 Good afternoon Now it was just nine months ago and we're in Davos that there was consensus That the global economy was firing on all cylinders and that the global growth was on a solid momentum especially for Asia Today nine months on Look at where we are on the verge of a full-blown trade war The US has said it wants to impose Terrorists and almost all Chinese imports China has said it will retaliate We also have an emerging market route And that's because of the time tightening we're seeing in the US. We have a strong dollar The strong dollar was expected but the pace of increase Has become a bit mind-boggling Now add to that we have the fourth industrial revolution and If that is not enough a Demographic shift so everything and the kitchen sink Given such a scenario What are the prospects for growth for Asia? Given that most people say fundamentals are intact. Where do we go from here? What are the challenges ahead? What do policy makers and companies have to do to ensure? That the region maintains its growth. We have a very Distinguished panel of speakers today Please do welcome Bank of Thailand governor Viratai Sunday Prabhak to my left Ibu Srimulyani Indrawati Indonesia finance minister louder, please Nazar Raza CIMB group chairman Judy Shue Sanchard regional CEO for ASEAN and South Asia and Kevin Sneeter McKinsey global managing partner Thank you so much for being here today Now Nazar, we'll start with you since you're sitting in the middle. You'll stop the ball rolling Larry Summers says that the current period of prosperity that we're seeing right now is More fragile than many of us oppose Do you agree with that? Is that a reflection of how Asia is today? Well, I'm not sure the context. He said that but I think it at face value If you look at it today Asia There are some potential flash points Geopolitically talk about North Korea. It's all China see but if you look at in relative terms Look at where ASEAN was at the beginning and where ASEAN is today We've gone from a zone of tension and conflict to one of peace and stability that has allowed tremendous economic growth over many many years and Therefore when you look at it relatively, I think I think not in Asia But if you look at the broader global scene, I'm a little bit more anxious if you look at this Rise of China and how the US is now responding. It worries me Because I think we've lived with this US-led Rules-based system and one of our big assumptions has been that the US leadership have been globalist right now we have a leadership that is very nationalist and its Attitude to the rise of China and the rest of the world Worrys me and I think you know President Jokowi although he denied it Said it very clearly this morning in terms of attitude being very one should be positive about The economy being potentially a win-win that resources in this world are infinite not finite And we should not be we should look at this rise of China and a multipolar world As something to adjust to rather than something to resist Judy. You're pretty upbeat Yeah, I am pretty upbeat Clearly the recent emerging market sort of weakness that spilled over from a Couple of other countries like Argentina and Turkey is something we're quite, you know Cautious about right we have to continue to monitor. What does that mean from from a short-term perspective? But if you know talking to many of our clients who have been operating in this region This is not the first time to do they're dealing with these volatilities This pattern has happened time and time again And what's what's I think different is that many of our clients have become quite well versed with managing this risk? They have access to really good hedging tools and if I look at you know, what I've seen since early this year a lot of the importers are You know increasing their hedging ratio a lot of clients with dollar loans have you know aggressively Locked in their interest rates. So people are Managing this volatility much better and if I look at you know in a long run, of course, you know This US China trade tension how it will play out this protectionist sentiment is something I think it's going to be a new norm But just look at the underlying fundamentals in Asia, you know or in ASEAN six hundred and fifty million people 50% of them between the age of 20 to 45 really dynamic working a dynamic, you know working population Internet penetration in Vietnam is 80% It's just really strong fundamentals. So as a bank we remain very confident and very committed to this region We believe in the fundamentals. We have to manage the short-term volatilities, but yeah, we're still positive But Ibu Shimuliani, there is a disconnect when it comes to The economy and the markets the reaction from the market so far I mean when terms in terms of the emerging market route. It's been quite startling especially for Indonesia well there is a perception of it is affecting the way the market behave and in a globalized work as Especially when everybody the analyst will say the emerging market as if emerging market is like all homogeneous Economy, I think that is the consequence that we cannot avoid but the it is even within this kind of context of dynamic or psychology We can actually still can convey and explain clearly Each country's strength or maybe some limitation or weaknesses and how the policymaker respond to that. I think Restoring the rationality of the market is going to be very important Because again and again in many of the financial crisis in the past the psychology or in this case The contagion is going to create damage which is beyond the fundamental or beyond what is Acceptable from the fundamental point of view. So policymaker within this kind of context first have to focus in explaining Where our economy position at this moment? Credibility matters and track record is certainly very very important You cannot in the past three years or five years doing something else and then now you suddenly says differently and that's why it's very important for you but if you want to change the course of your policy because you recognize what happened in the past is not Suitable or not compatible with the fundamental that you try to build. That's good. That means you are going to the right direction But if you try to deny What is actually the problem in your economy? I think that's going to create another credibility and that can Creating feeding into another psychology Psycho so for Indonesia. I think today if you look at the past four years Everybody mentioned about Indonesia. Maybe it's going to be one of the country that is being seen a little bit more Vulnerable externally because of current account deficit then people tried to compare with 2013 when we have paper time through or even Amazed that someone can have a long memory back to 1997 I mean and then you try to it now Everybody tried to compare that statistically and you look what is the difference between then and now and what is the policy respond? Indonesia is actually repeatedly and Learning as mentioned earlier learning lesson from what is actually happens since 97 98 banking sector has been regulated more Credibly Monetary policy Independent and sound they are focusing on stability on a rupiah in terms of inflation exchange rate They have policy makes Government in this case is doing all the necessary from the fiscal side sound micro policy and Structural policy in order to address the issue Fundamental for Indonesia not everything can have an immediate impact, but the track record is there So today Indonesia in this case is actually is much stronger and we tried to Convey this kind of message to all the market player including the