indonesia, Korea, Malaysia, Singapore, Taiwan, Thailand and the Philippines — to average 7.1% GDP growth.

Within Southeast Asia, this expansion of regional trade has sharpened the disparity between the original ASEAN-6 and the four newer members. Within the individual countries, the rapid pace of industrialization and urbanization is intensifying social issues of poverty, inequality, and environmental degradation.

The increase in regional interdependence is also stimulating a movement toward an East Asian Economic Grouping of the ASEAN-10 plus China, Japan and Korea. This Economic Grouping is likely to be in place by 2010. Its completion will signal the northward shift of the region's center of economic gravity, to the bigger and more technically advanced economies of Japan, Korea and China. This economic trend, too, compels ASEAN to unify — if it is to strengthen its bargaining power relative to its Northeast Asian neighbors.

These instabilities, conflicts, and economic trends are all stimulating new thinking, new insights and new proposals for ASEAN to consider its progress toward a security community.

No one in the 1950s expected that anti-colonialism in Southeast Asia would give way to anti-communism and that this would be followed less than 40 years later by the triumph of capitalism. That last triumph did not mean that there would be greater certainty in the region. ASEAN has had to adjust to a world dominated by a single superpower. Since September 11, 2001, this dominance is starker still and all countries face a newly aroused United States of America. ASEAN will have to see if it now has more choice to pick its own script or will be told what new role it has to play. There are signs, however, that a series of changes may have stirred ASEAN to new life.

After 35 years, this is a more mature ASEAN, whose member states have survived experiments with different regional organizations and have had their wits sharpened considerably by that experience. They now know better how small and medium-sized states can survive and how they must generate innovative thinking if they want to prosper. Since the financial crisis of 1997, they have been given additional lessons about the effects of globalization and become sensitive to the pressures from non-state actors and other transnational groups. The essays selected in this volume tell us how ASEAN has adapted to the radical and unpredictable changes that have dogged the organization since its foundation and how it might deal with uncertainties in the future.

The victory of liberal capitalism in a globalized market economy requires that all Southeast Asian states be alert to America's policies in the region if they want to maximize the benefits to themselves. It is, of course, not enough to do that. They must continue to look to the economic might of Japan whose commitments in Southeast Asia from before the foundation of ASEAN have been of major importance to the region's development. It is obviously in ASEAN's interest to ensure that Japan remains committed. In addition, a nuclear South Asia and the awakening of India's high-tech entrepreneurship has great potential for the region's security as well as the future growth of the ASEAN economies. Nevertheless, given America's fresh interest in Asia, China's role requires close attention.

What we know as Southeast Asia today has largely been peripheral to world history, and it was only after the arrival of maritime colonialists from Europe that the region was gradually drawn into global politics. The region's role remained subordinate, however, and its peoples functioned as subalterns to external powers. During the Second World War, the region was invaded by the Japanese and throughout the war, it remained a minor theatre for the Europeans and Americans, engaged as they were in bigger battles elsewhere. Independence came to most peoples in the region against the backdrop of the Cold War, a circumstance that strongly influenced the state-building dynamics and the developmental policies of the new governments. Founding ASEAN was essentially a strategic move by the early members to limit external interference in the region and to enhance dialogue and security cooperation among themselves. It was only in the 1990s, after the Cold War had ended, that the regional organization was able to expand to embrace all countries within the region. Cambodia was the last, joining officially only in April 1999. East Timor remains an exception: having gained independence only on 20 May 2002. The Asian financial crisis heightened the importance of the ASEAN Plus Three forum that had begun meeting just a year earlier, and ASEAN's ties to Northeast Asia have become a top priority.

Going forward, ASEAN countries have in hand tools such as: the ASEAN Charter that it adopted in November 2007; the ASEAN Vision 2020 programme for achieving an integrated community by 2015; and almost 50 years of successful collaboration. Maintaining ASEAN centrality amidst the influence from global powers remains the organization's main concern.

In this section, noted analysts deliberate key challenges ASEAN faces. Rizal Sukma argues that greater acceptance of regional institutions is necessary for ASEAN to grow. Allan Gyngell debates the need for a less complex and more efficient regional architecture in the Asia-Pacific region as a whole. Emil Salim, in turn, maintains that the building of trust among member countries is vital — ASEAN centrality depends on it. With regard to the economic performance of the region, the skills and knowledge gap will have to be narrowed. Suthiphand Chirathivat and Piti Srisangnam discuss what will be needed for further economic integration beyond 2015.

