High expectations for APEC meeting

High expectations for APEC meeting

By ALAN GOODALL
Special to The Japan Times
SYDNEY — Ten years after the last Asian financial crisis hit world markets, the leading countries in the region need to work harder to ensure that the next downturn does not descend into a global collapse. Have the region's financial regulators gotten the message?
They should have, judging by all the hot air generated at a gabfest at Coolum, on Queensland's Sunshine Coast. There the region's top finance ministers agreed on positive economic policymaking reforms. Whether words will be translated into action may become clear in a few weeks time.
Starting Sept. 2, the Asia-Pacific Economic Cooperation forum will meet in Sydney to consider the Coolum decisions plus input from the likes of the World Bank and U.S. Treasury. Judging by tough talks behind the scenes at the swank Queensland tourist resort, APEC may yet achieve a direction broader and more fruitful than ever before in its relatively brief, productive history.
The finance ministers — among them Japan's Koji Omi — met in the shadow of yet another reminder of how fragile is the global money ebb and flow. Fears of more fallout from upsets in the U.S. sub-prime lending rate, stemming from problems in the American housing market, coincided with the ministers' determination to insulate against future setbacks within and beyond Asia.
U.S. Deputy Treasury Secretary Robert Kimmitt set a positive tone when he provided a report on the U.S. housing situation. Delegates accepted his summary as a useful guide to what was generally agreed is a sound global market outlook.
Kimmitt, however, reminded delegates that despite useful improvements in banking systems of Asian countries since the 1997 Asian crisis, there is still the need for tightening up in some banking procedures.
New World Bank president Robert Zoellick was equally upbeat. His line is that economic fundamentals in the Asian region remain good. Current firmness, however, is the time to tackle broader approaches, such as reviving the Doha round of international trade talks and improving the region's investment climate.
Fittingly, the upbeat tone as a setting for wider APEC action was simultaneously playing out for observant Asian ministers in the Australian scene. The Australian economic performance, judged on all reliable indexes, is on a new high. Not that the ministers were overly impressed by that as they noted the tussle of the ruling conservative government in Canberra, heading for its 11th year in office in a close-run general election.
Confident Australian Prime Minister John Howard enthused visiting ministers that this country's financial system is "strong, stable and secure. It will be able to withstand any ripples" as from the U.S. housing market shock.
Optimism for the region's economic outlook came strongly from Asian Development Bank president Haruhiko Kuroda. He advised that the bank, in its regular September revision, is likely to upgrade its outlook forecast this year and next year. Overall performance so far this year is already running ahead of projections made in the Asian Development Outlook released earlier this year.
Kuroda noted that while some Asian banks might be exposed to the U.S. sub-prime mortgage jitters, he did not expect any macroeconomic impact on the Asian region unless the U.S. goes into recession, a course he considered unlikely.
Comparisons with the 1997 bust received short shrift in the Kuroda summary. The successful bank leader said Asian countries experiencing rises in short-term capital flows all had stronger banking systems and higher foreign reserves to provide support against any sudden outflow.
Complaints surfaced that the Japanese yen carry trade — in which international investors use low-interest yen to invest in higher yielding currencies — is causing financial market instability. But Japan's Omi said the yen's value was based on many factors that the Tokyo government did not control. Omi warned that investors should not presume that the carry trade was risk free.
The visit by Omi was doubly welcome because of a deal he reached with Australian counterpart Peter Costello. The two ministers agreed in principle on a new bilateral tax treaty. The deal includes reducing withholding tax from 15 to 10 percent.
Tokyo and Canberra are currently negotiating a free-trade agreement. That deal has yet to be struck, partly because of agricultural trade rows, but the success of the tax treaty suggests progress may now be quicker.
The brisk flow and counterflow of the pre-APEC summit debate at the finance ministers' meeting often skirted around issues Australia tried hard to push. As host, Australian Treasurer Peter Costello tried to refocus traditional APEC concern over trade barriers toward structural reform of member nations' domestic finance systems. He will try again to win stronger agreement when APEC meets in Sydney next month.
The next Australian push will be for an economic policy support unit at the APEC secretariat in Singapore and for structural reform of APEC. But as Australia's business daily newspaper, The Financial Review, editorializes: "These are sensitive issues with Asia where there is a tradition of not getting involved in the affairs of neighbors.
"The 1997 financial crisis made it clear that no country is an island in the era of globalization." However "these proposals must not sideline moves toward freer trade in the region, which in itself tends to drive economic change."
In a line likely to be pushed firmly by Treasurer Costello next month, the respected Review opined: "Finance ministers will be demonstrating that they really have learned the lessons of the Asia crisis if they support measures to improve economic policymaking and resilience in the region."
Meanwhile, Sydney folk are preparing to live through the heaviest-yet security safeguards in the first week of September to protect visiting Asia-Pacific heads of state. Tourism operators are hoping the summit will entice more Japanese visitors to return Down Under. The intake of Japanese tourists — preferred as they are the biggest spenders — has slumped 9 percent in a year.
One inducement may be to have APEC ministers and staffers feted between weighty debate sessions with some of Sydney's lighter, traditional relaxations such as surfing off the city's famous Bondi Beach.
Alan Goodall is former Tokyo bureau chief for The Australian.
The Japan Times: Thursday, Aug. 9, 2007
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