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

Washington -- In a statement released May 17 following the Asia-Pacific Economic Cooperation (APEC) Finance Ministers Meeting in Langkawi, Malaysia, the APEC Secretariat took stock on progress made by the organization since the APEC leaders, at their November 1998 meeting in Kuala Lumpur, resolved to support recovery in the region through a cooperative growth strategy.

Elements of that growth strategy include prudent macroeconomic policies; expanded financial assistance from the international community; support for efforts to strengthen financial systems, restore trade finance and accelerate corporate sector restructuring; efforts to catalyze the return of private capital flows; renewal of the commitment to the Bogor goals of achieving free and open trade and investment within APEC; and strengthening the international financial system.

According to the secretariat statement, APEC's finance ministers welcomed the progress the cooperative growth strategy has yielded in stabilizing financial markets and the improved the economic outlook for the region but stressed that continued financial and corporate restructuring was needed in the crisis-affected economies.

The statement notes that the finance ministers also:

• Stressed that sound financial systems, corporate governance and improved accounting, transparency and disclosure standards are central to restoring investor confidence and a return of capital flows;

• Expressed concern about the social impact of the crisis and welcomed assistance from the development banks to promote sound design of social safety nets;

• Reaffirmed their commitment to cooperate in APEC and other international fora to strengthen the international financial architecture and called for establishment of an ongoing mechanism for dialogue among industrial and emerging market economies to build consensus on future economic and financial policy issues; and

• Tasked their Deputies to work with private sector groups such as the APEC Financiers Group, ABAC (APEC Business Advisory Council) and PECC (Pacific Economic Cooperation Council) to study business recommendations for strengthening financial markets and institutions."

Following is the text of the APEC Secretariat statement:

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APEC's Response to the Financial Crisis

A Stocktaking by the APEC Secretariat

APEC Economic Leaders

At their November 1998 meeting in Kuala Lumpur, 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 called for specific actions in a number of areas pursuant to this strategy. They 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

At their 15-16 May meeting in Langkawi, Malaysia, Finance Ministers welcomed the progress the cooperative growth strategy has yielded in stabilizing financial markets and the improved the economic outlook but stressed that continued financial and corporate restructuring was needed in the crisis-affected economies. Finance Ministers also:

• Stressed that sound financial systems, corporate governance and improved accounting, transparency and disclosure standards are central to restoring investor confidence and a return of capital flows;

• Expressed concern about the social impact of the crisis and welcomed assistance from the development banks to promote sound design of social safety nets;

• Reaffirmed their commitment to cooperate in APEC and other international fora to strengthen the international financial architecture and called for establishment of an ongoing mechanism for dialogue among industrial and emerging market economies to build consensus on future economic and financial policy issues; and

• Tasked their Deputies to work with private sector groups such as the APEC Financiers Group, ABAC and PECC to study business recommendations for strengthening financial markets and institutions.

Finance Ministers also reviewed progress on their various collaborative initiatives to strengthen regional financial and capital markets and to support freer and stable capital flows in Asia-Pacific. Work has proceeded on a range of initiatives, as described below.

• Strengthening financial market supervision. Action plans will be implemented over two years 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.

• Assessing banking supervisory regimes. A survey has been conducted to assess the adequacy of banking supervisory regimes in key APEC economies in order to identify any gaps or shortcomings. Findings showed a high degree of compliance with the Basle Core Principles on banking supervision but also the need for closer contacts among APEC banking supervisors.

• Pension reform. Given the important role of pension systems in capital market development and social protection, regional forums on pension reform have been held in Mexico in February 1998 and in Chile in April 1999. The latter focused on policy issues and the roles of the public and private sectors in pension fund administration. A follow-up seminar on pension fund reform will be held in Thailand in March 2000.

• Improving credit rating agencies and disclosure. Workshops on credit rating agencies (CRAs) have been held in Manila in March 1998 and February 1999 that sought to develop best practices for domestic rating agencies. Work will continue in the context of international architecture discussions, particularly in the area of strengthening transparency and disclosure standards by market participants. APEC will survey codes of conduct used by CRAs, seek to promote a credit culture, and participate in international initiatives to harmonize accounting and disclosure standards.

• Developing domestic bond markets. This initiative aims to promote development of deep, liquid and mature domestic bond markets. An initial survey of the current state of economies' bond markets identified various impediments to their development. A December 1998 workshop in Hong Kong recommended preparation of a compendium of sound practices and a website to serve as a resource center and facilitate information exchange. Another workshop in 1999 will follow up on these plans.

• Strengthening corporate governance. Finance Ministers in Langkawi endorsed the recommendations in the report "Strengthening Corporate Governance in the APEC Region" and urged economies to implement them promptly. The report reviews the state of corporate governance in selected APEC economies and suggests measures governments, judiciaries, regulators, and the private sector could take to raise corporate standards and encourage greater accountability and transparency in corporate structures. It also draws on a symposium Australia hosted in November 1998 where business people, regulators and other officials, stock exchange officials and legal and academic experts identified priorities for reform.

• Free and stable capital flows. APEC is continuing work to design a Voluntary Action Plan for Supporting the Freer and Stable Capital Flows. Initial efforts in this plan, which promotes capital account liberalization consistent with macroeconomic and financial stability, are focused on information gathering and analysis. Two studies have been commissioned that will help develop a pragmatic VAP incorporating the lessons of the financial crisis and formulate good practice guidelines for monitoring capital flows, including short-term flows. Finance Ministers will further consider the shape and content of a VAP at their September 2000 meeting.