fund manager in order for them to make the Decision which is not only if they make the decision wrong not only bet for them But also for the economy in general we talk about addressing Vulnerabilities Thailand has been there before but this time round. It's escaping it pretty unscathed Intensive policies. What do you think has gone right for Thailand? but Thailand has built quite a number of buffers during the past four or five years Realize that if you look back since the global financial crisis You know the world experience with excessive liquidity and this artificial liquidity and one day normalizations would come So when we develop policies, we had a long-term views trying to look through the the cycle In anticipation of a situation like what's happening now. We have built up International reserves we have reduced dependence on chop-term external finance the government has also conducted a lot of a lot of debt restructuring Refinancing foreign debts well ahead of schedule the private sector has also been very mindful of Potential currency mismatches, you know, we still have a very good memory from the 1997 Asian financial crisis and we have also Been being quite forceful in terms of bank regulations making sure that they have ample liquidity and also ample capital adequacy So I think in terms of like this it depends on on on on the buffers that each emerging market country has Given the size of international reserve low dependence of External financing and it also helps that we have large current account surplus This year we should expect about air to 9% of GDP surplus and and that's that's that's a big buffer Kevin Asia ask you on in a better position to navigate Well, it was lost to navigate But I think at the end of day we should remember the resilience of this part of the world This is a part of the world that's been through many ups and downs It knows how to manage volatility some will do it better than others But just some facts on this point. We looked at 71 emerging market emerging markets over the last 50 years We look to see which ones had outperformed the US over that period of time 18 had outperformed the US eight of them are in Asia And I think when you think about that number you start to get a sense an awful lot has happened over those 50 years the ups and downs So the navigation here I think is around volatility But the eye on the prize is the long-term development of a region that still has some very strong fundamentals in its favor Not least continued urbanization continued development of the consuming classes and that creates a very nice flywheel The challenges Infrastructure still needs to improve ASEAN is under investing in infrastructure Its education system needs to cope with a very different makeup of the jobs that we're going to see in the future And also we have the challenge of not enough women in the workplace So there's a lot of things which ASEAN still has to navigate But let's not lose sight of the long-term trend and the volatility in Argentina and other places that has leaked into this Part of the world. Let's keep that in perspective You haven't got economies here that doubled the amount of their dollar loans in the space of a very short amount of time So I think we have a fundamentally different set of economic characteristics in this part of the world And we have to disaggregate this before we generalize about contagion reaching us Despite all the optimism the markets can stay Irrational for much longer than we can stay solvent. I mean what message what needs to be done I mean, could it be a case of subtle binds and finance ministries having to work together and send a consistent message No, definitely. And you know a very much Like the idea that the Ministry of Finance we're doing she and the central bank work together to deal with issues about current account It is it's an excellent example that policymakers in other countries should also look at The market has become very sensitive in the world when we had excess liquidity Everyone was searching for you and we look at financial instruments products out there Have a lot of you enhancement mechanisms using of derivatives and the like. So when there's any changes in market expectation They tend to be ultra sensitive and so, you know Coordination of policies coordination of communication messages between different authorities is a prerequisite to ensure that we can go through this cycle smoothly, but if the source of the Psychology in this case is coming from the normalization of the monetary policy in United States Especially with increasing interest rate may be titled with liquidity and then also another source of Concern is the trade policy trade war then we have to accept that this is going to be still continue The different maybe each country in responding to this kind of global environment How you react how you respond and how you are going to continue maintaining the progress and momentum While at the same time be very mindful that the risk is increasing I think in terms of the normalization of the interest rate or increasing interest rate in the in the federal reserve Globally the interest rate is going to be increased What does this signal need to be responded by the policymaker for us for example or deficit need need to be reduced Why if you are going to run deficit you make sure that this additional debt is going to have a Productivity better than the interest rate that you have to pay and this is more a signaling that you have to be more prudent in Spending designing your budget as well as in the current account deficit You have to make sure that your saving is increased your Investment may be need to be selective on what is really productive I think this is a good market discipline in signaling policymaker as well as player that you are not going to enjoy a cheap money anymore Unlimited liquidity, but then you have to be very prudent from the Economy point of view Meaning that you have to make sure that you have flexibility and that's why movement of the exchange rate at Some degree that is reflecting this adjustment is fine It should not be seen that oh you are becoming weakening or you are becoming weak and you are going to be vulnerable This is part of the adjustment as long as the adjustment is smooth enough so that all The company or player can adjust to this new level of price then it should be fine This is part of what you call it flexibility that create more Resilience rather than if you are fixed exchange rates just like 97 98 Then it's going to be very difficult for a country to be adapting to this kind of situation So I think at the end the country will respond Absorbing some of this chain adjusting but at the same time strengthening. What is the fundamental for your economy? You wanted to add yes I'd like to add two issues related to a coordination between Monetary policies and fiscal policies one of the source of global Volatility now today is the fact that the US monetary policies and fiscal policies my you know my Could have been much better coordinated as we know the Fed has prepared the market so well during the past few years With forward guidance with dot plot and with the Fed increase the rate There was no effect on the market But what has been added on top is the fiscal policies of the current US Administrations that we put great more pressures on the way it will put more pressure on inflation and afraid also on trade deficits of the US and that's the new supplies to the market it might affect the pace of Normalizations that the Fed might have to might have to pursue the other aspect of Coordinations between you know the government and central bank is related