Speech by Masatsugu Asakawa, President, Asian Development Bank, at the ASEAN Finance Ministers’ Meeting (AFMM)’s Special Session with ASEAN Finance Ministers, Central Bank Governors, and Heads of International Financial Organizations, 30 March 2021
Your Excellencies, good morning to you all.
It is a great privilege to join this virtual meeting. Today, I will briefly discuss ADB’s response to the coronavirus disease (COVID-19) pandemic, along with two key policy priorities that can help achieve a strong, inclusive, and sustainable recovery in ASEAN.
ADB’s response to the COVID-19 pandemic
ADB acted quickly to respond to the pandemic and support our developing member countries. Since the announcement of our $20 billion support package in April 2020, ADB has committed $17.0 billion through grants, technical assistance, and loans to both governments and the private sector. In addition, working closely with our development partners and private financial institutions, ADB has mobilized an additional $12.1 billion in cofinancing.
Through our new financing instrument―the COVID-19 Pandemic Response Option, or CPRO—ADB provided quick-disbursing budget support to help governments finance countercyclical economic stimulus. As of today, ADB has provided $10.2 billion in financing to 26 countries through CPRO.
For your information, ADB provided a total assistance of $7.2 billion to ASEAN countries so far to help address social, economic and health impact by the Pandemic, including $5.0 billion through CPRO for five ASEAN countries (Cambodia, Indonesia, Myanmar, the Philippines, and Thailand).
We are also helping our developing member countries access and distribute safe and effective COVID-19 vaccines. Last December, we launched a new $9 billion vaccine initiative―the Asia-Pacific Vaccine Access Facility, or APVAX.
APVAX aims at helping developing member countries to: (i) design national vaccine allocation plans, (ii) procure safe and effective vaccines that satisfy one of three eligibility criteria, as shown in the accompanying slide presentation; and (iii) invest in vaccine distribution systems for swift and equitable delivery of COVID-19 vaccines.
This month, our Board approved the first APVAX loan of $400 million to the Philippines. Other developing member countries, including Indonesia and Cambodia, are also tapping APVAX.
In addition, we announced a $500 million Vaccine Import Facility to work with the private sector through trade and supply chain finance to provide much-needed support for storage, logistics, and distribution. We are also providing assistance to our developing member countries through vaccine-related needs assessments, capacity building, project design, and implementation.
Key policy priorities for recovery
Let me turn to the key policy priorities for supporting a strong, inclusive, and sustainable recovery in ASEAN.
First, strengthening regional cooperation is essential. To be more specific, we need to enhance regional financial safety nets; deepen regional trade and supply chains; and build regional health security.
Second, improving domestic resource mobilization is indispensable as a foundation for lasting recovery. This can be achieved by strengthening tax systems and closing loopholes through international tax cooperation; and deepening local currency bond markets; and catalyzing green finance.
Let me elaborate on these priorities.
Strengthening regional cooperation and integration
As you know, US interest rate hikes often drive capital outflows from emerging markets, which can trigger currency and financial volatility. At this stage of the pandemic, the additional policy supports and accelerated vaccine rollouts in advanced economies have improved their near-term recovery prospects. This means these economies could start policy normalization earlier than expected.
Already last month, long-term interest rates in some advanced economies rose on the positive outlooks and inflation concerns, rattling global financial markets. A return to more normal interest rates could trigger another “taper tantrum” among Asia’s emerging markets, including those in ASEAN.
To address this, we should reinforce regional financial safety nets to cushion any possible spillovers from global shocks.
There are several things that can be done. First, we need to enhance the Chiang Mai Initiative Multilateralisation, or CMIM, by making it more flexible and responsive. The recent decision to increase the IMF delinked portion from 30% to 40% is welcome progress. Second, it is crucial to further improve CMIM’s operability and market confidence. Third, ASEAN+3 can implement the plan to institutionalize local currency contributions to the CMIM through a voluntary and demand-driven approach.
The pandemic showed how fragile global trade and supply chains can be. While I believe globalization will eventually return, it will take a different shape, requiring our renewed commitment to regional cooperation and integration by deepening regional trade and diversifying supply chains.
The reconfiguration of the global supply chains in the coming years offers ASEAN economies a great opportunity both to establish themselves as reliable new suppliers and to attract investment. To enhance competitiveness, ASEAN economies should: reduce behind-the-border bottlenecks such as nontariff barriers and restrictive regulations; improve trade logistics and efficiency; and promote paperless trade.
ADB will continue to support these efforts through technical assistance for trade facilitation, trade and supply chain finance, and knowledge solutions. Together with commercial banks, we are supporting supply chain networks; providing trade finance; and addressing working capital shortages, particularly for SMEs to join international trade.
