APEC ECONOMIC LEADERS DECLARATION: STRENGTHENING THE FOUNDATIONS
FOR GROWTH
KUALA LUMPUR, MALAYSIA
18 NOVEMBER 1998
1. We, the Economic Leaders of APEC, meeting in Kuala Lumpur on
18 November 1998, renew our resolve towards creating a prosperous
Asia-Pacific community where economic disparities among our peoples
will be bridged by strengthening the foundations of our economies
for growth, providing the environment necessary for the efficient
flow of trade, investment and technology and by enhancing the capacities
of our economies to participate and benefit fully from liberalisation.
2. Our meeting in Kuala Lumpur takes place at a critical time.
We need to deal urgently with the financial crisis which has spread
beyond the APEC region. It has resulted in far reaching social costs,
with the affected economies experiencing rising unemployment and
falling real incomes, setting back decades of progress achieved
in eliminating poverty and increasing education opportunities, as
well as access to basic health and infrastructure facilities. We
are resolved to work together to support an early and sustained
recovery in the region, to contain the risks of contagion and
prevent the possibility of a global recession.
3. We reaffirm our confidence in the strong economic fundamentals
and prospects for recovery for the economies of the Asia Pacific.
We believe our emphasis on prudent, growth-oriented macroeconomic
policies, strengthened financial institutions and markets, trade
and investment liberalisation, and capacity building are cornerstones
for renewed and sustainable growth. In particular, our emphasis
on "Capacity Building" across the broad range of APEC
activities this year is particularly relevant in addressing the
challenges confronting the region during this time. APEC¡¯s emphasis
on human resources development, including skills development, technological
upgrading, infrastructure improvements and wider outreach to SMEs
will strengthen our resilience and capability in overcoming these
challenges and restoring stability and confidence to the region.
APEC ¨C KEY CHALLENGES
Challenges of the Financial Crisis
4. Since we met in Vancouver in November last year, the outlook
for the global economy has weakened considerably. 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.
Nevertheless, there have been several encouraging developments
in our economies and in the international financial system in recent
months. The progress made by Indonesia, Korea, Philippines and Thailand
in the implementation of strong reform programmes, backed by an
unprecedented degree of financial cooperation and support from the
international community, has resulted in a substantial degree of
financial stability, thereby laying the foundation for recovery
in the APEC economies most directly affected by the crisis. In these
economies:
- Exchange rates have remained relatively stable, and have strengthened
in many of these economies over the past several months. This
has permitted substantial reductions in nominal interest rates
to levels which, in some cases, are below those prevailing before
the crisis.
- Fiscal policies have been adjusted with support from the IFIs
to allow increased spending to support demand and employment.
- The initial acceleration in inflation that accompanied devaluation
has been contained to moderate levels in most emerging Asian economies,
and the rate of inflation is now decelerating across the region.
- Short-term external debt burdens have been reduced and reserves
have begun to be replenished in many economies.
- Current account balances have moved into surplus, although most
of the adjustments have come from reduced imports.
- Output declines have been more extensive than many had anticipated,
but are now moderating.
- Several other economies including Indonesia, Korea, and Thailand,
have made impressive efforts to strengthen and restructure their
respective corporate and financial sectors.
5. In China, interest rates have been eased and an expansionary
fiscal package is being implemented to further stimulate economic
growth. Maintenance of the renminbi exchange rate has provided an
important anchor to help secure regional financial stability.
6. In recent weeks, these developments have been reinforced by
:
- the reduction of short-term interest rates in a number of industrialised
economies;
- Japan¡¯s commitment of substantial public resources to strengthen
its financial system. The authorities have made clear their intention
that the essential swift and effective action in the banking sector,
including the recapitalisation of banks, with appropriate conditions,
will be taken as a matter of urgency. This action, together with
a sustained boost to domestic demand is key to the restoration
of market confidence and growth not just in Japan but in the whole
Asian region;
- the progress made towards providing additional resources to
the IMF; and
- the G-7's agreement to support the establishment of a new IMF
facility to deal with contagion by providing a precautionary line
of credit for economies with sound policies supported by the IMF.
7. But important challenges remain. To meet these challenges, we
are committed to pursuing a cooperative growth strategy with the
following dimensions:
- Growth-oriented prudent macroeconomic policies, appropriate
to the specific requirements of each of our economies;
- Expanded financial assistance from the international community
to generate employment and to build and strengthen social safety
nets to protect the poor and vulnerable;
- A comprehensive programme of support for efforts to strengthen
financial systems, restore trade finance, and accelerate corporate
sector restructuring;
New approaches to catalyse the return of stable and sustainable
private capital
- flows into the region;
- A renewed commitment to the Bogor goals of achieving free and
open trade and investment within APEC; and
- Looking toward the longer-term, urgent work among ourselves
and with other economies and institutions to develop and implement
measures to strengthen the international financial system.
