APEC programs must see light

By Jusuf Wanandi

VANCOUVER (JP): There is nothing that focuses the mind more than a crisis. Seemingly this was what happened at the ninth Ministerial Meeting and the fifth Leader's Meeting of APEC in Vancouver from Nov. 21 to 25, 1997.

Due to the elections in midyear, Canada was late in preparing something substantive to move the APEC process forward. In APEC it has always been the Chair that has the critical role to take new initiatives and to push the process forward. Thus, expectations had been somewhat low about what could be achieved in Vancouver this year.

Critics of APEC are already wondering whether this year's APEC meeting will be the beginning of the end for the organization due to the lack of leadership as well as the prolonged currency crisis in East Asia.

It has been considered critical to the organization that members continue to move ahead on trade and investment liberalization and economic technical cooperation. The other challenge for APEC this year was to be able to respond and provide solutions to the currency crisis in the region.

During the deliberations at the Ministers Meeting, every member economy was greatly aware of the challenges facing them and the high expectations about the meeting's outcome. More substantive debate had taken place than was usually the case, not only on programs for trade and investment liberalization and economic and technical cooperation which had been prepared by their senior officials, but also on how to respond to this year's challenges, including the currency crisis.

Among the many decisions taken, four stand out as the most important ones. First is the APEC leaders' demonstration of real partnership in the region by agreeing to endorse the idea of a new regional framework for enhanced Asia-Pacific regional cooperation to promote financial stability and to establish what is known as the "APEC Fund". The idea has to be worked out by the Finance Ministers in the next six months or so.

This idea was prepared in the Manila Meeting of Finance Ministers and Central Bank Deputies from 14 APEC economies a few weeks earlier, and is an improved and more acceptable version of the earlier Japanese proposal for establishing an Asian fund, first mooted at the IMF and World Bank Meeting in Hong Kong in September.

This new version endorsed by the APEC leaders essentially involves the creation of a regional early warning system on financial instabilities coupled with a complementary role of a supplementing fund from the Asia-Pacific as part of an IMF-led financial bailout in future crises.

That this system has to be under IMF leadership is accepted essentially because financial instabilities are a global problem. In addition there is the problem of moral hazard that needs to be prevented. This agreement by APEC leaders is vital and demonstrates that APEC is concerned not only with trade issues but also with macroeconomic policies, including in the financial field.

Although APEC finance ministers have come together annually since 1994, the effectiveness of their cooperation is starting to be felt only now. Hopefully the crisis and the leaders' decision on developing a new framework for enhanced stability in the region will lead to urgently needed increased cooperation on macroeconomic policies in the future.

Second is the progress made in the liberalization of trade through a combination of improved offers in members' individual action plans (IAPs), collective actions, and most significant of all identification of a number of sectors for early voluntary liberalization.

There have been improvements in the IAPs since the Manila meeting in 1996. The IAPs continue to be the key vehicle to reaching the Bogor goals. The review of the IAPs by the APEC Business Advisory Council (ABAC) in addition to reviews by APEC officials have become an important mechanism for peer pressure. More such peer reviews, including from the Pacific Economic Cooperation Council, would help ensure that the process of liberalization continues to be on track and will be more attuned to the needs of the business sector.

Most of all what is encouraging is the ability of the members to produce a list of sectors for early voluntary sector liberalization as instructed by the leaders in Subic a year before. The final list includes nine sectors, namely: environmental goods and services, fish and fish products, toys, forest products, gems and jewelry, chemical products, telecommunications mutual recognition arrangement or MRA, the energy sector, and medical equipment and instruments. Implementation of this initiative should be feasible in 1999.

The agreement on a broad range of liberalization and facilitation efforts shows that APEC economies, even including those that experience a currency crisis, are ready to quicken and broaden the process of trade liberalization. They agree that by doing this they can strengthen themselves to overcome new challenges in the currency and financial fields.

Furthermore, this regional and sectoral liberalization program should also become another peer pressure by example to the World Trade Organization, as was the case with the agreement on Information Technology Agreement in the 1996 Subic Meeting.

Third is the agreement to study the impact of the various liberalization measures on domestic developments. The impact of globalization on societies has been and continues to be profound. In the first instance, namely in the economic field, even developed nations have real difficulties in adjusting to globalization.

Consider, for instance, the stagnation in the real income of the middle class in the U.S. during the last decade or the high rates of unemployment (12 percent to 20 percent) in Europe as a result of globalization. The impact of globalization in developing countries is even greater.

It will be felt not only in the economic field but also politically (demands for greater participation), socially (demands for social justice), as well as culturally (how to be able to maintain one's basic cultural values).

In the economic field, the challenge is to be able to pursue a more inclusive and sustainable development and growth. Rapid growth alone, as amply shown in East Asia today, is far from adequate.

The process of globalization tends to marginalize small and traditional enterprises and people (such as unskilled labor). That is why the participation in APEC of youth and women is important to provide feedback, criticism, and possibly to bring up to the surface the problems faced by the weaker segments in societies.

It would be good if labor also has some participation in the APEC process in the future.

However, these problems should be addressed within the broader agenda of Economic and Technical Cooperation (Ecotech). Therefore, the fourth important decision of the leaders is the elevation of APEC's Ecotech agenda.

It is through Ecotech, which is APEC's third pillar besides the other two of trade and investment liberalization and facilitation, that developing economies in APEC can really benefit from and catch up in participating in the two other pillars.

But Ecotech should be important for every APEC member in strengthening their capabilities to cope with globalization. In this regard, two out of the six proposals stand out and hopefully will be stressed and translated into more concrete programs next year in Kuala Lumpur.

These are Human Resources Development (HRD) and the participation of small and medium enterprises (SMEs) in the economic growth and dynamism of the APEC region.

On HRD, an initiative for consideration is to establish an APEC scholarship fund of a half billion U.S. dollars to help the brightest students from within the region to go to the best universities of the Asia-Pacific. Another concrete plan is to establish apprenticeships for the younger generation in private companies and to provide tax incentives for participating companies.

Concrete programs need to be formulated to help SMEs increase their involvement in and benefit from APEC cooperation. Programs in the areas of HRD and SMEs are amongst Ecotech programs that would be directly beneficial to small and traditional enterprises and the weaker segments in the societies and should be given priority in APEC's agenda in the next year.

Next year APEC will be a decade old. This provides a good opportunity for the organization to undertake a real stocktaking of the progress of its programs and to assess the direction for consolidating the organization's work.

It is widely felt that APEC is engaging itself in a lot of studies and programming but has not yet translated them into reality.

This definitely needs to be changed. While it was easier before for APEC to come to an agreement and to get the process going because of the region's rapid economic growth and economic dynamism, the meeting in Vancouver was a test for the organization's long-term viability as it was being held in an atmosphere influenced by the currency crisis and slower growth.

It has to be noted that the leaders and the ministers have shown that they are able to turn the crisis into a catalyst not only for further liberalization of trade and investment but also in the financial field as a means to meet the challenge, today and in the future.

The writer is chairman of the supervisory board of the Center for Strategic and International Studies, Jakarta.