FACT SHEET: APEC'S RESPONSE TO THE FINANCIAL CRISIS
(A Stocktaking by the APEC Secretariat)

Singapore -- During their most recent meeting in Kuala Lumpur, the leaders of the 21 economies that make up the Asia-Pacific Economic Cooperation (APEC) forum resolved to work together to support an early and sustained recovery in the region and agreed to pursue a cooperative growth strategy.

That strategy, according to a fact sheet released by the APEC Secretariat December 3, includes the following elements:

• Growth-oriented prudent macroeconomic policies, appropriate to the specific requirements of each economy;

• Expanded financial assistance from the international community to generate employment and to build and strengthen social safety nets to protect the poor and vulnerable;

• A comprehensive program of support for efforts to strengthen financial systems, restore trade finance, and accelerate corporate sector restructuring;

• New approaches to catalyze the return of stable and sustainable private capital flows into the region;

• A renewed commitment to the Bogor goals of achieving free and open trade and investment within APEC; and

• Urgent work within APEC and with other economies and institutions to develop and implement long-term measures to strengthen the international financial system.

The group also made significant progress on a number of specific initiatives, which are listed in the fact sheet.

Following is the text of the APEC fact sheet:

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APEC's Response to the Financial Crisis

A Stocktaking by the APEC Secretariat

APEC Economic Leaders

At their meeting in Kuala Lumpur, 17-18 November 1998, Economic Leaders resolved to work together to support an early and sustained recovery in the region and agreed to pursue a cooperative growth strategy including the following elements:

• Growth-oriented prudent macroeconomic policies, appropriate to the specific requirements of each economy;

• Expanded financial assistance from the international community to generate employment and to build and strengthen social safety nets to protect the poor and vulnerable;

• A comprehensive program of support for efforts to strengthen financial systems, restore trade finance, and accelerate corporate sector restructuring;

• New approaches to catalyze the return of stable and sustainable private capital flows into the region;

• A renewed commitment to the Bogor goals of achieving free and open trade and investment within APEC; and

• Urgent work within APEC and with other economies and institutions to develop and implement long-term measures to strengthen the international financial system.

Leaders elaborated on each of these areas with specific undertakings. In addition, Leaders:

• Welcomed the work undertaken in several fora to strengthen the international financial system and supported continuing it in a process involving both industrialized and emerging market economies, such as an expanded Group of 22. They instructed APEC Finance Ministers to develop measures to implement proposals to improve transparency and accountability, to strengthen national financial systems and market infrastructure, and to improve coordination and involvement of the private sector in the prevention and orderly resolution of international financial crises.

• Called for a review of international credit rating agencies' practices to promote greater effectiveness and sustainable capital flows.

• Directed Ministers to work with international financial institutions to formulate action strategies aimed at strengthening social safety nets.

• Called for a task force to develop proposals in the areas of prudential regulation of financial institutions in industrialized economies, better risk assessment, transparency and disclosure standards for private financial institutions involved in international capital flows, and highly leveraged and offshore institutions.

• Called for an international working group to address improved crisis management, including orderly debt workout arrangements with the private sector.

• Called for adoption by APEC economies of international principles for supervision of banking systems and securities markets. Directed Finance Ministers to look for innovative ways to promote the recovery of capital flows into the region.

Leaders also held a dialogue with the APEC Business Advisory Council, which presented a number of new recommendations for restoring regional stability and growth. Leaders welcomed the ABAC proposals and instructed Ministers to study them.

APEC Finance Ministers Process

Leaders in Kuala Lumpur also instructed APEC Finance Ministers and their Central Bank colleagues to advance progress on collaborative initiatives to promote development of regional financial and capital markets and to support freer and stable capital flows in Asia-Pacific. Work has proceeded on a range of collaborative initiatives to develop regional capital markets that were launched at the Ministers' meeting in April 1997 in Cebu, Philippines. These include:

• Strengthening financial market supervision. Action plans will be implemented to improve domestic training of banking supervisors and securities regulators and enhance international cooperation in such training programs. The Asian Development Bank has day-to-day responsibility for implementing the plans.