In this context, we welcome Japan¡¯s proposed financial package
of US$30 billion to support economic recovery efforts in Asia. We
also welcome the multilateral initiative to revitalise private sector
growth announced this week by Japan and the US in conjunction with
the Asian Development Bank and the World Bank. We believe these
initiatives will significantly aid our joint efforts to promote
recovery and growth in the region and we look forward to their early
implementation.
Growth-oriented Macro Policies
8. Each APEC economy has a role to play in accelerating recovery
in the region by directing policies with the objective of maintaining
or achieving robust growth, contributing to a supportive external
environment, and keeping markets open.
- The major industrialised economies need to create or sustain
conditions for strong domestic demand-led growth.
- For the APEC economies most directly affected by the crisis,
it is important to continue and accelerate structural reforms
within a framework of prudent, growth-oriented macroeconomic policies.
- Other economies in the region where growth may be moderate or
slowing also need to continue efforts to implement appropriately
stimulative macroeconomic policies which maintain financial stability
and sound levels of domestic savings, while also working to address
financial sector reforms in ways that build investor confidence.
International Support for Employment and Social Safety Nets
9. We note that the financial crisis has resulted in far reaching
social costs. In addition to rising unemployment, and falling real
incomes, the financial crisis could lead to a substantial increase
in poverty in the most seriously affected economies. We therefore
endorse the greater flexibility of IMF programmes, and welcome efforts
by the World Bank to triple and the ADB to double their social sector
lending.
Financial and Corporate Sector Restructuring
10. Revitalising the private sector by helping to recapitalise
financial institutions, addressing companies¡¯ heavy debt burdens,
and restoring their access to trade and working capital financing
are critical to achieving renewed economic growth in the economies
most severely affected by the crisis.
In this regard, we will encourage financial and corporate sector
restructuring through mechanisms to:
- mobilise additional assistance to support implementation
of accelerated financial and corporate sector restructuring, including
through use of multilateral development bank guarantees and other
innovative mechanisms;
- increase the availability of working capital and trade finance,
including through cooperative efforts between export credit and
insurance agencies and between such bilateral institutions and
the multilateral development banks;
- support efforts to mobilise significant private sector equity
capital and investment to help distressed companies and financial
institutions in the APEC region successfully restructure both
their finances and their operations; and
- review and, in line with the respective circumstances, remove
regulatory and legal impediments to the ability of private financial
institutions to participate constructively in the restructuring
of the debts of private sector borrowers, while encouraging export
credit and insurance agencies to play a more catalytic role
in encouraging such restructuring.
Catalysing Private Capital Flows
11. In order for the region to fully recover from the crisis, we
must be able to attract growth-enhancing, stable capital flows into
the region. The increased risk aversion by investors as well as
by major private financial institutions has led to a sharp reduction
in the flow of capital into East Asian and other emerging market
economies without respect to the diversity of prospects among the
economies and their long-term growth potential. In response to this
challenge, we support efforts by the multilateral development
banks to use innovative financial instruments to help catalyse and
leverage private sector capital flows.
In light of the concerns expressed about the role of the recent
performance of the international credit rating agencies, we call
for a review of their practices to promote greater effectiveness
and to contribute to sustainable capital flows.
In particular, we also need to strengthen the preparedness of our
own domestic financial systems to withstand the potentially destabilising
impact of short-term flows and to ensure the allocation of long-term
capital to productive uses.
Strengthening the International Financial Architecture
12. While our immediate priority must be to mitigate the adverse
social impacts of the crisis and to restore financial stability
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. 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. 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.
In particular, we welcome and support the establishment of the
new IMF facility for a precautionary line of credit for economies
with sound policies supported by the IMF that are threatened by
contagion.
The close collaboration and participation of the industrialised
economies and the emerging market economies is vital to the success
of these efforts to strengthen the international financial system.
APEC has already played a major role in this regard notably in promoting
improvements in the international community¡¯s ability to respond
to crises, through instruments such as the IMF¡¯s Supplemental Reserve
Facility. We pledge to continue such collaboration.
