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While regional trade integration has increased demand for financial services in the region and provided the necessary catalyst for regional financial integration, progress in liberalisation has been moderate, due to different initial levels of financial development and infrastructure, as well as existing restrictions on cross-border financial flows.

Potentially, a development gap between lesser- and more developed Asean members may widen with integration if some members fall behind on account of inadequate institutional capacity. Alternatively, the heterogeneous nature of Asean can serve as a positive driving force to foster comparative advantages among countries of varying stages of financial development within the region.

While the liberalisation process should take into account differences in stages of development among Asean countries, such differences should not slow the pace of liberalisation, because the supply of new services will enhance productivity, develop markets for services and increase competition, thereby reducing the cost of services. Given the moderate pace of achievements and only seven years to go before 2015, private market forces alone will surely not be adequate to drive Asean members to liberalise financial services and capital accounts in accordance with the blueprint. If the 2015 vision is to become real, Asean may eventually have to adopt a big-bang approach to financial-service and capital-account liberalisation as it gets closer to the deadline.

In this regard, there are concerns that the big-bang approach, if unguarded and not appropriately sequenced, could result in financial instability. Indeed, closer integration of trade and finance could heighten the risk of regionwide contagion, as a crisis in one country could spread to others in the region.

To this end, regional surveillance mechanisms must be enhanced to allow countries to have timely and adequate information, to mitigate risks to the region. It is also important for Asean countries to undertake the necessary domestic reforms to strengthen their financial systems, in order to guard against competition and risk arising from liberalisation. Policy-makers should focus on ensuring that appropriate regulations are issued and the necessary infrastructures developed, so that the liberalisation process moves forward with stability.

Indeed, the Asian financial crisis made Asia a very different place, with much stronger foundations from 10 years ago, due to considerable advancement on structural reforms. Asia is now an important source of growth for the global economy, and regional financial cooperation has become more forward looking, with an emphasis on regional integration through intra-regional trade and financial deepening.

If Asean authorities are not adequately prepared to manage the risks of both contagion and stronger foreign competition for domestic financial firms, then uncompetitive local players might slow the progress of regional trade and financial integration. In the worst-case scenario, Asean could potentially lose its strategic global positioning if other countries are more successful in creating and pushing forward their regional blocs.