Two decades ago, when India first began ‘Looking East’, among our first ports of call was Singapore. With a Comprehensive Economic Partnership Agreement between India and the 10-member Association of Southeast Asian Nations (Asean) likely by year-end, Singapore’s finance minister, Tharman Shanmugaratnam, tells Devjyot Ghoshal that India has much to gain from a progressive and stable regional partner. Edited excerpts
Your Budget speech this year outlined a vision for a global Asia hub in Singapore through a series of incentives, developing human resources and attracting mid-sized global companies. What does this mean for Singapore’s future? And, how can Indian multinationals, coming here in increasing numbers, be part of this process?
It is a statement about Asia now being at the centre of global growth and that involves India, China and Southeast Asia, in the main. You need a few business hubs, some of which will be national business hubs, with very important intermediary roles. Others will be international business hubs, including those within large countries, such as Mumbai, Shanghai and Beijing. As well as those that are neutral and independent, like Singapore. They complement each other.
It’s not a zero-sum game and this has been very much a question of the water level rising across the board; business hubs, both within large countries and independent neutral hubs, like Singapore, complementing each other. That has been story of the past 10 years.
There is a particular need to find, on a more efficient basis, sources of finance for companies from China and India. For Indian companies, Singapore has always been a very convenient location to raise funds, whether it is bond, equity, private equity or to syndicate deals. Many Indian companies are already very familiar with the pool of investors here. We think is a very useful role we can play, particularly for the raising for long-term finance. This is not about short-term hot money.
So you need some depth of capital markets. It helps to have an offshore market like Singapore that is not a nameplate jurisdiction, not a matter of tax convenience, but really because it is a centre for gathering of multinational skills and investors. That’s our comparative advantage, and that’s how we can complement India in this decade ahead and, certainly, more than the decade.
How well has Asean recovered from the global financial crisis?
Asean weathered the crisis quite well, as macroeconomic policies were in the right gear. We had significant improvement in fiscal balances prior to the crisis and this allowed Asean to go through without too much difficulty. Monetary policy has also been relativity sensible and exchange rates are, by and large, more flexible than five years ago, most of them on some form of managed float, rather than either fixed or pure floating. The macro policy mix has been appropriate and financial regulation and supervision vastly strengthened compared to a decade ago, when we had the Asian financial crisis. So, Asean is doing okay.
Are there areas where Asean is still lacking?
Well, it is the real economy integration — trade, investment and financial market integration. Trade and investment, I think, is now proceeding quite well and we are on pace to achieving an Asean economic community by 2015.
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Financial market integration requires more work between regulators, as well as stock exchanges, and in getting a bond market infrastructure that makes it convenient for institutional investors to invest in Asean as an investment class, as well as investors in one particular part of Asean to invest very easily in instruments that are issued and traded elsewhere in the region.
There are schemes such as the Chiang Mai Initiative which have been created for the region. Are you satisfied with the pace of the Initiative?
It was set up to be a disciplined scheme, not one for easy money. That’s why we agreed on a surveillance mechanism, which is new for East Asia. It will be centred in AMRO (ASEAN+3 Macroeconomic and Research Office, based in Singapore), and to have it run independently of any government, so that it builds up credibility and has a professional staff that are themselves credible.
That’s a new process for Asia and countries have to get comfortable with it. It’s not going to follow any particular model. We are not trying to follow a European model, for instance. We are doing it our own way: somewhat more bottom-up rather than top-down, putting in place the building blocks, one by one. It’s a little slower, as a result, but I think it is heading in the right direction.
The Chiang Mai Initiative, however, is basically an insurance scheme, rather than a growth scheme. We have to pay a lot of attention at the same time to what generates growth. Strengthening intra-Asian integration in trade, investment and financial markets is still the big picture. The Initiative is one of the horizontals, if you like, some form of insurance each time you run into crisis.
There has been discussion on whether India should join the Chiang Mai Initiative, as part of its broader integration process with the region. What are your views?
My sense is that these things would become issues to be considered once you get greater and greater integration on the real economy side. Once India, for instance, concludes the FTA (services and investment agreement) with Asean, I think trade would start flowing.
There would be much more cross-border investments and mergers and acquisitions and the like. Then, it becomes more and more part of the same economic territory, and whether it’s India or other countries in the Asia-Pacific that we should broaden the Chiang Mai Initiative to include would be a valid question. It has to be considered very carefully, because it’s a new scheme and all parties should agree to the expansion.
It has been a year since operationalisation of the India–Asean Free Trade Agreement. How do you view its progress?
I haven’t been tracking it closely enough, but my impression is that it has added momentum to what is a natural economic force, which is India and Asean complementarities leading to a lot more trade.