• Developing asset-backed securitization activities. Members have been surveyed to assess the existing level of securitization activities and identify impediments to their development. An international conference on securitization and a workshop for regulators were held in Kuala Lumpur in December 1997. A voluntary action plan has been adopted to help economies that want to speed development of securitization activities in their markets that focuses on removing impediments to market development, training and technical assistance, and continued sharing of experience.

• Reform of pension systems. Given the important role of pension systems in capital market development, a regional forum on pension reform was held in Mexico in February 1998 to examine alternative reform strategies. Chile will host a second forum in March 1999 that will focus on policy issues concerning sound pension systems.

• Developing credit rating agencies. A seminar on credit rating agencies was held in Manila in March 1998 that sought to develop best practices for development of domestic rating agencies and promote full information disclosure by corporate borrowers. Work will continue to identify ways to improve rating agencies' ability to channel timely and accurate information to capital markets.

• Strengthening clearing and settlement infrastructure. Several member economies and the ADB stand ready to provide technical assistance to members with less advanced clearing and settlement systems.

• Cooperation among export credit agencies and export financing institutions. In response to the credit crunch resulting from the crisis, 15 institutions signed a protocol agreement in November 1997 setting out a framework for technical cooperation with respect to private infrastructure projects. (Prompted initially by the Economic Committee's Infrastructure Workshop, this initiative was later successfully linked to a similar exercise launched under the Finance Ministers process.)

APEC Finance Ministers met in May 1998 in Kananaskis, Canada. They reviewed the causes of the financial crisis, policies to restore stability and growth -- including measures to cushion the impact on the poor, and ways to strengthen financial markets to reduce the chances of a recurrence. In reviewing progress on the above initiatives, Ministers agreed to continue efforts over the next year in three priority areas:

• Capital market development. This would subsume the continuing elements of the above initiatives, other than financial market supervision. In addition, Ministers launched a new initiative on developing domestic bond markets, to be coordinated by Hong Kong, China. They also asked the ADB to explore strategies to promote private financing for infrastructure over the medium term and to report back at the next Ministerial.

• Capital account liberalization. Ministers reaffirmed their commitment to continue working on designing a Voluntary Action Plan for Supporting the Freer and Stable Flow of Capital, an effort that began before the current turmoil set in. They also asked Deputies to work with the IMF and World Bank to compare the experiences of economies in managing the capital market liberalization process, in order to study how to promote freer capital flows while maintaining macroeconomic and financial stability. They also asked Deputies to work with the IMF to examine how to monitor capital flows.

• Strengthening financial systems. Ministers called for timely and comprehensive implementation of plans to improve training of bank supervisors and securities regulators, and welcomed an initiative by the APEC Financiers Group to create a private-sector training program. Ministers also launched an initiative, coordinated by Malaysia in conjunction with the World Bank and ADB, to study ways to strengthen corporate governance in the APEC region. Australia hosted a symposium in November 1998 that brought together business people, regulators and other officials, stock exchange officials and legal and academic experts to identify priorities for reform in corporate governance.

Sectoral Ministerial Meetings in 1998

SME Ministers, at their September meeting in Kuala Lumpur, encouraged adoption of specific measures to address the impact of the crisis on SMEs, including:

• Ensuring the availability of trade financing by export credit agencies;

• Expansion of industrial supply and subcontracting business cooperation;

• Better risk assessment capabilities in relation to credits for SMEs;

• Dissemination of information on opportunities to build better business linkages for trade and investment among SMEs; and

• Establishment of an interactive business matching web sites.

Energy Ministers, at their October meeting in Okinawa, stressed the important role the energy sector could play in stimulating economic recovery, especially through open and efficient energy markets and development of efficient energy infrastructure. They endorsed a Natural Gas Initiative aimed at accelerating investment in that sub-sector. Ministers also reviewed the impact of the crisis on the future energy supply and demand outlook and instructed the Energy Working Group to hold a business-government workshop to develop recommendations with respect to the sector's role in improving investor confidence and mobilizing new capital flows.