to policies on financial stability when you talk about macro prudential policies You know some of the policies measures are beyond the mandate of the central bank alone Sometimes you have to deal with shadow banking Sometimes you have to put a break on you know like real estate Developments and this requires a lot of coordination between the government and central bank so we have to look at You know a broad menu set and how we can improve coordinations in the time like this Judy Nazar your perspective from from businesses as I said, you know We are operating in in Asia we've operated here for a long time Clearly there are concerns in terms of the near-term volatilities and especially if you think about what? The escalation of potential trade tensions which has have turned out to be quite unpredictable And that that's the biggest topic on most of our client's mind. What does that mean? for the whole You know US China trade route What does that mean for whole supply chain configuration? Do I have to rethink my whole? Business models that that's what's been actually on most of our client's mind And I think through this whole us China trade tension there will be winners and there'll be losers and actually, you know when we speak to many of our clients in Vietnam and some of our clients in Malaysia they actually see this as a potential opportunity where some of the Production facilities will then be moved to the these countries and and they will enjoy some of that benefit So I think from a business perspective. Yes more cautious. Yes more volatility but given that you know ultimately this region is still Growing and very positive and there are you know opportunities for many of these companies to shift on these supply chain manufacturing capabilities We think we remain like I said very positive in the medium long term. Nasser has the emerging market route impacting course border Banking activities given your exposure in some of these markets including Indonesia. I mean, I think in terms of what's happening today clearly markets are much more discerning and The focus has been on countries Businesses with high US dollar exposure Yeah, and so therefore as a business we also have to focus our attention on those Markets, I mean clearly, you know in situations for a bank when you borrow You've got your asset in US dollar you got a liability in US dollar, but your asset could actually be an NPL in which case It's not much of an asset So these are the kind of issues we have to focus on but I think that This is clearly a challenge of regional banking I fear that you're alluding to this question of whether this kind of Situation questions the whole basis of regional banking in terms of transmission of crisis from one country to another I don't agree. I think the issue is Risk management. I think the issue is regulatory oversight If countries get those right if ASEAN gets those right, I think cross-border banking is actually very positive to regional integration Let's touch on the impact of the impending full-blown trade war I mean, we've talked about how we will not see the fallout this year Growth is intact, but we could see that next year Kevin your thoughts on how Asia ASEAN could be impacted Well, again, it will be very different depending where you are in the region We've got countries that are very much driven by manufacturing export We're sitting in one right now Of course you start to ask what markets will it then seek to export to and I think that is going to be the discussion But I think even on the notion of a full-blown trade war Let's just pause and understand what's going on at the moment You heard this morning the regional comprehensive economic pack the RCEP. We've got the CP TPP just been announced This generalization, I think it's an example of don't let the facts get in the way of a good headline The headline is trade war the reality is there are a lot of markets out there And one of the challenges and opportunities ASEAN is intra ASEAN trade today is still relatively modest So these markets need to be some new markets need to be found to replace those that are curbed But I don't believe in the longer run that we're actually going to see a reduction a sudden reduction in overall demand We might see it shift We might see patterns change between different economies But the facts are the facts there is still an awful lot of growth left in this part of the world for the economies in this Part of the world and you can spend a lot of time worrying about what might happen in further areas further field Getting off to that opportunity. It leaves plenty of runway So I don't think we should be complacent. I don't think we should ignore it But let's be mindful of the facts and I think the headlines at the moment get caught in the China US trade battle There's a lot of other markets where this part of the world is trading today softer commodity prices Shimilani Well first, I think on this the scenario whether there is a possibility of full-blown trade war This is too largest economy in the world like it or not in many of the ASEAN country economic model The development the progress in reducing poverty in many of the ASEAN countries really depend on their export So basically, this is going to be a serious consequence for the ASEAN because we always think that Investment and export is important and in the past is always depend on the largest economy to become a destination of your market So this is one thing that need to be responded But I agree with Kevin that within ASEAN intra trade ASEA or ASEAN This is big enough economy So we can create a social safety net within ourselves if we really want to work together as a group as mentioned earlier ASEAN is 636 million We have growing middle class We always have a very prudent sound macro policy within this region. This is relatively safe and and and secure Region so this is going to be one of the opportunity for us not to rely outside Or we should have a contingent plan then if outside ASEA have a problem We should be able to strengthen our cooperation for each country is going to be too small But if it is as a group, I think that's have a chance the economic model of really creating share prosperity and Cooperation need to be defended by a rule-based Policy, which is going to be very important because you can really hear from the market player corporation They are more busy now actually try to understand what's going to happen rather than thinking about What should I do with my comparative advantage and try to scale up their competitiveness? They are now looking on all those uncertainty and that make all the decision regarding investment is going to be scaled down Or wait and this kind of waiting game is going to be the one that need to be carefully managed by all of us Of course, I mean everybody's looking for intra ASEAN trade to be expedited to to grow But the thing is when you take a look at the numbers, it's it's been very very slow We're looking at less than 20% of intra ASEAN trade And we're having trouble Increasing that what is what is hindering us now there? No, I think intra ASEAN trade has been frustrating hanging around it between 22 to 24 percent But having said that if you look at the growth of Intra ASEAN FDI is been tremendous from year 2000. It was 4 percent now is 19.4 percent That's a huge success because of ASEAN. So overall, I think ASEAN has been a huge success Can we do more trade together? Yes, so we need to then deep dive into what's holding it back And here I think there's some real Nitty-gritty issues that we need to solve if you look at the look at the e-commerce I have a client called fashion valet and they