Challenges to Trade and Investment Liberalisation and Facilitation
13. The expansion of trade and investment remain essential elements
of our economic recovery and we reiterate the need for liberal and
open markets and an enabling environment for investment. We consider
it particularly important that in the current circumstances, early
progress be made on broad-based multilateral negotiations in the
WTO, achieving an overall balance of interests of all members.
We reaffirm our commitment to uphold and strengthen the multilateral
trading system to ensure fair rules and benefits for all. We urge
the prompt accession to the WTO of applicants in accordance with
WTO rules, with a view towards achieving the universality of WTO
membership.
Challenges to Economic and Technical Cooperation
14. Given APEC's diversity and differing levels of development,
globalisation and liberalisation must be complemented by initiatives
that build confidence and increase capacity to benefit fully from
these processes in order to narrow the disparities in income and
wealth. Such initiatives will not only strengthen systemic capacities
but will also support APEC's liberalisation and facilitation efforts.
The challenge will be to continue to achieve a balance in all three
pillars of APEC cooperation to ensure sustained economic growth
and development. Economic and technical cooperation has acquired
added urgency in the wake of the financial crisis.
KEY ACHIEVEMENTS IN 1998
15. We in APEC have continually given emphasis to result and outcome-oriented
individual and cooperative efforts through the APEC approach. As
we move into the third year of implementation after Subic and Vancouver,
we note the substantial achievements made in advancing APEC cooperation
in our trade and investment liberalisation and facilitation agenda
as well as progress in capacity building efforts on economic and
technical cooperation.
16. We have reflected on the progress and the results achieved
throughout the year as reported to us by our Ministers and we express
satisfaction in fulfilling the tasks we set for ourselves when we
last met in Vancouver. We welcome the outcomes of the various sectoral
Ministerial Meetings held throughout the year and direct APEC fora
to follow up on the recommendations.
17. Towards realising the goal of free trade and investment in
the region in accordance with the principles of the Osaka Action
Agenda, we pledge to continue improvements and implementation
of our Individual Action Plans (IAPs).
18. We commend the work of our Ministers to facilitate the flow
of goods, resources, capital and technology amongst our economies.
We will improve the facilitation process to promote efficiency and
cost reduction through strengthening members¡¯ capacities, including
adopting policies to harness the potential of new technologies.
19. We welcome the progress achieved on the EVSL package of
nine sectors. We instruct Ministers of participating economies
to implement the agreement reached on these sectors and further
advance work on the remaining six sectors, demonstrating our commitment
to the liberalisation process amidst the financial crisis in the
region.
20.We affirm that progressing all three pillars of cooperation
in APEC will strengthen the foundations for further growth. We commend
progress in the priority areas of human resources development and
harnessing technologies of the future. We note the improvements
in the management of the economic and technical cooperation process
including the work underway in infrastructure and sustainable development.
We instruct Ministers to give further focus to strengthen coordination
in ECOTECH activities and intensify work in the priority areas.
We believe the contribution of the business/private sector in ECOTECH
activities will enhance and strengthen our efforts to advance the
economic and technical cooperation agenda and welcome ABAC¡¯s commitment
in this area through the Partnership for Equitable Growth (PEG).
21. As the APEC community enters into its tenth year of cooperation,
we recognise the need to review its activities, structure and mechanisms
in order to ensure that APEC delivers focused and outcome-oriented
results in the most effective and efficient manner. We observe the
proliferation of APEC fora and meetings and endorse work to further
streamline the APEC management process. We instruct Ministers
to complete the review of the APEC process by 1999 and for implementation
of measures in 2000.
22. We recognise that the involvement of the business/private sector
is an important feature of APEC work and endorse its broader participation
in APEC activities. We direct Ministers to enhance business/private
involvement, within existing guidelines, in relevant APEC activities.
We welcome efforts to improve business mobility through the APEC
Business Travel Card scheme and the collective commitment to expand
the availability of multiple entry visas or permits to business
travellers. We also welcome the recommendations by ABAC and instruct
our Ministers to study ABAC¡¯s proposals, including the APEC Food
System.
STRENGTHENING THE FOUNDATIONS FOR SUSTAINED GROWTH
INTO THE 21ST CENTURY
23. We are firmly resolved to strengthen social safety nets, financial
systems individually and globally, trade and investment flows, the
scientific and technological base, human resources development,
economic infrastructure, and business and commercial links so as
to provide the base and set the pace for sustained growth into the
21st century.