We also need to reduce health vulnerabilities and lift regional health security.
We support the ASEAN Strategic Framework for Public Health Emergencies and the establishment of Regional Reserves for Medical Supplies—which will help the region better respond to future disease outbreaks and pandemics.
ADB will use APVAX to support ASEAN’s Vaccine Security and Self-Reliance. The region already has strong vaccine manufacturing capacities in Indonesia, Thailand, and Viet Nam, which can facilitate swift and fair distribution of COVID-19 vaccines despite near-term global supply bottlenecks.
To avoid future pandemics, ADB supports a stronger ASEAN regional disease surveillance system. This includes designing an ASEAN Centre for Public Health Emergencies and Emerging Diseases.
Enhancing domestic resource mobilization
Now, let me turn to the second key issue: enhancing domestic resource mobilization.
The pandemic pushed many economies into fiscal deficits and higher debt, making domestic resource mobilization a top policy priority for sustained post-pandemic recovery.
The average 14% tax-to-GDP ratio in ASEAN is low compared to the average for developing Asia and the OECD, leaving room for improvement in boosting revenue generation and strengthening tax collection in ASEAN economies given the strong pace of economic growth and growing demand for better public services and infrastructure.
Faced with these gaps, appropriate tax policy measures will be needed to strengthen the tax base and improve tax compliance once the region is on track to full recovery.
International tax cooperation can also help fight tax avoidance and evasion. The rise of the borderless digital economy makes it easier for multinationals to shift profits to low-tax jurisdictions and exploit tax loopholes. With the increase in multinational investments in growing ASEAN markets, we need to ensure that all parties pay their fair share of taxes.
To date, six ASEAN countries—namely, Brunei, Indonesia, Malaysia, Singapore, Thailand, and Vietnam—are members of the Inclusive Framework on Base Erosion and Profit Shifting, under which more than 130 developed and developing economies are collaborating closely to tackle the issue of tax avoidance. I am also glad to note that eight ASEAN countries—Brunei, Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam—are members of the Global Forum, which is committed to the automatic exchange of information critical to combatting tax evasion.
Last September, we announced the establishment of a regional hub for domestic resource mobilization and international tax cooperation. This new hub will serve as a platform for countries and development partners to collaborate and coordinate needed development support on these important issues. We will officially launch the hub at a high-level regional tax conference this coming May.
The second key measure to enhance domestic resource mobilization is to foster local currency bond markets. Local currency bond markets are an effective funding source for increased fiscal spending, while also providing central banks an additional avenue for injecting liquidity to markets and cash-strapped businesses to safeguard financial stability.
I am pleased to see that ASEAN’s local currency bond markets have expanded significantly over the past two decades. I note in particular that thematic bonds, such as green, social, and sustainability bonds in ASEAN markets can help finance green infrastructure and inclusive recovery.
While they remain a small fraction of the total market size, thematic bonds outstanding increased six-fold since 2017. We are committed to working with ASEAN to reinforce this trend in the following three ways:
- First, through the ASEAN+3 Asian Bond Markets Initiative, ADB is supporting the creation of a necessary ecosystem for sustainable local currency bond market development.
- Second, we support ASEAN in developing and issuing green, social, and sustainability bonds that meet the standards developed by ASEAN Capital Markets Forum, or ACMF.
- And third, last year ADB joined the Network of Central Banks and Supervisors for Greening the Financial System, as an observer. We hope our participation will enable us to better support ASEAN central banks as they develop and implement sustainable finance strategies.
Last but not least, let me highlight a green and innovative financing mechanism that will help ASEAN countries to effectively mobilize financial resources and increase investment in quality, climate-resilient infrastructure.
The ASEAN Catalytic Green Financing Facility, or ACGF, under the Asian Infrastructure Fund, is owned by ASEAN countries together with ADB and receives administration support from ADB. Launched in 2019, ACGF aims at scaling up green projects in the region by mobilizing public and private resources.
Through $1.4 billion support from six partners including ADB, ACGF will make projects less risky by reducing the cost of equity and debt. By doing so, we make the projects more bankable and attractive for private investors.
In addition, just last week, ADB secured funding of $300 million from the Green Climate Fund to support a new “Green Recovery Program” under ACGF. By leveraging both GCF and ADB funds to catalyze financing from development partners and private capital, the program aims to support more than $4 billion worth of green infrastructure projects in ASEAN countries. All projects supported by the program will incorporate innovative green finance instruments and approaches.
Let me add that ACGF is not only a source of financing, but also of knowledge. Through ACGF, ADB is providing technical assistance to support Thailand, Indonesia, and the Philippines in issuing green, social, and sustainability bonds.
I’ll stop here and look forward to further discussion.