SUNS  4327 Thursday 19 November 1998

Kuala Lumpur, Nov 18 (IPS/Johanna Son) -- Asia-Pacific leaders agreed Wednesday here to push reforms in an international financial architecture whose volatile swings have hurt many developing
economies, while pursuing a "coordinated growth strategy" to reverse Asia's recession.

The pledge to "strengthen" the financial system and to use parallel policies to pull Asia out of its downturn is contained in a 10-page declaration issued by leaders of the 21-member Asia-Pacific
Economic Cooperation (APEC) forum, at the end of their two-day annual summit in the Malaysian capital.

"The regional financial crisis has had economic and social aftershocks more severe than earlier anticipated and similar problems have appeared in other parts of the world," Malaysian Prime Minister Mahathir Mohamad said.

Clad in colourful Malaysian 'batik' outfits, APEC leaders met Wednesday at Cyberjaya, the country's 'intelligent' city by the Multimedia Super Corridor, located 40 km outside Kuala Lumpur and designed as an high technology hub by the Malaysian government.

APEC leaders said the first priority is to re-stimulate growth in the region, but that is not enough.

"While our immediate priority must be to mitigate the adverse social impacts of the crisis and to restore financial instability and economic growth, we must strengthen the international financial
architecture so as to better prevent future financial instability, and to resolve crises more effectively when they occur," the leaders said in the declaration.

"We agree that now is the time to effect changes aimed at strengthening the international financial system, so as to capture the full benefits of international capital flows and global markets, while minimising the risk of destructive disruptions," they said.

"We fully agree that strengthened global arrangements are important to enable us to benefit from increased globalisation while avoiding the difficulties many of our members are currently facing," the
declaration explained.

The declaration - which reflects Malaysia's concerns about financial volatility -- makes APEC the latest international forum where governments call for better regulation of the global financial system.

It says the reform in the financial system must involve both industrialised and emerging market economies, and that the expansion of the Group of 22 bloc of countries would be the right forum.

This reflects consensus in APEC that developing countries, most hurt by financial instability, should have as much say in financial reforms as rich nations who Mahathir says may not be familiar with
the ill effects of the crisis.

"We agreed to follow up with the G-22 and will be looking to influence other countries that are not members of this (APEC) group," Mahathir said after reading the declaration. APEC finance
ministers were tasked to develop measures to implement global financial reforms at next year's meetings.

"The international community did not move fast enough and the way we move here must be considered speedy compared to the normal way of decision-making in international organisations," he said at a press conference.

While the steep social costs of Asia's recession was on everybody's lips at the APEC summit here, no clear, new answer has yet emerged on how to pull the region out of its worst slump in years.

>From non-governmental organisations to businessmen to government officials across the Pacific Rim, all agree that something must be done for Asia's economies to get back to their feet and for the global effects of poor growth and trade to be eased, as soon as possible.

Several governments like that of the USA and Japan have unveiled a new aid package worth 10 billion U.S. dollars to help ailing Asian economies, banks, firms and financial systems. Australia has
announced its own "economic governance" scheme for the region.

But beyond setting aside funds to help banking systems and boosting economic governance, proposals here differ on the larger question of how Asia's fortunes can be changed and what policies it should use in the future.

Before the final meeting and issue of the Declaration, Malaysian Prime Minister Mahathir Mohamad had said that he wants the APEC declaration to highlight the need to regulate currency trading and
to make concrete suggestions to curb speculation that has hurt the region's economies.

While not asking APEC to pursue capital controls which it has itself imposed since September, Mahathir said he had a "reasonable hope for some agreement" on the idea of reining in harmful currency speculation. "We want to know the attitude of APEC toward the crisis and to demand some form of regulation," he explained.

Non-government organisations, which had met ahead of the formal APEC summit, have called on the group to give a second look at grand plans to turn the region into a free trade area by the year
2020, given the domestic dislocations caused by the Asian recession.

On Tuesday, Asia-Pacific businessmen asked APEC leaders to act quickly to address the economic crisis if the forum is to remain relevant. "The human cost of this crisis has been too high for too
long," said Tajudin Ramli, the Malaysian head of the APEC Business Advisory Council.

"APEC has to act if it is to mean anything," Ramli said in a dialogue with APEC leaders Tuesday afternoon.