Strengthening Social Safety Nets
24. Given the ramifications of the crisis and the importance of
addressing social vulnerabilities, we agree that as a matter of
high priority, APEC should intensify efforts to address the social
impacts of the crisis. In particular, we direct our Ministers to
work with the World Bank, the ADB, the Inter-American Development
Bank and, where appropriate, public and private institutions to
formulate strategies of concrete actions aimed at strengthening
social safety nets. We look forward to receiving a report at
our next meeting.
Strengthening Financial Systems Individually and Globally
25. We recognise that the development and strengthening of the
financial system is fundamental to the realisation of APEC¡¯s goal
of free and open trade and investment by the year 2010/2020.
We welcome the work undertaken in several fora to strengthen the
international financial system and in particular take note of the
proposals made to improve transparency and accountability; to strengthen
national financial systems and market infrastructure; and to improve
co-ordination and involvement of the private sector in the prevention
and orderly resolution of international financial crises. We believe
that there would be considerable value in continuing this work in
a process involving both industrialised and emerging markets economies.
We agree that a forum such as an expanded G22 would be appropriate
for this purpose. We also call on our Finance Ministers to develop,
on an expedited basis, measures to implement these proposals.
We ask for a report at our next meeting on the outcomes of such
deliberations within APEC and elsewhere.
We attach special urgency to examine the scope for strengthened
prudential regulation of financial institutions in industrialised
economies to promote safe and sustainable capital flows, to encourage
sound analysis and better risk assessment; to examine the questions
of appropriate transparency and disclosure standards for private
sector financial institutions involved in international capital
flows, such as investment banks, hedge funds and other institutional
investors; and to examine the implications of operations of highly
leveraged and off-shore institutions. We call for the early establishment
of a taskforce including the systemically significant economies
to develop practical proposals in these areas. We also call for
work to proceed immediately in an appropriately constituted international
working group on improved crisis management including orderly debt
workout arrangements with the private sector. These proposals can
be discussed in the forum for endorsement at the leaders¡¯ level
and subsequent implementation.
26. The financial instability in Asia underscores the importance
of developing strong, resilient and well-regulated domestic financial
markets within the framework of a stable international financial
system. We therefore call for the adoption by member economies of
internationally recognised principles for enhancing supervision
of banking systems and securities markets. Among these are the Basle
Principles on Effective Banking Supervision and those of the International
Organisation of Securities Commissions. In this connection, we welcome
work by our Finance Ministers and Central Bank Governors to explore
ways to assess the adequacy of and to help reinforce efforts to
strengthen financial supervisory regimes in member economies, including
by identifying ways to record in APEC their progress in adopting
international standards/codes/best practices. We look forward to
a report at our next meeting on both these directives.
We also direct our Finance Ministers to look for innovative
ways to promote the recovery of capital flows into the region,
including through partnerships among member economies, the private
sector and collaborative efforts with the World Bank, the ADB and
other multilateral institutions. We look forward to concrete results
at our next meeting.
27. We record our satisfaction with the progress made by our Finance
Ministers in promoting the Cebu collaborative initiatives to develop
strong, resilient and stable financial and capital markets in our
region and we look forward to regular updates on the implementation
of these initiatives at the individual and regional level. We endorse
the move by our Finance Ministers to address the need for freer
and stable capital flows into the region and in this regard direct
our Finance Ministers to incorporate the useful lessons of the past
18 months as they endeavour to develop a pragmatic Voluntary Action
Plan as well as formulate appropriate guidelines for monitoring
capital flows, including short-term flows.
28. We commend increased efforts to assist crisis-affected regional
economies develop sufficient capacity to rebuild their economies
and overcome current difficulties. We welcome the Australian initiative
on Economic Governance Capacity Building and the areas proposed
for enhanced capacity building joint activities. We also welcome
the Singapore initiative which will provide technical assistance
programmes at the IMF-Singapore Regional Training Institute and
in collaboration with other interested partners and institutions.
We encourage economies to pursue such capacity building initiatives.
29. We are agreed on the importance of improving economic transparency
and predictability at the national and international levels. Therefore,
we welcome a new collaborative initiative agreed by Finance
Ministers at Kananaskis to examine ways of strengthening corporate
governance in the region. We also welcome a new initiative on
the development of domestic bond markets. We applaud the initiative
of the Financiers Group to create private sector training and education
programme for financiers across the APEC region, which we believe,
will complement the effort of the member economies in this area.
We direct our Finance Ministers to focus efforts on advancing progress
on all these initiatives and look forward to a report on concrete
outcomes at our next meeting.
