The Shifting Sands of Capital Market Development and Integration in ASEAN: the Case of the Philippines and Indonesia

Abstract

The plan to develop the capital markets of the members of the Association of Southeast Asian Nations (ASEAN) traces its origins to events which transpired long before the launch of ASEAN Economic Community (AEC) project in 2003. In 1997, the ASEAN markets experienced a severe financial crisis which was partly blamed on the heavy dependence on banking institutions for access to finance. As a response, initiatives aimed at deepening the region’s capital markets for it to become a viable financing alternative were adopted. This was subsequently superseded in 2003 by plans to streamline and harmonize capital market regulatory systems as part of the AEC’s goal to have a freer flow of capital. After the official establishment of the AEC in 2015, the ASEAN Capital Market Integration Initiative (ACMI) is undergoing another paradigm shift with the new AEC Blueprint 2025 now placing greater emphasis on “ensuring that the financial sector is inclusive”. With the constant evolution of the ACMI agenda to keep up with external developments, it is now important to ask whether ASEAN member states have managed to keep pace or are struggling to proceed to the next stage of needed reforms. To answer this question, the chapter shall look at the country-level implementation of the capital market integration plan before and after the adoption of the AEC Blueprint 2025 in two ASEAN member states, namely: Indonesia and the Philippines. The chapter shall also identify the pressing issues each country is experiencing in its implementation efforts and recommend solutions to address it.