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BUILDING A BETTER FINANCIAL INFRASTRUCTURE IN ASIA
1BUDI MULYA
Deputy Governor of Bank Indonesia
Jakarta, 11 May 2010
Distinguished speakers, guest, ladies and gentlemen,
Good morning and welcome to this forum. Let us start our discussion today by
expressing our gratefulness to God almighty.
It is a pleasure to be here and have the opportunity to share with you a topic that
is becoming increasingly crucial for the economic development in Asia region. I thank
SWIFT for the invitation to join in today’s business forum.
I would like to focus my remarks in the area with regard to the integration of the
economy as well as financial markets in a region, especially in South-East Asia, known
as ASEAN Economic Community (AEC) by 2015; and accordingly the importance of
harmonization of market infrastructures in ASEAN member countries, to facilitate the
more integrated ASEAN market.
Let me start with a brief discussion on a rather contradictory view on global
financial market integrations. One extreme opinion sustains that integrated financial
markets improve the allocation of productive resources, foster entrepreneurship and
innovation, enhance market discipline, and help countries to insure against
macroeconomic fluctuations. At the other extreme, it is argued that the free flow of
capital widens the wealth gap between rich and poor countries and exposes domestic
financial markets to the risk of instability, or more vulnerable to external shock. The
later, one can observe from the evidence following the most recent global financial
market turmoil.
In dealing those of the later, relevant policy makers of ASEAN countries obviously
must devote great efforts, hand in hand, in making series of key policies aimed at
reducing gaps, inequality and income differences across the region, as well as to
develop a close coordination measure to mitigate the risk of potential financial market
instability. That is about to minimizing the opposing view of financial integrations.
1Keynotes speech delivered at SWIFT Business Forum 2010, “Building a better financial infrastructure in Asia”.
2 / 4 Ladies and gentlemen,
As we notice nowadays, economic and financial globalization has been taking place
continuously, mostly in the form of establishment of a regional single market or
regional integration of financial markets. All initiatives about a regional integration of
countries or financial markets, including the one in South-East Asia called ASEAN
Economic Community (AEC) by 2015, are aimed at transforming the regions into
regional single markets and production base that are fully integrated and highly
competitive into the global community. The economic or market integration in a region
includes elimination of tariffs and streamlined customs clearance procedure for
facilitating and increasing free flow of goods and services amongst the intra-regional
countries, free movement of professionals, as well as freer flow of capital across the
region.
With regard to ASEAN Economic Community (AEC) by 2015, transforming ASEAN
into a region with free movement of goods, services, investment, skilled labor, and
freer flow of capital by 2015 means that there will be increasing flow of funds or
payments between economic agents located in different countries in ASEAN, and
greater intra-ASEAN securities cross border trading.
Accordingly, in order to facilitate intra-ASEAN cross-border transactions,
complementary policy measures and market infrastructures (for payments and for
trading, clearing and settlement of securities), which are harmonized, standardized,
thus inter-operable or even inter-linkable across borders, become fundamental
requirements.
A number of policy researches studying about market infrastructures of regions
integrating their intra-regional countries or financial markets, confirm that a single
market is correlated with the degree of integration of the related underlying market
infrastructures, such as payment systems and securities settlement systems. Moreover,
degree of integration of the related payment systems and securities settlement
systems of the intra-regional countries depend on, at least, three critical issues namely
infrastructure, business process, and legal aspect. They are such that:
- whether infrastructures for transfer and settlement of payments and securities in
the intra-regional countries are standard (therefore inter-operable or inter-linkable
across borders) or not;
- whether business practices of operations for transfer and settlement of payments
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- whether legal basis of operations for transfer and settlement of payments and
securities in the intra-regional countries are harmonized or not.
With regard to the use of standard infrastructures for transfer and settlement of
payments and securities and according to our data, currently there are 60 real-time
gross settlement (RTGS) systems and 95 securities settlement and depository systems
in 54 countries. This standard infrastructure includes: a SWIFT message standard for
the message formats of the domestic inter-bank high-value payments and securities’
transfers; and a SWIFT network for highly secure and resilient messaging the domestic
inter-bank high-value payments and securities’ transfers.
Since SWIFT is used initially by banks and other financial institutions around the
world for messaging transfers of cross-border payments and securities to
correspondent abroad, the use of such an open worldwide communication network
with (global) standard financial message formats for the domestic inter-bank high-value
payments in 60 countries’ RTGS system, and transfers of securities deposited with
securities settlement and depository systems in 54 countries will make participants of
those countries involved able to gain the cost efficiency.
Those are due to the use of single-window access connection and standard
message formats both for messaging transfers of the domestic inter-bank high-value
payments and securities; and for messaging transfers of cross-border payments and
securities to correspondent banks or financial institutions abroad. Also they gain from
efficiency of operation and maintenance of infrastructures at the participants’ site,
including their straight-through processing (STP) infrastructure.
Furthermore, the open and common standards relate to the use of International
Bank Account Number (IBAN), International Securities Identification Number (ISIN),
Bank Identifier Code (BIC), and Universal Financial Industry (UNIFI) Message Scheme.
The use of such global standards approved by International Organization for
Standardization (ISO) for messaging both domestic and cross-border financial
transactions, will lead operations of financial infrastructures in an economy including
those at the commercial banks’ site, efficient.
Distinguished guest, speakers, ladies and gentlemen,
In view of the fact that harmonization of operations and standardization of
infrastructures for payment and settlement systems are important for achieving a truly
4 / 4 thoughts and inputs through this business forum which will be beneficial for the
development and re-shaping of Indonesian market infrastructures. These are not only
to make the infrastructures and their operations more secure, robust and efficient but
also to make them ready to support the implementation of ASEAN economic
community (AEC) by 2015.
Before I conclude, I would like to add some points of hard lessons learned from
the most recent catastrophe which, I strongly believe have also to be integrated into
the financial infrastructure we discuss today. First, we have to ensure that the financial
market transaction should be closely linked with the underlying of real economic
activities. Second, the financial infrastructure integration means involving a different
law system, as well as business convention. Thus, it is important to also have sort of
standardized financial market transaction, in particular the one that involve both cash
and securities exchange to avoid possible dispute and arbitrage. Third, from what we
observe in the US and Europe financial market in the aftermath of the crisis, it is
increasingly important to adopt a more convergence accounting standard and increase
transparency. In particular with regard the over-the-counter financial market
transaction and financial institution balance sheet.
Finally, I would like to express my gratitude to SWIFT for arranging such a
beneficial business forum, as well as to the guest speakers for sharing their valuable
thought in the next sessions. I truly hope that we are here today to have a better
foundation for the “better” future.
Thank you.