Strengthening Trade And Investment Flows
30. We welcome further efforts to strengthen trade and investment
flows in the region. These include work on competition policy and
regulatory reforms as well as rapid implementation of measures to
further enhance an environment conducive for trade and investment
flows. In this regard we welcome the adoption of the menu of options
and measures on investment and Korea¡¯s initiative to host an APEC
FDI Mart in Seoul in June 1999.
We note that knowledge-based industries and tourism have considerable
potential to contribute to growth and development in the next century.
We recognise the need for efforts to maximise the contribution of
these sectors to the prosperity of APEC economies.
Strengthening The Science And Technological Base
31. We endorse the 1998 APEC Agenda for Science and Technology
Industry Cooperation into the 21st century which will facilitate
our vision of enhancing APEC's ability to harness technologies for
the future and catalyse the development of strong sustainable regional
science and technology networks and partnership. We take note of
the principles, mechanisms and areas for joint actions set out therein
and instruct Ministers to undertake due efforts to implement the
agenda. We welcome the establishment of the China APEC Science and
Technology Industry Cooperation Fund.
Strengthening Human Resources Development
32. We reiterate our common belief that human resources development
is a key and integral factor to the realisation of all efforts towards
a capacity for sustained growth in the economies of the Asia-Pacific
into the 21st century. We have made a commitment to a framework
to advance human resources development across the entire spectrum
of our work plan. We therefore endorse the attached 1998 Kuala Lumpur
Action Programme on Skills Development in APEC as a significant
inroad into public-business collaborative partnership in skills
development. This programme recognises the value of the contribution
of the business sector and underscores APEC's continued broadening
of its outreach to the business community. We welcome the initiatives
of member economies and further instruct Ministers to undertake
concerted efforts towards the implementation of this Action Programme.
In this regard, we welcome Singapore¡¯s technical assistance for
the training of healthcare professionals in the region.
We support continued efforts to further the role of women in the
APEC process. To this end, we instruct Ministers to develop a Framework
for the Integration of Women in APEC.
Strengthening the Economic Infrastructure
33. We reaffirm that strengthening the capacity of our economic
infrastructure is an essential component towards the realisation
of our goals of sustainable and equitable growth and development
throughout the APEC community. We commend in particular commitment
given throughout 1998 to further strengthen and develop economic
infrastructure. We welcome the Natural Gas Initiative approved by
the Energy Ministers at Okinawa. We acknowledge the progress that
is ongoing in the implementation of the Vancouver Framework For
Enhanced Public-Private Partnerships in Infrastructure Development.
We welcome progress being made in advancing the initiative of creating
the Asia-Pacific Information Society and endorse work to further
advance the development of the Asia-Pacific Information Infrastructure
(APII).
We reiterate our commitment to advance sustainable development
across the entire spectrum of our workplan including cleaner production,
protection of the marine environment and sustainable cities. We
endorse the joint actions to be launched in the areas of food, energy
and the environment in relation to the economic and population
growth of the APEC community. We instruct that Ministers undertake
efforts to develop the implementation of these joint actions. We
commend the initiative of Ministers in establishing the APEC
Framework for Capacity Building Initiatives on Emergency Preparedness,
which seeks to foster cooperation in longer-term capacity building
in preventive and responsive measures for unexpected natural emergency
disasters.
Strengthening Business and Commercial Links
34. SMEs are a major stakeholder in APEC comprising over 95 percent
of all enterprises, employing up to 80 percent of the work force
and contribute 30 to 60 percent of the GNP of APEC economies. We
stress the importance of harnessing and increasing the potential
for SMEs to contribute to growth and development in the region.
We commend Ministers for producing the Integrated Plan of Action
for SME Development (SPAN) that sets out the blueprint of strategic
directions for both enterprise and entrepreneur development through
individual and collective actions. We instruct Ministers to focus
on further developing and strengthening the dynamism of SMEs and
to give priority to the implementation of joint actions of the SPAN
and encourage economies to adopt individual actions to strengthen
the development of SMEs. We look forward to receiving more concrete
outcomes at our next meeting.
35. We commend Ministers for formulating the APEC Blueprint For
Action On Electronic Commerce containing broad themes and cooperative
activities for the promotion and development of electronic commerce
in the region. We recognise that the Y2K problem has the potential
to cause significant economic, trade and financial disruption. We
agree that all economies need to enhance awareness and implement
necessary measures to resolve this problem on an accelerated basis.
We are confident that APEC, bound together by our commitment to
our goals and our resolve to strengthen the foundations for growth,
will meet the challenges of the 21st century.
KUALA LUMPUR, MALAYSIA
18 November 1998
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