Structural Changes and Policy Issues in ASEAN Financial Markets

This is an update of the paper which was originally prepared by invitation for the Nineteenth Conference of the Federation of ASEAN Economic Associations, hosted in Manila by the Philippine Economic Society on 8-9 December 1994. Its presentation in Manila stressed the dynamic adjustments in the money and capital markets in the individual ASEAN countries in response to certain policy decisions taken either by their central monetary authorities or ministers of finance. The update consists of including the final results of testing for structural change in the ASEAN financial markets with the use of the Chow test on the liquidity preference of Indonesia, Malaysia, the Philippines, Singapore and Thailand. Moreover, a decomposition of Johansen's impact matrix has been added to clarify the extent as well as the direction of the adjustment process as these markets increasingly moved away from discretionary controls over the interest rate to its determination by market forces over the 22 years from 1970 through 1992. In addition, an elaboration of several policy issues emanating from these structural changes suggests that they be complemented with flexible exchange rates, trade reform and balanced government budgets if ASEAN countries are to see their domestic economies effectively integrated with the global market and still maintain price stability amidst rapid growth. While these are tough measures to take, the author cautions that procrastinating on them neither diminishes the need for them nor helps these countries attain greater international competitiveness in the world marketplace.