Asian crisis sets tough tasks for APEC

Asian crisis sets tough tasks for APEC

By Linda Sieg

TOKYO (Reuters): The Asian crisis which has jolted markets and dented global growth is calling into question the raison d'etre of the Asia-Pacific forum known as APEC, challenging it to prove its worth in good times as well as bad.

Leaders from the nine-year-old Asia Pacific Economic Cooperation forum will gather in Kuala Lumpur next week to mull a broad range of contentious topics from the free trade agenda that has been APEC's bread and butter to how to revive a region battered by 18 months of economic and political turmoil.

The leaders and their ministers face a tough test.

"APEC is an invention that dates from the good times for Pacific East Asia. It is vitally important that it demonstrates, particularly to the countries affected by the economic crisis, that it can also underpin them in the bad times," said Terence O'Brien, a professor at Victoria University in New Zealand.

Last year's APEC summit in Vancouver, the first after the Asian crisis broke, called for freer trade and stressed the region's economic fundamentals were sound -- only to come under fire for underestimating the extent of the brewing turmoil.

Now, though glimmers that the worst might be over have emerged, even optimists say fixing structural ills will be painful and tough and real recovery will take years.

The crisis in a region whose decade of stellar growth gave rise to what now looks like a myth of an "Asian miracle" has, in some critics eyes, cast doubt on APEC's most basic premises.

"There was a consensus that if economies liberalized trade and capital, it would spur growth," said Taiyo Suzuki, an economist at the Japan Research Institute. "Now the truth of that assumption has been called into question by the Asian crisis."

Others argue that despite the crisis and patchy progress toward completing trade liberalization by a target date of 2020, APEC's basic premises remain intact. But the crisis and its systemic fallout mean, these supporters say, that for now, free trade must take a back seat to other issues at APEC.

"For a while, trade has to take second place," said Alan Oxley, chairman of the APEC Study Center at Australia's Monash University, adding free trade was never APEC's sole agenda.

"The genesis was to bring...the region together to look at promoting growth, basically by ensuring market mechanisms worked. There's more to that than trade liberalization," Oxley said.

Friction between advanced economies urging speedy trade liberalization and developing members seeking to go at their own, often slower, pace has always been a subtext of the APEC story.

Now, with the harsh social as well as economic impact of the crisis clear, developing economies want proof that APEC means more than opening their markets so developed rivals can profit.

"If APEC developing countries are being asked to stay committed to opening up, there has to be a quid pro quo," said Mari Pangestu at the Centre for Strategic and International Studies in Jakarta.

Pangestu said the leaders need to tackle other issues while confirming their commitment to free trade, especially since a deal on priority trade sectors is likely to be weak given Japan's deep reluctance to open two of the nine sectors.

Among those issues are the need for fiscal and monetary stimulus for regional economies, debt relief and "capacity building" -- the nurturing of human resources and skills to cope with the region's huge problems in financial and other sectors.

This year's host, Malaysian President Mahathir, well-known for his ambivalence toward APEC's free trade doctrine and under fire from many quarters for his abrupt imposition of capital controls, has put the Asian crisis at the top of APEC agenda.

That means the issue of controls on the short-term capital flows some critics blame for exacerbating the crisis is certain to come up amidst discussions of how to reform a global financial system many agree is in serious need of improvement.

But the degree to which APEC can build on ambitious but still vague Group of Seven (G-7) plans to bolster the world financial system remains unclear.

The G-7 said earlier this month that it aimed to curb market turmoil by keeping tighter check on short-term money flows and creating a $90 billion crisis-prevention fund.

Improved financial sector regulation and transparency would be introduced to prevent future crises from spiraling out of control.

Some experts say APEC is a good venue for furthering the debate on reforming the global financial architecture; others argue little consensus can emerge from such a diverse group, whose finance ministers anyway meet separately at a later date.

"I don't expect anything regarding financial issues in terms of firm conclusions. I think the divide is so wide that everyone will speak their piece and then the issue will rest," said Jesus Estanislao, dean of the Asian Development Bank Institute.

Many experts worry, meanwhile, that human rights concerns raised by the trial of Malaysia's best-known dissident, former finance minister Anwar Ibrahim, will deflect attention from APEC's efforts.

But despite its woes, APEC is unlikely to fade away soon.

"If you tried to kill APEC, you couldn't," said Monash University's Oxley. "It's a natural reflection of the development of the Pacific Rim regional economy which has been a major trend for the last half-century and will be for another half-century."

The APEC meetings kick off on Nov. 12 with talks involving senior officials, followed by a meeting of trade ministers on Nov. 14-15. The leaders meet on Nov. 17-18.