tell me that it's easier for them to export Faster for them to export to the UK than to Jakarta. And this is basic fashion goods Right. So there clearly is and then despite this morning. We heard about ASEAN single window. Well, it ain't working So these are the nitty-gritty that ASEAN governments need to look into to facilitate And enable more trade so in regulation is too slow as the governments are not keeping up with the pace Just ignore them go ahead businesses if you look at tariffs, right? We sing about 98.5 percent reduction of tariffs reduced But non-tariff buyers have shot through the roof in compensation for that Right, so I sense got to get real that you know It's maybe this trade was the best thing to happen to us yet It's going to force us to come together and do more business together Kevin I would echo that and remember there's two things going to force ASEAN to come together The other is technology the markets in which we're now competing in this part of the world Require some scale and that scale will not be satisfied by the smaller ASEAN economies It's going to be only satisfied if ASEAN really can't unlock the 650 million people that live in this part of the world So I would echo it Nazir says the non-tariff issue is now acute, but it's also an opportunity We are being a little hard if the 2224 it's still better than it was the real issue is What's it going to take to say in a world where technology is dismantling borders? Whether we like it or not in a world where the easy option is no longer just to send something to another part of the world It's actually China South we have a very different set of trading Relationships in that world. There's a call to action here and that call to action creates enormous opportunity If it's ignored then I think all the worries are realistic if it's heated I think actually there's an awful lot of runway still left in here But managing the economy in this case Linda I mean I can understand when you aren't dealing with the economy You really have to make sure that they are continue balance or relatively balance if it is not then you are going to be Corrected either you are corrected by crisis by market or others in this case So within the context of this ASEAN Indonesia is the largest economy in ASEAN Definitely have to do more and a lot President Joko is tried to remove all the obstacle for the investment establishing one single submission for the investment to be easier for them to come We are also Become one of the top reformer because of ease of doing business based on the World Bank index We are improving but as a big country Indonesia need to do more and if when the situation changed very rapidly like what happened in the 2018 in fact the current account deficit was driven among others is the consumption Import is increased very dramatically and this is coming from the digital also 50% increase in July 34% increase in August And so that create if you can continue having a capital inflow to compensate current account deficit It's fun, but when this capital flows become skittish and it's becoming very full with anxiety because of the Potential contagion then you really have a problem with this current account deficit You can see and compare happen to be you sit me next to Thailand Thailand got an account surplus and that's why their currency is barely moved in this case So this is just to show that as a policymaker you really have to make sure which one the variable or indicator can move faster Which is actually beyond policymaker ability to catch up And then how you are going to make sure that the correction is not going to create the economy Sover more but instead correction that will make the economy Stronger this is one of the policy choices that need to be made for Indonesian case meaning that oh, okay Well, we have to address the issue is this temporary or short term imbalances we have to keep steady in saying and believing that openness is good strengthening your fundamental need to be done more and Fasters and you have to be able to balance this with the risk which is now happening regionally and globally But even let me just follow up. I mean like in the case of Indonesia. It's imposed Well considering imposing tax on imports that would impact Consumption growth which would impact growth as a whole Would you consider increasing the price of oil for instance and in the long term? What would you do to increase FDI because that's the way to address your current account issue? The FDI is definitely because what is happening in? 2016 and 17 when we also have the current account deficit at the amount of 17 billion We can attract capital at the amount of 29 billion so it's fine reserved even increase Whether this is in the form of FDI or portfolio or short term flow, but we have capital surplus We have current account deficit, but the surplus is larger 2018 when the situation on FDI is becoming a bit slow because of this interest rate increase anxiety Uncertainty at the global level as well as the portfolio then you have a problem Even when you have a current account deficit the same level, but you cannot finance it then you have a problem So what is the policy option? I think what is need to be done at the short run is try to make sure that this deficit is not going to widen Because the current the capital account you cannot do it immediately and suddenly you are going to have a capital flow Because what you see is capital outflow going to their Country that is in the United States so within that context then you need to correct very quickly But even within that context of policy response You have to be also very careful because you don't want to weakening your own growth potential So this is not the first best option policy. You find the second best or maybe third best, but still do It's combination between protection, but try to maintain the momentum you reduce the deficit So your vulnerability is going to be less under this current system stances now in terms of the oil price the oil price according to the fiscal assumption is almost the same So you actually question yourself what kind of stand that you really need in terms of addressing the issue of volatility at this moment definitely price can Discipline you in a way that with the signaling of the price Rupiah is becoming cheaper Basically many of the exporter in Indonesia should actually enjoy because this is going to be their earned revenue More and this is going to be boosting the the growth potential for Indonesia While import with the dollar becoming more expensive Rupiah cheaper is going to be much more expensive So this is a classic what you call it expenditure shifting and expenditure reducing when you are facing with this kind of Depreciation of your currency or volatility of your currency now on a on a fiscal policy I think Indonesia is already make a fiscal consolidation in the past three years We are moving from 2.5 into 2.2 or even now below 2% for the next year This is just to show a consistent credible trend of fiscal prudent when we see that the escalation of risk is there when the cost of borrowing is increased You becoming more and more careful in designing your design your policy Especially on a fiscal side then you are going to ask the real sector That's why the structural policy need to be accelerated because you are not going to depend on Fiscal to become the engine of growth. They need to be careful But then you need to be more ambitious in doing your reform on a real sector And that's why president is doing the investment policy reform single submission Regulation has been reduced cost of doing business has been reduced that kind of the