Human capital investments have played a crucial role in the early economic success of East Asian economies. Given Southeast Asia's rapid growth, the claim has often been made that these countries too have benefited from high rates of human capital investment. This claim, however, is less robust for Southeast Asia, and even for the Southeast Asian “Miracle” economies, than for Northeast Asia. In an important region-wide survey, Anne Booth (2003) described the claim that the Southeast Asian economies invested heavily in education at an early stage and in an equitable manner as “gross over-generalisation.” Even among the eight “Miracle” economies, she points out significant differences in the timing and extent of human capital investments between those in Northeast Asia (Japan, South Korea, and Taiwan) and those in Southeast Asia (Singapore, Malaysia, Indonesia, and Thailand). In fact, human capital investments in Southeast Asia started late and have generally not achieved as much as in Northeast Asia: educational attainment has been lower while inequality in access to education has been severe (Booth 2003; Khoman 2005).

Thailand, Malaysia, and Indonesia have made impressive progress in economic growth and poverty reduction, but their movement up the production quality ladder slowed after the Asian financial crisis. They still occupy predominantly low-value-added niches of manufacturing such as assembly and processing. Eichengreen et al. (2013) have presented evidence that growth slowdown or the middle-income trap is less likely in countries where the population has a relatively high level of secondary and tertiary education and where high-technology products account for a relatively large share of exports. If this is so then it seems clear that for Thailand, Malaysia, and Indonesia the lack of high quality human capital helps to explain their growth slowdowns. By the early 1990s, most governments in the region had conceded that their human capital investments had fallen short of what is required to sustain a high growth rate.

In the most rapidly growing Southeast Asian economies, the onset of the Asian crisis in 1997 was at least partly a consequence of underinvestment in education that impeded the transition from labor-intensive to more skill-intensive activities as real labor costs began to rise. Since recovering from the crisis, Southeast Asian countries have continued to make progress in expanding overall access to education and raising average educational levels, following trends established in the pre-crisis era.

The Association of South East Asian Nations, or ASEAN, from its very beginning, has had two objectives. The first is to prevent the historical disputes among its member-states from developing into armed conflict. The other is to keep the major external powers from using the region as an arena for their quarrels. At the beginning, all five founding states were threatened by the rise of Communism, then abetted by like-minded external powers. Soon, however, Communism ceased to be an armed threat.

The formation of ASEAN in 1967 was also made possible by the transformation taking place in Indonesia, Southeast Asia's largest country in terms of population, land area, the economy, and activism in international affairs. It would not do for Indonesia simply to join the young Association of Southeast Asia, or ASA, ASEAN's template-association composed of three future members of ASEAN — Malaysia, the Philippines and Thailand — and taking over most of ASA's practices and structures. An entirely new association had to be set up not only because of Indonesia's status but also because of her ideological predilections. Thus, Indonesia's highest-ranking point-man for ASEAN, Vice President Adam Malik, Presidium Minister for Political Affairs and Minister for Foreign Affairs, invited Burma and Cambodia to join the new association. Unfortunately, those two states, like Indonesia staunchly non-aligned, demurred, said to be suspecting that ASEAN would be a replacement for SEATO, another brainchild of the United States in its web of military alliances. The U.S. was then mired in its Indochina war, although the U.S. was showing signs of her determination to get out of the Indochina quagmire. At the same time, Indonesia was transforming itself from the Sukarno to the Soeharto era, from autarky in economic policy to relative openness to international markets, foreign aid and investments, from the Left in foreign policy to a more balanced posture in international affairs.

Malaysia had territorial and other jurisdictional disputes with all of its immediate neighbours. There were occasional tensions between Thailand and Malaysia over several issues. Indonesia was opposed, militarily and otherwise, to the formation of Malaysia as a British-inspired enterprise. The Philippines was hostile to the inclusion of Sabah in the new Federation of Malaysia.

INTRODUCTION

The central problem for discussing public policy in Southeast Asia is that it is incredibly varied — politically, economically, linguistically, geographically, religiously, historically and in terms of the factors and processes by which tourism is being developed (Hitchcock, King and Parnwell, 1993).

