Pacific economic development: Future challenges

By Mark Borthwick

WASHINGTON (JP): The Pacific Economic Development Report 1995 suggests that there are several general areas to which policy leaders must give their attention. Figuring prominently in future debates will be the tendency of more and more governments to try to manage international competition. So many ingredients have been thrown into this complex brew of "competition policy" that it is likely to dominate much of the agenda on international trade and investment for the region and WTO well into the future.

Second, the development of Asia-Pacific financial and capital markets is a matter of urgent priority. Financial reform, however necessary, is fraught with risks. Interest rate instability, institutional upheavals, market volatility and other hazards will make progress toward a more efficient regional financial system slower than many would wish. The facile notion that we already know what needs to be done -- all that is needed is the political will to act -- begs the critical question of how to responsibly undertake a step-by-step process which is sensitive to individual national conditions.

Third, the deterioration of the region's natural environment is also widely recognized as a matter of great urgency, but the issues are more diffuse because of the multifaceted nature of environmental problems. Ominously, our capacity to design and implement effective international environmental policies remains so far short of what is needed that environmental crises of regional, even global, significance are likely to emanate from Asia-Pacific later in this decade. China's valiant attempt to halt the massive degradation of its environment on several fronts is particularly challenged, in the face of the great scale of the problems, to prevent the vectoring of such trends (e.g., ground water loss, air pollution, deforestation, etc.) towards a larger disaster. More importantly the region has yet to develop a vision that will cope with the environmental and economic impact of China's future massive energy, mineral and food requirements.

Fourth, one of the most visible restraints to regional trade is the transportation and telecommunications infrastructure. However rapidly it may be developing in the region, the flow of goods and services encounters serious bottlenecks in many economies. The question in terms of regional cooperation is whether and how the issues of infrastructure are multilateral rather than domestic. The inherent interdependence of transportation and telecommunications nodes suggests that long term planning at very senior levels of government is required. For instance in the area of air transportation, PECC activities have supported the view of other international bodies such as the Air Transport Action Group, the Pacific Area Travel Association, and the Orient Airlines Association, that consultations at the ministerial level are required to ensure that the regional airport network is both adequately meets the burgeoning demands of the system.

Fifth, development and readjustment of state enterprises in the Asia-Pacific region will preoccupy policy makers for years to come. In the meantime, renewed attention is being given to the development of small and medium enterprises. It is to be hoped that work in APEC and PECC will shed further light on how national policies and international cooperation can encourage growth of this critical base of economic activity.

Sixth, the growing shortage of skilled labor in the Asia Pacific region is by now well known as a byproduct of its success. Better understanding is needed of the capacities and effects of national planning efforts in this area. New levels of cooperation between APEC and PECC to improve data collection efforts should be a high priority alongside efforts to better understand the role of the private sector as a source of advanced training and skills.

However daunting the challenges may be, the resources with which to address them also continue to grow. Ideally, these resources will arise not only from growing regional wealth but from the capacity of the APEC and PECC economies to undertake a broad regional program of trade and investment liberalization. However, the question of whether this will occur through several rounds of direct trade and investment negotiations or a process of gradual unilateral policy reforms presently clouds our vision of a more open regional trading system in the Pacific.

Nevertheless, there is much that governments can do in cooperation with the private sector. First, by creating an institution to serve as a neutral "honest broker" of current, reliable data and analysis for policy makers and businesses in the region. Second, opportunities are growing in many parts of the region to test or demonstrate the application of policies or pilot programs that, if successful, can be replicated elsewhere. Whether regional institutions will play a significant role in this process remains dependent on both their priorities and the resources they can generate for such purposes. Third, reliable data about economic changes in individual economies -- and their regional relationship -- should be the bedrock of regional policy dialogs.

If most of the challenges and opportunities cited above are widely acknowledged as being priorities for the region, the strategy and means by which they are to be addressed is less certain. While PECC can offer up information and policy advice, formal region-wide cooperation will depend on the progress made in APEC. This is hindered as much as it is helped by APEC's often-stated aversion to creating a new international bureaucracy. The result has been the rapid emergence of a substitute bureaucracy in APEC comprising interlocking directorates and departments of foreign and trade ministers among widely dispersed national capitals. Whether this is an efficient and effective structure for cooperation remains to be seen, particularly if practical, large scale projects are ever attempted.