Dodwell in SFO Manado - Post 3

May 28, 2013

While JC Parrenas’ ABAC presentation on the APFF was my main reason for flying to Manado, for the Senior Finance Officials, this was “Any Other Business”. Despite the temptations around the thunderstorms of the coral reefs and the national reserves teeming with  wildlife, they waded through a heavy agenda that ranged from Trade Finance and debate on the state of the global economy, to disaster risk management, finance for the region’s unbanked poor,  and infrastructure investment.

On the macro-economic debate, informed by presentations from the IMF, the World Bank, the ADB, APEC’s Policy Support Unit, and a pantheon of regional finance officials, the challenge and prepccupation was to find the silver linings around the still-storm-laden clouds. There also seemed to be a deafening consensus: Europe faces perhaps years of deflation, contraction and readjustment; the US is showing pale signs of revival, but is this due only to the life support being provided by QE? And Asia, while surprisingly robust so far, is looking more anaemic by the month, as exports to the traditional locomotive markets stall, and efforts to stimulate local consumption prove hard. Everyone is stressed by the challenges created by such low interest costs – including the unsustainable explosion in property and stock market prices. No-one seems clear on when or how to  turn off the QE life support – though the question remains hypothetical for the near term – or how the global economic patient will fare once QE is turned off.

The Trade Finance discussion had clear relevance to us in ABAC. Ever since the Standard Chartered presentation to ABAC three years ago on the potentially negative impact of Basle 3 on trade finance flows in the region, this issue has attracted a high level of concern. While the true picture still remains unclear – in particular how grave it is, and what policy remedies we need to seek – the fact is that trade finance has fallen sharply over the past couple of years, with the dominant European banks having retreated noticeably. The jury seems to be out on whether Asian financial institutions have the capacity to fill the breach, or whether the European banks’ particular skills are proving hard to replicate. Given the importance of trade finance, in particular for the region’s SMEs, our senior finance officials are right to keep this issue under careful scrutiny.

The discussions on Infrastructure finance and financial inclusion seemed very familiar, and are being played out across APEC at present as priorities of our Indonesian chair. World Bank suggestions for a two year “road map” seemed to be gathering wide support – until confusion was sowed by our Indonesian hosts with a new and different set of suggestions. We left the meeting with a bit of a muddle, which hopefully our officials will unravel before leaders meet in October.

The now-familiar matras on financial inclusion were repeated, with few new or original thoughts to spark much interest. One perhaps pernickety observation is that, whatever the worthiness of efforts to build “full-file credit rating systems” to enable banks to lend cash to small businesses and farmers, surely a good first step would be to get more people to open bank accounts. As I understand it, in many of our developing APEC economies, a bare 15% of rural families have bank accounts. Surely this needs to be tackled before get overly excited about the liberating potential of smart-phone banking services.

⇒  More blog posts from the SFO Manado meetings series.

⇒  Dodwell's other meetings blogs.

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