Politically, the nations of Southeast Asia range from communist Vietnam and Laos to the despotic military junta which renamed Burma ‘Myanmar’ in l989. Economic systems range from socialist-lite, to state-controlled governments like Myanmar, to varying degrees of capitalist societies in the rest of the region. Languages and scripts are numerous within nations and among them.

Geographically, the range is from land-locked Laos to archipelagos like the Philippines and Indonesia with most of the nations having both mainland and islands.

Historically, most of the nations except Thailand have also experienced long periodsof colonialism (up to 400 years) from a variety of European powers. It is no wonder that their public bureaucracies and political cultures vary so much. Nor are their boundaries undisputed (Richter, 1993; Musa, 2003).

Thus, finding patterns of tourism policy-making in the midst of this variety of governmental experiences is very challenging. Still, some characteristics are obvious: top-down policy-making, some national planning, belated attention to environmental and indigenous factors and much corruption.

In the next section I provide a broad analysis of tourism public policy-making across three stages of development. Included are several policy decisions these nations confronted in their decision-making. Then in the subsequent section of the chapter several sustainability challenges to policy-makers will be examined. Finally, some of the aspects of the region's tourism will be noted that encourage cautious optimism.

STAGES OF TOURISM POLICY-MAKING

Colonial Tourism and Its Aftermath

Traditional rulers in these nations may have visited religious shrines or sought seasonal respite from the heat, but it was not until European conquests and colonization that discretionary travel as opposed to trading and pilgrimage flourished in Southeast Asia (Stockwell, 1993; Saunders, 1993; Douglas and Douglas, 2000). Linkages to that early era still persist in place names, museums, and in the histories.

Modern tourism existed from the post-World War I era but it was not until the independence of these countries (the Vietnam War in Thailand's case) and the arrival of the wide-bodied jet in the 1960s that international tourism became significant.

Financial integration challenges in ASEAN beyond 2015 can be grouped into two broad classes. The first class of challenges are the regulatory and infrastructure challenges of financial market integration itself. The second pertains to monetary and fiscal policy regimes and how they are impacted by as well as how they impact on an integrated financial market in the region.

ABOUT ABIF

As a part of the AEC Blueprint, ASEAN Central Bank Governors endorsed the ASEAN Banking Integration Framework (ABIF) on April 7, 2011. Against that background, as the ASEAN financial sector is generally bank-dominated, the banking sector is a key driver in the financial integration process.

The initiative for ASEAN financial integration could be traced back to the Roadmap for Monetary and Financial of ASEAN (RIA-Fin) established in 2003. As stated in RIA-Fin, financial integration in

ASEAN is facilitated through the following initiatives:

1. • Financial Services Liberalization (FSB), i.e. progressive liberalization on financial services;

2. • Capital Account Liberalization (CAL), i.e. removal of capital controls and restrictions to facilitate freer flow of capital;

3. • Capital Market Development (CMD), i.e. building capacity and laying the long-term infrastructure for development of ASEAN capital markets.

In April 2011, ASEAN Central Bank Gover-nors accepted the results of the commissioned study by the team of consultants led by Professor Yung Chul Park as a reference for the ASEAN financial integration process. Central Bank Governors also endorsed the ASEAN Financial Integration Framework (AFIF) which is based on the agreed Broad Thrusts (i.e. three dimensions of FSL namely equal treatment, access and environment, milestones for ASEAN5 and BCLMV, clear set of preconditions and safeguards, financial stability, capital account liberalization, capacity building and shared responsibility, and integrated payments and settlements).

Currently, ABIF is based on four guiding principles: bringing economic benefits and financial stability for individual countries and the region, allowing flexibilities by adopting a double-track implementation for ASEAN5 and BCLMV, and achieving multilateral liberalization by 2020 (e.g. measured by the number of ASEAN commercial banks presence in ASEAN).

To ensure a successful implementation of ABIF, four pre-conditions have been agreed upon. The first is harmonization of principles of prudential regulations. The second is building financial stability infrastructure. The third is providing capacity building for BCLMV. The fourth is setting up agreed criteria for ASEAN Qualified Banks (QAB) to operate in any ASEAN country with a single ‘passport’.