strategy that you really know Which instrument a fit at what situation and this is exactly what we're trying to do now governor You wanted to yes just going back to your last questions on you know looking at trade in ASEAN and you seem to suggest that You don't see much progress so far I would like to echo what Nasir has mentioned what is more important than intra regional trade is economic integration in the broader sense you know Investment by ASEAN companies into ASEAN countries have picked up substantially and creating regional supply chain The Japanese created regional supply chain for us two decades ago But now we see a lot of ASEAN companies doing that as well And now with a concerns on trade issues global trade issue We started to see Chinese companies looking at ASEAN as an alternative Production hubs and when they should not put everything only in the Chinese basket now with the current protectionism atmosphere And that view that we continue to strengthen Competitive layers and comparative bandage of ASEAN as a region What is lacking behind in terms of promoting economic integration in ASEAN in my view is financial connectivity There are a lot of things that we can work together to improve financial connectivity and a central bank in ASEAN also looking at different mechanisms to do that We just conclude that Negotiation on qualify ASEAN banks with back neck alarm Malaysia is in the process of being ratified by the respective parliaments You know We're looking at where to link up faster pay system between Singapore and Thailand and that should bring down the cost of money transfer between the two countries substantially We also working with Central banks of neighboring countries try to see whether we can use common standard For example the QR code for payment standard if you can use a common standard that we help bring down the cost of money Transverse and also to help accommodate the growth of e-commerce in the region So there are a lot of things that we can also do on financial connectivity promotion with a view to enhancing economic integration and that's something that ASEAN needs now one of the One of the reasons why The EM route is happening is the strong dollar. What assumptions are you making for where? The green bag is headed We're building our assumption based in based on three in two interest rate increases three 75 basis points over two years and two in three years. That means it will come down After that so The danger of cost is if that assumption changes then you're really talking about further weakening Judy yeah, I mean, I think our research is similar, you know, we are Pricing in a couple of Rate hikes this year and a couple of rate hikes next year and frankly We think a lot of that has already been priced into the US dollar for now And we actually think the dollar is pretty neutral at this point Against most of the currencies of course, you know, there are other factors. We have to continue to watch And for now, we think it's actually pretty neutral Is it fair to assume that we will get a weaker dollar given the expectation of a Convergence of interest rates sooner rather than later Well, it's not the level that would like to comment. I think the volatility Is more important and we continue to see a lot more volatility As I mentioned earlier the Federal Reserve has done quite nicely in terms of repairing the market But a lot of uncontrollable factors outside the mandate of the Federal Reserve's and on top of that You also have two other systemically important central banks that have not started normalization process yet Whenever they give an indication of normalizations that we also create a lot of volatility in the exchange rate of major currencies Kevin I'm not in the dollar forecasting game. I will leave it to these people How do you think the strong dollar is impacting businesses? Well, look, I think obviously it depends on How they're how their balance of trade it looks and so there's no question that for our clients They're very concerned about making sure they've got appropriate hedging in place that they are hedging naturally in terms of where they're sourcing from And where they're selling and that's one of the reasons why I don't accept that It's okay that ASEAN talks about the financial integration without the trading integration It does matter what end markets you're selling into it really does matter and I think at the end of the day For our clients, they're looking at the mix of the geographies They're selling and for those that have got the US as their number one market Of course it has a bigger difference than if they don't but I think at this point in time Our clients are far more focused on the fundamentals of their operations their supply chains And in a way, they're almost now accepting the volatility that they have just got to live with is not going to disappear We are in a different era when it comes to the way in which people are managing their businesses And I think the day when people could assume that they have global supply chains Beautifully seamlessly joined up. We all now know that's not coming back And so there is the need to have local supply chains that are a bit more insulated from some of the fluctuations And where you can control the supply more normally, and I think that is the reality Most people are now beginning to get their heads around actually Sorry, most of our clients are not just looking at dollar against their home currency They're looking at their home currency against the Chinese Yuan Because the trade with China is probably you know outweighs their the dependence on US dollar and From that perspective is a you know, it's a it's a basket of currency that they are measuring their currency against So I do think dollar is important. It's still the global currency But I think over the years that reliance on dollar dollar borrowing has come off And I think it's a little bit over, you know Emphasized just talking to our clients. Yeah, no, I just feel that as we reflect on the current period We need to relook at this dependency on the US dollar and we've and also of course the exorbitant privilege that comes with our dependency on the US dollar Because what's happening today is of course, you have a US government that's pumping the economy in good times very pro-cyclical and You could even have a situation where they ramp up the trade wars and No change in interest rates, but you get a flight to safety in which case monies get out of emerging markets back to the US And we all struggle Right, so this whole system today of being overly dependent on the US dollar Needs to be relook that Unlucky to change anytime soon though. No, but you got to start somewhere and you've got to think of alternatives Ibu for a country that's so susceptible to dollar movements Your thoughts on where it's headed and if you take a look at the threat of the strong dollar versus the threat of Turkey Which one is greater for Indonesia? Well, I think the word susceptible Need to be put within the perspective of what is the indicator of Substable in this case for Indonesia as I said the current account deficit you have the Foreign debt is actually Indonesia is much lower if you compare with of course Argentina Turkey, but also if you compare within the context of historical of Indonesia Many of the foreign borrowing has been hatched in this case. So we learn quite a lot from what? we experienced back in 97 2008 2013 and now Corporate level debt in Indonesia is considered very low household debt is also very low government debt Below 30% so basically if you look at the phone Fundamentals the indicator is not saying that you are a reckless and