A new report by the APEC task force on the social impacts of Asia's crisis in fact concludes that the heaviest burden of the recession falls on three groups - women, young people seeking to enter the
labour market, and older people who previously worked in certain industrial sectors.

Of great concern is the fact that "this reversal (of economic prospects) is taking place in economies with minimal social safety nets, and widespread expectations about growth, which can no longer
be met in the short term", said Nigel Haworth of the University of Auckland, who prepared the report.

In its report to APEC leaders, the APEC business council called for a mechanism to cushion the impact of currency instability and to help ailing financial systems by setting up government bonds backed by hard currency and backed by stronger economies.

It also asked the IMF to "broaden its approach to take into account the social implications" of the crisis.

But the businessmen's report also said that although some economies have had to introduce measures to "insulate" themselves from speculative currency trading, the business group believes that APEC's free-trade plan should remain on track.

Some leaders who said they had learned about the painful lessons of economic liberalisation from Asia's recession were also cautious about wholesale criticism of the free-market model.

"One year ago, many thought this was a purely regional crisis; we now know it to be global - affecting Russia and raising serious concerns about the economies of Latin America as well," Gore said in a speech Monday night. "All of us have learned lessons - hard lessons - in the past year... Ultimately, our best hope is to allow free markets to work their magic... This much is clear: just as the global financial crisis started here in Asia, the global economic recovery can and must start in Asia as well."

Several countries have expressed support for the idea that the debate on creating a new financial architecture for the world should not be a task left to the rich or powerful countries only.

In bilateral talks earlier this week, Australian Prime Minister John Howard agreed with Mahathir that discussions on changes in the international financial system must be brought at least to the Group of 22.

Mahathir had earlier said the debates should be widened beyond the Group of 7 industrialised bloc of nations, which has not been able to produce much by way of a solution. It does not help that the G-7 is made up of rich countries "which are not as badly affected as the developing countries", he remarked.

In a briefing Tuesday night, Chinese officials quoted Chinese President Jiang Zemin as telling Mahathir that uncontrolled speculation in financial and currency markets had brought about
"very serious consequences" for developing countries. "It is necessary for the international community to regulate over-speculation, because if this matter continues it will be unfavourable to developed countries as well," Jiang said.

But the APEC calls for financial reform did not impress critics. Premesh Chandra of the Malaysian Trades Union Congress said the impact of APEC leaders' words depends on the political will to
actually push for changes in the financial system.

"We've seen these calls for change at the IMF (International Monetary Fund) meetings and at the G-7. In the last six months there has been quite a lot of support for fundamental changes even
from mainstream economists," he said in an interview. "They all speak the same language, but there is a lack of political will to actually do these things."

As for the debate on financial reform being widened to the so-called Group of 22 -- going beyond the G-7 group of industrialised countries -- Premesh said: "But even if they decide to do something, will that actually be accepted?"

Malaysia's efforts, as APEC host, to air the concerns of developing countries, are reflected not just in the text on reforming the financial system, but in the type of policies APEC economies pledge
to pursue to ease Asia's recession and prevent a global contagion.

Thus, the APEC declaration lists in the forum's "coordinated growth strategy" six economic policies that in many ways go against the initial prescriptions made by institutions like the IMF, which
wanted public spending slashed and credit tightened in troubled economies.

The declaration calls for "growth-oriented macroeconomic policies appropriate to the specific requirements of each of our economies", more external financial assistance to provide safety nets, and increased flows of investments and capital.

But while it calls for "longer-term, urgent work" to strengthen the financial system, the document renews APEC's commitment to free and open trade and investment.

Because APEC remains intent on turning the region into a free trade area by 2020, activists say the declaration does not go far enough in seeking on overhaul of the financial system, which for them has inherent faults that cannot be patched up by safety nets during crises.

"One would think that given Asia's experiences over the last year, they would at least consider that and learn something from it," Elizabeth Wong of the Kuala Lumpur-based human rights group SUARAM said.

Premesh, who took part in NGO meetings ahead of the APEC summit, says that while an APEC call for a different financial structure is positive, it is "only one step" in the effort to deal with the
other ill effects of economic liberalisation, such as on wages and labour standards.

Critics also find that despite talk lamenting the heavy social costs of the recession, much of the remedies, including aid packages announced by the United States, Japan and Australia here this week, are for banking and financial sectors instead of social sectors.

"They are still practising the trickle-down theory, that the way to help the poor is to help the rich," Premesh said.