Regulatory regionalism and the limits of ASEAN banking integration: The case of Indonesia
| Published date | 01 August 2024 |
| DOI | http://doi.org/10.1177/02633957211061233 |
| Author | Moch Faisal Karim,Adelia Putri Irawan,Tirta Nugraha Mursitama |
| Date | 01 August 2024 |
| Subject Matter | Articles |
https://doi.org/10.1177/02633957211061233
Politics
2024, Vol. 44(3) 420 –436
© The Author(s) 2021
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/02633957211061233
journals.sagepub.com/home/pol
Regulatory regionalism and
the limits of ASEAN banking
integration: The case of
Indonesia
Moch Faisal Karim , Adelia Putri Irawan
and Tirta Nugraha Mursitama
Bina Nusantara University, Indonesia
Abstract
The Association of Southeast Asian Nations (ASEAN) aims to integrate the banking industry in the
region. To achieve this, ASEAN members have agreed to create the ASEAN Banking Integration
Framework (ABIF) to support such integration. Despite being endorsed in 2014, the framework
remains vague and lacks clear policy coordination arrangements as well as standardisation
instruments that enable ASEAN member states to integrate their banking sectors. This article
examines why the member states agreed to such regulatory arrangements. Building upon the
regulatory regionalism approach, we argue that the regulatory arrangement is underpinned by
a socio-political struggle among dominant social forces in ASEAN. The article further argues
that the political endeavour to internationalise domestic capital through the banking integration
project remains problematic, given that local banking players seem to largely focus on protecting
and penetrating domestic markets rather than regional expansion. This has hindered the progress
of regional banking integration in ASEAN. To substantiate this argument, we use Indonesia’s
engagement in the process as a case study. This article contributes to the study of political
economies of banking integration outside of the European experiment by emphasising the
importance of state–society relations in shaping the outcome of regional integration.
Keywords
ASEAN, ASEAN Economic Community, banking integration, Indonesian banking, regulatory
regionalism
Received: 13th January 2021; Revised version received: 21st September 2021; Accepted: 22nd September
2021
Introduction
The Association of Southeast Asian Nations (ASEAN) aims to establish a region that is
highly integrated and stable. This is to be achieved through the creation of the ASEAN
Economic Community (AEC), including through financial integration in the banking
Corresponding author:
Moch Faisal Karim, Department of International Relations, Bina Nusantara University, Kampus Kijang,
Kemanggisan Ilir III No.45, Jakarta 11480, Indonesia.
Email: mkarim@binus.edu
1061233POL0010.1177/02633957211061233PoliticsKarim et al.
research-article2021
Article
Karim et al. 421
sector (ASEAN, 2015). Financial integration is important for its significant potential to
positively impact economic growth, by enhancing capital allocation and risk-sharing
(Fecht et al., 2012). Given that the financial sector in ASEAN is dominated by the bank-
ing industry, regional integration of banking systems would arguably provide substantial
benefits for the region. Banking integration is expected to create more equal market
access, in turn facilitating greater cross-border transactions, which would increase the
number of such transactions in the region and eventually lower the cost of banking ser-
vices (Syadullah, 2018).
ASEAN member states (AMS) have already established a framework for banking
integration, as stipulated within the AEC Blueprint. In 2014, the ASEAN Central Bank
Governors endorsed the ASEAN Banking Integration Framework (ABIF) with the aim
of liberalising financial restrictions to achieve financial integration in the banking sec-
tor. Despite this, the framework remains vague, and lacks clear policy coordination
arrangements and standardisation instruments that would enable AMS to integrate their
banking sectors.
As a result, ASEAN banking integration has yet to show significant progress. Just
four countries have implemented the ABIF: Indonesia, Malaysia, the Philippines, and
Thailand. Moreover, only a few commercial banks are fully operating across borders,
such as DBS Bank from Singapore, and Maybank and CIMB from Malaysia. These
banks have high market capitalisation, are operating across the region, and are showing
signs of engagement in banking integration.
This raises questions: why did AMS agree to regulatory arrangements for banking
integration despite the lack of clear policy coordination and standardisation? Moreover,
why – despite efforts to integrate the regional financial sector – are so few domestic
banks operating across borders? To answer these questions, this article focusses on the
case of Indonesia and its limitations in enhancing banking integration. Indonesia as a
case study is important because, as the largest member of ASEAN, Indonesia sets
regionalism in motion.
Understanding the political economy behind ASEAN banking integration efforts is
important to shed lights on how banking integration has evolved outside Europe. Most
studies on the political economy of banking integration focus on the European experi-
ment in enhancing banking integration within the context of a highly institutionalised
environment (Howarth and Quaglia, 2016). The ASEAN experience can shed new light
on how banking integration processes unfold outside the Global North.
The study on the political economy of banking integration in ASEAN is still in its
infancy. Most studies on the banking integration in the region revolves around economet-
ric analysis such as intra-bank competition under the ASEAN Financial Integration
Framework (AFIF) (Ventouri, 2018) and the relation between banking integration and
regulatory quality (Ha et al., 2020). We situate our study within the emerging literature in
political economy of Southeast Asia that focusses on state transformation as a key
dynamic pushed by the internationalisation of state capital (Al-Fadhat, 2019; Carroll
et al., 2020). Our article, then, aims to expand the empirical analysis of this approach
through the case of ASEAN banking integration. Here, we frame the governance design
and outcome of the ASEAN banking integration progress as a reflection of socio-political
contestation within the state.
Building upon the regulatory regionalism approach, we argue that the lack of cross-
border policy coordination and standardisation are underpinned by a socio-political strug-
gle among dominant social forces. Technocratic elites in the Indonesian Central Bank
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