Healthy Regional Integration Key to Interconnected Global Economy: Moody's CEO

An interconnected global economy is more easily supported by a foundation of integrated and healthy regional economies, according to Moody's Corporation CEO Raymond McDaniel.

"At the same time, there are two important caveats to this assertion: first, public policy should encourage constructive working relationships and networks both within and among regions; and, second, the business community has an increasingly important role to play in the debate regarding the future of the international economy, and it should take that role very seriously," says McDaniel.

McDaniel was speaking on the release of a report based on a speech he delivered on November 8, 2014 at the Asia-Pacific Economic Cooperation (APEC) CEO Summit and the associated APEC Business Advisory Council (ABAC) meetings held in Beijing.

Looking at the development of markets in Asia, McDaniel notes that current financial market infrastructure is insufficient to support the next stage of economic growth or to meet the huge challenges of financing essential urban development.

"How to finance this demand is one of the central questions, and there are two important facets in this discussion," adds McDaniel.

First, Asian financial markets, particularly the bond market, are less developed and less integrated with one another than North American and Western European markets.

Consequently, the flow of resources from one economy to another is sometimes hindered -- because of differences in such matters as legal and administrative systems or regulatory regimes.

Second, in instances where resources do flow freely, for example when individual Asian countries are more tightly linked with those outside of Asia, their economies are exposed to exogenous volatility.

"The combination of the above two factors and the desire to provide domestic companies with the benefits of a larger regional market may be driving the increasing interest in joining regional organizations," says McDaniel.

On a more practical level, regional organizations find it easier to reach economic and trade agreements, simply because a smaller group can form consensus faster than a larger more diverse group.

Within Asia Pacific, business leaders are currently discussing or implementing several regional ideas for increased integration, notes McDaniel.

In addition, the challenges that arise from increased interdependence of economies -- combined with diverging visions of how to integrate still powerful nation states -- are stimulating discussion about the prevailing international system.

Here, public policy has a crucial role to play in promoting a healthy rebalancing to encourage companies, countries and regions to build constructive and open networks rather than protectionist barriers, says McDaniel.


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