Women's Affairs Ministers, meeting in October in Manila, highlighted the disproportionate impact of the financial crisis on female businesses and workers and the need to consider women's economic interests in devising recovery strategies. The Ministers have asked APEC Economic Leaders to endorse in Kuala Lumpur a new framework to integrate women into all APEC processes and activities.

Other Initiatives

APEC Ministers (Foreign and Trade) reviewed developments in the world economy at their meeting, 14-15 November in Kuala Lumpur. They welcomed the efforts of affected economies to overcome the crisis, stressed the critical role of open markets in underpinning economic recovery, and tasked Senior Officials to intensify APEC's efforts to address the social impacts of the crisis as a high priority.

APEC Senior Officials have recognized the impact of the financial crisis on trade, investment and economic and technical cooperation, as well as its implications for APEC's work in areas such as labor markets and infrastructure development. Relevant APEC fora have incorporated initiatives and measures to help alleviate adverse effects on economies arising from the current situation. Examples of such initiatives include:

• The 1998 APEC Economic Outlook, prepared for and welcomed by Economic Leaders and Ministers, reviews the situation in regional currency and financial markets, the impacts of the financial crisis on member economies, and the measures they have taken to restore stability and growth. The Economic Outlook Symposium, held in Xiamen, China in May, addressed the impact of the crisis on APEC members.

• The Human Resource Development Working Group (HRD) has endorsed the recommendations of its Task Force on the Human Resource and Social Impacts of the Financial Crisis, which held a symposium on this topic in June in Taipei. They include:

  • That HRD undertake a project examining best practices in member economies on balancing market liberalization with labor market adjustment, with results delivered no later than the 1999 AELM;

  • That HRD cooperate with the Finance Ministers process to strengthen corporate governance in general and financial sector supervision and regulation in particular, through support to training programs;

  • That HRD contribute to the APEC study of the impact of trade liberalization by analyzing the human resources and social impacts;

  • That HRD develop strong links with business, labor, women, youth and non-governmental organizations to enable them to contribute to its activities; and

  • That APEC explore ways of collaborating with IFIs to ensure that the needs of the social sector in the affected economies are addressed.

• Australia has made available to other economies the results of a survey it commissioned of economic governance capacity building needs, programs underway to meet those needs, and gaps that could be filled by APEC economies and international agencies. The initiative, welcomed by APEC Economic Leaders and Ministers, suggests ecotech activities to build capacity in economic governance that individual economies could undertake.

• The fourth APEC Public-Business Sector Dialogue on Infrastructure Development in May 1998 in Taipei included a special session on the impact of the crisis on infrastructure development. The Dialogue's message was that the need for sound infrastructure was becoming more urgent, not less. While in the long term private investment in infrastructure was considered essential, delegates saw the need for a strong government role in the short term, in terms of both direct support and improving policy frameworks.

• The Economic Committee's Infrastructure Workshop, which met back-to-back with the Dialogue, agreed to undertake analytical work on the impact of the crisis, including on infrastructure demand, supply and government policies.

• The fourth APEC Investment Symposium in September 1998 in Kuala Lumpur included a session on the impact of the crisis on investment trends and government policy responses, including changes to investment regimes. The discussion addressed changing business perceptions of investing in the region in the wake of the financial turmoil and concluded that economies need to work toward policies that reduce risk and create a conducive environment for investment. Reconstruction of the financial systems of many economies was seen as important to both longer-term structural reform and the short-term provision of working capital.

• The public/private sector Regulatory Reform Symposium held in September in Malaysia considered further APEC work on deregulation and regulatory management, including in the financial sector.

• The Tourism Working Group is conducting a two-part survey to assess the impact of the crisis on regional tourism and will try to identify strategies that might offset negative impacts.

• APEC Study Centers at their Consortium Conference in August in Malaysia discussed the financial crisis and flagged pertinent issues regarding it in their report to SOM.

3 December 1998

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