Asia Pacific Economic Cooperation Forum
Apec Economic Leaders' Declaration
Kuala Lumpur, Malaysia: 18 November 1998
STRENGTHENING THE FOUNDATIONS FOR GROWTH
We, the Economic Leaders of Apec, meeting in Kuala Lumpur on 18 November 1998, renew our resolve toward creating a prosperous Asia-Pacific community where economic disparities among our peoples will be bridged by strengthening the foundations for 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 macroeconomics 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 - KEY CHALLENGES
Challenges of the Financial Crisis
4. Since we met in Vancouver in November last year, the outlook for the global economy has weekened 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, (South) Korea, the Philippines and Thailand in the implementation of strong reform programmes, backed by an unprecedented degree of financial co-operation and support from the international community, has resulted in a substantial degree of finance 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 renmimbi 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, togather 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 within Apec; and
- Looking towards the long-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.
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