that's why you are susceptible It is not the set psychology People can say that Indonesia need to deepen the financial sector Which I fully agree on that and that is with within the context of the program We try to deepen our financial and bonds market in Indonesia and this is all the work that need to be done in a more Medium-long term well, of course some of the psychology and historical is sometimes still Hovering and creating more on the reaction or response which is not really based on the fundamental Another thing in this case for Indonesia is When we are talking about a judgment policy for the country Basically, we look at all the five pillar four pillars of Indonesia The government account that is fiscal policy. I think we are okay Although some of the debt is actually owe from foreign and this is something maybe we are much higher than India for example, so we need to lower and this is linked to the deepening bond market in Indonesia The second one we are talking about monetary policy This is the fourth year in a row Indonesia has an inflation at around 3% Which is for Indonesia historical because before that we have an inflation close to 8% And that's why we have more credibility on the monetary policy in making the loop Yes table in terms of the inflation if you talk about the banking system And then non-performing loan because of the commodity price shock down after 2014 has already being cleaned up So today is actually in a much more cleaner and stronger balance sheet of the banking system So we have a problem on this current account and this is not like 5% Deficit on the current account 3% which is even not close to when we were in Taper tantrum or in this case during the 97 98. So in a way, I think We tried to communicate and I think This kind of word are susceptible Not being used More frequently to then put it within the context of Indonesia because it creates psychology rather than the real fundamental for Indonesia And that's the point. It's worth reminding ourselves because I think part of what's happening is we're conflating what's going on outside With what's happening in ASEAN external debt relative to GDP. It's in the 30s Government debt. It's in the high 30s the G 700 and something Right forget the rest of Argentina and Latin America So there is a real risk of having a conversation Which isn't anchored in the facts on the ground here in ASEAN and I think it is important We don't allow the psychology to creep into the reality and the reality is a bit different in this part of the world Then it isn't some of the other geographies where we should have a different conversation around very high debt levels High dollar denominated borrowings and frankly challenging export markets. That isn't the recipe in ASEAN I want to bring up the point that doesn't brought up about weaning ourselves away from the US dollar How do you see the process playing out? Well, I think it has to be done at different levels, and this is a long journey It's not it's not it's not is that time frame you can put no one's journey. Well to you This is it requires a trust. I think this is the most important thing, you know if you look at alternatives people needs to have trust in the alternative and But you can start from small steps. I could tell you what not the US dollar it would be It could be a diverse diversifications combinations of currencies, you know basket even for ASEAN we started with a bank Malaysia and back Indonesia to promote the use of local currencies for trade and investment within ASEAN If you look at the exchange rate between Indonesian Rupiah and Tai Pa used to be have a very large spread And no one was using it the way they calculated exchange rates always cross way with the US dollar or Singapore dollar So we started with some schemes with Bank Indonesia Bank of Malaysia to promote the use of local currencies And we have seen declining in spread But it takes some time to for the market to adjust for the business people to adjust also the same with Chinese remember we started having this program with them for quite some time now Starting with only the use of Tai Pa and will be to have a direct quotation Only in United province to facilitate cross-border trade and investment activities now It's expanded to the whole of China and unsurprisingly when we look at the way to promote regional currencies There was no direct quotation between Tai Pa and Japanese yen until March of this year And that's that's a big big big big gap given the fact that in Japanese investors and Japanese trades have played a lot of roles in the Tai economy so when you saw that we started having Arrangement to promote their reputation, but it would take some time. It's it's an journey Before I get to the fourth industrial revolution, I just want to talk about the rise and the slowdown of China What your thoughts are the impact would be Kevin Well that you know there is lies the big question. What is the slowdown in China? You know we heard this morning 6.7 to 7% I think was the number that was given that ain't a slowdown But on the other hand there are some indicators the PMI numbers looked a little bit softer There's some other numbers that are beginning to look at it softer and clearly that will have a significant impact Because simply the amount of demand China is sucking up for commodities intermediate manufacturing But here's the but it's a very difficult picture to them this entamble because we talked about Vietnam Will they export some of these jobs to Vietnam? Will that be the response? So I think it's very dangerous to just make a generalization China slow down there for the world catch as pneumonia The reality is it's going to be slow. It's a slow slow down off an enormous base So they absolutely still remain this is the largest trading partner for a lot of the country Absolutely it is but it's still growing at six. Let's say it grows at 600 basis points Think of what that means in terms of incremental demand every year Something like half a Germany. So we shouldn't get I think we need to keep this in perspective The slow down is that it's a slow down It's not a stop and as long as it stays in that position There's still plenty of growth and supply happening in the rest of the world because of the absolute numbers that we're talking about the Chinese economy It's just so large, but I wouldn't gloss over it. It is something everybody's going to have to keep a very careful eye on Not there when China sneezes We'll catch us okay. We'll catch a bit of a cold Not pneumonia and don't effect don't try and work work ourselves out of it together And they seem to have good doctors I mean that they know what they're doing Conducted to reform initiatives. Well, I know before I think that they have kept that they have capabilities and also have resources But the good side from the speech this morning that the China Respond to the current environment that they repeated Lansom mentioned about that we need to maintain the rule base I think that's really a good signal and in the way in the past the China was the one who want to be invited to Come to the rule base and now they're the one who championing or even saying that we need to have this kind of rule Bees system to be defended by all of us I think it's more like a sense of the global economy require a certain Certainty in terms of this is not going to be a smooth journey But in that journey if there is something happened where there is an accident that is a tension We should have a certain platform to discuss and to settle that it's not using a Power in order for you to impose whatever that you dictate as right or wrong in this case And this is maybe