Steering steady course for finance - APEC/ABAC - The Challenges Ahead - Asia-Pacific Economic Cooperation, APEC Business Advisory Council - Brief Article

Business Asia,  May, 2002  by Tamsyn Smith

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The APEC Business Advisory Council's (ABAC) Finance Task Force is following a similar agenda to previous years, but with some new twists, says task force chair David Murray. Murray, who heads the Commonwealth Bank in Australia, leads the group responsible for developing recommendations for APEC leaders concerning financial issues.

To date, the focus has been on three main areas -- the development of domestic financial systems, global financial systems and capacity building.

In terms of domestic financial systems, Murray says the main aim has been to see if systems operate effectively without creating too much risk, and whether they provide the breadth of services' to help each economy operate more efficiently.

Accelerate reforms

In the ABAC report to APEC economic leaders at Shanghai last year, the task force recommended that banking and capital system market reforms be accelerated, including corporate governance, the implementation of international financial standards, the development of bankruptcy laws and legal systems, and the engagement of economies in the IMF Finance Sector Assessment Programs.

Further reforms were also recommended for global financial systems. Issues arising from looking at domestic and global financial systems lead to the third focus point, which is capacity building.

Murray identifies the need for APEC economies to broaden their banking and financial systems, as well as increasing, their transparency.

This in turn would encourage new investment and improve domestic competitiveness, at the same time providing risk management support. This capacity building is aimed particularly at SMEs, including the funding of microcredit schemes.

"There are a number of countries that have newly developing communities that require much smaller amounts of credit," Murray says.

A vital element in building the capacity of each economy is sharing good practice, which is far more efficient than developing separately, according to Murray.

"We're keen to take the lessons learnt in one country and use them to help another," he said.

This year

The 2002 focus is essentially the same, says Murray, but with a few additions. "We're looking at how financial issues can contribute to political and economic security," he said.

In the post-9/11 analysis, major problems were identified in the property and casualty insurance industry, which leads to the greater issue of financial contagion -- which is if one country gets into trouble, how do you stop that from spreading to other countries.

Murray says this leads back to capacity building, and sharing experiences.

"Nobody has a mortgage on the right way of doing things. What we try and do is see how well that learning is shared, to see if we can't get all of the APEC nations developing their financial systems so that they can finance economies in the best profile of risk and return," he said.

This year, Murray says an important change is the completion of ABAC work earlier to have interaction with ministerial leaders in the lead up to APEC meeting. Previously, the paths between ABAC and APEC were more separated.

Reflections

When asked his opinion on the ability of APEC to make achievements, Murray centres on the ongoing role of the organisation, rather than a list of accomplishments.

He says that although APEC is not capable of doing what an organisation like the European Union can do, the dialogue that arises from the regular meetings of members is focussed and beneficial. "The information sharing that comes from that has a significant hidden value to all of us," he said.

He believes the Chinese succession to the World Trade Organisation is huge bonus for APEC.

"We just have to keep going with what we're doing because we have such diverse economies with similar goals," he said.

RELATED ARTICLE: Finance task force goals.

In its 2001 recommendation to APEC leaders, the Finance Task Force reinforced the need for continuing reform both at a domestic and international level.

Their recommendations stated that: "The pronounced slow-down in the world economy has put severe financial pressures on some economies. Financial contagion is a reality and reinforces the need for immediate financial system reform both domestic and international. Business confidence generally is weak and capital flows to emerging markets show a marked decline. Both would be revived by fast tracking trade and investment liberalisation. Stronger and more diverse financial sectors would encourage capital flows and lead to a greater confidence in the process of, and capture the gains from, trade and investment liberalisation. Capacity building is urgently required to provide depth to and diversity in banking systems and capital markets and to facilitate the adoption of international standards in developing economies."

Specifically, the Finance Task Force called for APEC to:

* Accelerate banking and capital system market reforms;

* Broaden and deepen financial systems;

* Further liberalise investment and trade in financial services; and