• Privatization forum. Finance Ministers endorsed holding the inaugural meeting of the APEC Privatization Forum in November 1999 in Bangkok. The initiative aims to support the privatization process through institutional strengthening and investment promotion. Initial topics for discussion will be "market reform, liberalization and competition" and "regulatory frameworks and reform."

Action by APEC Ministers and Sectoral Ministers

• APEC Ministers (Foreign and Trade) reviewed developments in the world economy at their November 1998 meeting 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.

• SME Ministers, at their April 1999 meeting in Christchurch, New Zealand, cited the profound effect of the regional crisis on smaller firms. They agreed that returning SMEs to growth was vital to economic recovery and that to achieve recovery APEC needs to focus on strengthening regional markets. Along with participants in a Business Forum, the Ministers stressed four ways to promote SME growth:

  • Enhancing management performance through education;

  • Reducing barriers to trade and regulatory compliance costs;

  • Improving capital markets and SMEs' access to them; and

  • Strengthening linkages to assist regional business (e.g. electronic commerce).

• Energy Ministers met in October 1998 in Okinawa and stressed the important role of the energy sector 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/demand outlook and instructed the Energy Working Group to hold a business-government workshop to develop recommendations on the sector's role in improving investor confidence and mobilizing new capital flows.

• The Energy Investment Workshop was held 19-20 April 1999 in the United States and stressed, inter alia, the need for transparency, predictability and non-discrimination in energy policy and regulatory regimes.

• Women's Affairs Ministers, meeting in October 1998 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.

• APEC HRD Ministers meet in Washington, DC in July 1999 and are expected to consider an action plan on the economic crisis incorporating policies and programs on the functioning of labor markets, social safety nets and enhancing productivity through better workplace practices.

Other APEC Initiatives

Various APEC fora have undertaken programs to assess the impact of the crisis and to help alleviate adverse effects on economies arising from the current situation. Examples of such initiatives include:

• Strengthening markets, a central theme of New Zealand's 1999 APEC chairmanship, is directly related to efforts to prevent a recurrence of the financial crisis. A key element is the effort by economies to develop a set of principles for competition policy and regulatory reform. A public/private sector symposium on regulatory management was held in September 1998 in Malaysia to solicit business input to this effort.

• The 1998 APEC Economic Outlook, prepared for and welcomed by Economic Leaders and Ministers, reviewed 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 Outlook is available on the APEC website.

• The 1999 Economic Outlook will analyze far-reaching, disruptive effects of the Asian crisis on regional trade and investment and their implications for the recovery period. This analysis will serve as the analytical basis for advancing TILF agenda. The 1999 Outlook including updated economic developments will also provide timely and relevant information for discussions by the Leaders and Ministers in September 1999.

• The discussions at the APEC 1998 Economic Outlook Symposium highlighted the differences between the Asian financial and economic crisis and previous crises, including its structural nature and its origins in the private sector rather than public sector imbalances. The Symposium provided a forum for APEC member economies to exchange ideas on the causes of the financial crisis, measures to deal with it and the implications for future economic development in the region.

• The Human Resource Development Working Group (HRD) is undertaking projects on social safety nets, corporate and non-profit governance, and labor market adjustment. It organized a seminar in May 1999 on human resource management strategies to minimize the effects of job retrenchments. Some of these programs flowed from the work of the group's Task Force on the Human Resource and Social Impacts of the Financial Crisis, which recommended new or expanded projects in key areas of crisis response.

• An APEC Forum on Human Resources Development will be held in July 1999 in Japan focusing on the short-term vocational training needs of workers affected by the crisis, as well as longer-term policies on vocational training to cope with globalization.

• Japan and Thailand will co-host an APEC Symposium on the Asian Economy in July 1999 in Tokyo. Based on reports from affected economies, government, business and academic experts will discuss short-, medium- and long-term measures to respond to the crisis and prevent any recurrence.

• 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.

• Australia has also established the Asia Recovery Information Center (ARIC), a resource housed at the ADB that facilitates access to information and analysis on social and economic impacts of the crisis. APEC plans to develop, under the auspices of ARIC, a mechanism to exchange information on social safety net issues for crisis-affected economies, drawing on APEC and other initiatives in this area.

• The Economic Committee's work program for 1999-2000 has a strong analytical component dealing with the crisis, including a two-year research project "APEC Economies Beyond the Asian Crisis." The study will examine vital issues arising from the crisis from long-term perspectives, in particular:

  • to assess the impacts of the crisis on the region's growth potential, trade and investment, infrastructure development, small and medium-sized enterprises, human resources and other social aspects; and

  • to suggest broad directions of policies to achieve sustainable growth and equitable development, with a view to linkages between APEC agendas and the region's future developments.

A report summarizing preliminary results will be tabled at the Ministers Meeting in New Zealand in September 1999, a symposium will be held in Tokyo in late 1999 to discuss interim outputs, and the final report will be prepared in time for the Ministerial and Leaders Meetings in Brunei in 2000.

• The Economic Committee's Infrastructure Workshop will undertake analytical work on the impact of the crisis, including on infrastructure demand, supply and government policies. The Workshop is considering new proposals in relation to infrastructure responses to the economic crisis and changed requirements for infrastructure policies, project structures and support mechanisms that are sustainable under current market conditions and that facilitate the rural infrastructure and sustainable urban development initiatives.

• 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 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.

• 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 among export credit agencies and export financing institutions with respect to private infrastructure projects.

• 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 1998 in Malaysia discussed the financial crisis and flagged pertinent issues regarding it in their report to SOM.

17 May 1999

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