the most important at the essence of all this this kind of environment that we are all need as a country to also raising our voice and try to also contribute in Making sure that the world is going to be in an order. It's not going to be always peaceful linear progress, but there is an order that will dependent for all of us to to depend it to defend it so that it can become a dispute resolution which is credible enough and fair Is it fair to say that in this Trump era neighbors like China Japan are learning to work with each other better? Well, they don't have any other choice, right? I mean that is exactly the beauty of it. I mean that You suddenly see that okay The country that used to be for all of us to look up and then to depend Now I think they are busy with themself. Why don't we now become an adult in the room? And we can discuss among ourselves. I mean without that kind of extreme condition Policymaker economic player they become lazy to adjust I mean with this kind of situation is just saying that you the world is just too big and too important to depend only one country I'm too connected. Yeah, I mean therein lies the challenge. We talk about trade wars But at the same time to your point We've never been more connected whether it's data flows or consumer economies that want to suck in products because they like the Brands from overseas and so that's the reality that we're dealing with and I think therefore The option of actually Japan and China not working together You know those those days have moved on and it is why I think neighbors are talking to each other and why and we should Talk probably about the fourth industrial revolution at some point that force that provides Another reason why we are going to see more data flowing between countries and actually more connections So the trade war is one thing but the connectivity that's happening across the world. That's increasing massively and that will not stop the data flows are not going to stop Let's pick up on the fourth industrial revolution the opportunities and how That would that would be created in ASEAN in Asia Judy Yeah, it's it's coming to Vietnam. It's you know talking to our colleagues. It's just amazing the exponential growth in the internet Economy here, right? You have as I mentioned early 80% of the population here have a smartphone That makes access to education healthcare Financial services at people's fingertip at a very affordable cost These are just tremendous opportunities for for this region It's estimated that the internet Economy is going to be two hundred billion dollars in 2025 from something like ten billion dollar last year So I think again coming back to the fundamentals of you know This whole region and the adoption and the innovation that that we're seeing in this rate in this region is far Away some of the risks that that you know US China trade war some of these currency fluctuations We maintain that we look at these fundamentals the infrastructure bill we talk a little bit about the rise of the middle class I think these are very important trends that we continue to focus on including this whole, you know Fourth industrial revolution something we are very positive about also the loss of jobs and disruption Which is not great for some economies which are experiencing perhaps even a growing population my there Well, I think the fourth industrial revolution is hugely exciting will bring a lot of benefits but also side effects and Also disruptive challenges to incumbents and potential job losses, etc So it is imperative that we understand it. It's imperative that we You know think about the right policy responses and this is our push at WAF To make sure that ASEAN looks at the 4.0 challenge collectively Because what's going to drive the 4.0 and our ability to? Capitalise on it is our ability to move data across countries move talent across countries move capital across countries These are essential and at the moment we're not doing a great job and as Kevin mentioned just now Economies of scale is even more important today if you look at banking, right? Our fear is not so much the big banks out here is the big platform companies And you look at the kind of scale that Ali and Tencent has managed to develop in one Chinese economy Yeah, and the threat that brings to financial services in South East Asia, right? So we need to avail our own companies the scale of asset So that we can capitalize on what's there in the fourth industrial revolution the challenge for Indonesia would be ensuring that it is inclusive Oh, definitely in this case first on this industrial 4.0 President is already mentioned in many occasion, and I think that's create an excitement Not especially Indonesia have a young demographic if you make a survey Especially among the youth they are more optimistic. They are seeing more opportunity rather than threat They definitely change in terms of their idea of what is going to be their future career What kind of job that they are going to have so it's more on an option rather than maybe for the baby boomer seeing this as a threat Because they are maybe also have a technological gap understanding adjustment. So for Indonesia to be inclusive We definitely still have a gap when you talk about financial inclusion or the inclusivity on the financial side The financial inclusion Indonesia is among the lowest in the ASEAN country And that's why penetration of this financial services to the poor especially is going to be very important That's why government social safety net program Giving cash transfer for the low-income household is now being done not through cash, but through this bank account we also have an Of course an issue of this inclusiveness in terms of the unevenness of the education If you talk about Jakarta, which is actually creating and breeding a lot of what you call it start up We have unicorn they look at Gojek. Everybody look at Nadim as a role model now So I mean that's not a problem in the big city, but Indonesia is not only Jakarta It's not Java we have all other island which I think the quality of education need to be also improved Not to mention of course what kind of education we spend equally 20% of our budget on education Just like Vietnam the results different Vietnam is really focused on this math And I think they are really compatible well in the PSA score. They are actually scored much higher than in Asia So the challenge for Indonesia when you talk about industrial 4.0 We actually see this as an opportunity But this opportunity of creating and correcting in terms of equality or to become more inclusive Can only be done when the government investing in Infrastructure so that connectivity and those people who live in what we call it removed area by Definition when you have all the infrastructure being built There is none none in the Indonesian geography should be called as the remote This is just east west not south but it doesn't mean that you are remote and then also in terms of quality of skill and education That is something that we prepare now But of course at the same time today when all the company coming to Indonesia you have Gojek and then we have Uber we have grab they are all competing with the conventional Transportation company in Indonesia they need to adjust and they this what you call it job disruption or business model disruption is something which is already being recognized now widely in Indonesia I Think if you talk with many of Indonesia business community They've already see this as coming and they need to adjust the question How fast they are going to adjust and fork for for policy maker for us The discussion about this industrial