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Asia Pacific Economic Cooperation Forum
Apec Economic Leaders' Declaration
Kuala Lumpur, Malaysia: 18 November 1998


STRENGTHENING THE FOUNDATIONS FOR GROWTH

[Part 2 of 5]

APEC - KEY CHALLENGES
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 International Monetary Fund (IMF) programme and welcome efforts by the World Bank to triple and the Asian Development Bank (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.
  • such 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 debt 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

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 strenghten the preparedness of our own domestic financial systems to withstand the potentially destabilising impact ofE short-term flows and to ensure the allocation of long-term capital to productive uses.

Strenghtening the International Financial Architechture

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 crisis 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 strenghten 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.

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