four-point all definitely require us to adjust in term of tax policy In terms of equal opportunity in terms of people should have a good infrastructure and education And in terms of the competition policy not to mention data and data privacy I think that is also another we just totally new for many of us Governor the job of the governor is to worry. What's the biggest worry when it comes to the fourth industrial revolution for you? No, the industrial the fourth industrial revolution presents a lot of opportunities and the social inches I totally agree with what minister Simuani has just said You know Thailand being a all demographic structure Perhaps we becoming the etching society fastest in Southeast Asia. We still see this Fort four point all industrial revolution very exciting I think that three key words that public policies need to focus on to help Benefit leave benefits from four point all industrial revolution when it's on productivity. It's very clear that the digital edge will bring Huge improvement in productivity and and that that that that is what we need because you know becoming an aging society All the workers have to be much more productive and they can benefits from technology advancements to be more productive the second word which is perhaps More challenging is on inclusivity We need to make sure that whatever we Know we whatever is getting developed It's it's inclusive that people at large can benefits from it. I'll give you and and and an example We at the Bank of Thailand we work with the Ministry of Finance and we have put a lot of efforts in promoting electronic payments In Thailand putting in you know open infrastructure faster pay systems Common standards on electric payment and making an open platform so that anyone can benefits from it and that resulted in all the banks Eliminating or the electronic fund transfer fees early this year and that's reduced the cost of electronic fund transfer very You know to basically zero what is what is more exciting now when transactions are moving towards electronic payments SMEs that have complained all along about access to finance because the business model has always been collateral base lending But now with the good data base on payment Data we can move from collateral base lending to information base lending and that should improve access to SME finance This is just only in a few examples that Of of the of the initiatives that we have put in place to to promote inclusiveness The government has also in the process of growing out high-speed internet access to all villages throughout Thailand That will change the way people get Education people get health care services so inclusivity has to be has to be an important aspect of digital policies and the last one Which is equally important is immunity or resilience How do we take care of people who might be adversely affected or might have to go through unintended? Consequences the change in business model change in the nature of the job and the other thing that is very important. It's a cyber threat Cybersecurity and that's that's that's another pillar that you know central banks and government agencies have to step up Our efforts in preparations for the 4.0 industrial evolution now before we wrap it up I just want to go down the line Final thoughts as we think about the outlook for Asia going forward we start with Kevin I remain very positive about loop for Asia been through a lot of ups and downs a lot of volatility and Asia's come out ahead Why because I think at the end of the the digital productivity revolution that's going to take place as part of this revolution hinges on access and scale Asia has both ASEAN can choose to have scale It can either opt in or opt out But you need both and I believe ASEAN could play a part in that but Asia as a whole has both of those and plenty Secondly, it's about a redeployed labor force a labor force. It's able to cope with automation That is more inclusive brings women into the workforce That is the second part of the formula which offsets the demographic decline Which is already happening in China But which actually will happen in large parts of ASEAN to so provided ASEAN can make the most of Reallocating labor then again I think it's well-placed to do that and the third thing which is perhaps the biggest the most obvious challenges we talk about access Well internet speeds today vary from 22 and a half megabits per second to four across ASEAN that Variability is a real obstacle to doing what we're talking about doing so the infrastructure build out and the investment needs to happen Those three things I think if those get done I remain extremely optimistic about Asia There's nowhere else I'd rather be I think this part of the world still has fundamentals on its side Judy gloss half full No, I mean, I think it's quite obvious that we remain very positive I just thought I share a a very simple but very powerful client story. It's not in ASEAN. It's in Bangladesh I was recently there in Bangladesh and I met a client and He said, you know my business is going through the roof and I said what kind of business are you in? He said well, I used to be a poultry farmer and now I'm in selling ice cream and I'm like ice cream How can that be? Explanential he said, you know what ten years ago five years ago. There were no refrigerators now with a lot of our People only refrigerator. This is the power of the middle class I can now sell ice cream and that in itself I think is GDP growth at its simplest form and something we have to keep focus on the Opportunity of the rising middle class and what does that mean for this part of the world? No, sir. I think despite all attempts to stop it. This is definitely Going to be the Chinese century. I hope it is also the Asian century And what we need is within Asia to collaborate to collaborate and to collaborate even I'm very optimistic by design As a policymaker you have to really be more optimistic in order to create also an environment for your economy to be optimistic With the policy which is focusing on human capital improvement on the human capital whether this is on education health Social safety net with the policy in which the Indonesia tried to build The infrastructure so that we can fill the gap With the right policy at the macro level and be very pragmatic I think the leadership of President Jokowi in trying to cope with the change Whether this is coming from commodity which is coming from dollar which is coming from trade policy geopolitical It's always have a good track record of flexibility and pragmatism With that, I think the hope is really for the millennial The youth the young generation, which is I think they are much much more optimistic They have less Historical baggage and they see future really a lot of alternative and this young generation more Confidence more educated have more income. I think they are going to see ASEAN as a family They are going to see the world as a place for them to interact. This is really a good future Governor well a lot of exciting opportunities. I heard of us But you know the breaks is also increasing in a global environment So we can't be complacent. We have to utilize whatever buffers we have wisely to be able to stay resilient And lastly, I totally agree with NASA's Enhancing corporations among ASEAN countries and Asia country Asia countries in in in a larger context Is is it's very neat that anything this is the right time for us to enhance cooperation cooperation and cooperation? collaboration Gross but don't be complacent on that note ladies and gentlemen, please join me in thanking our panelists today. Thank you so much for your insights