OECD faces discrimination battle

PUBLISHED : Sunday, 06 April, 1997, 12:00am
UPDATED : Sunday, 06 April, 1997, 12:00am

HONG KONG has succeeded in getting several burning issues on to the Asia Pacific Economic Co-operation (Apec) agenda, including a call for Apec leaders to lobby the Bank of International Settlements (BIS) in Basle to stop discriminating against non-OECD members.

OECD members at present enjoy 100 per cent risk weighting under BIS capital adequacy standards, whereas non-members get just 20 per cent. This means banks can offer better risk asset weighting to OECD members, the majority of which are Western countries.

'It means the cost of capital is five times higher for non-OECD members,' Johnny Noe Ravalo, chief economist of the Bankers Association of the Philippines, said.

Philip Li Wing-kuen, chairman of the Hong Kong Capital Markets Association, said: 'This reflects discriminatory treatment against non-OECD economies.' Within Apec, there are just four OECD members - Japan, Canada, Australia and the United States. Korea will join the fold later this year. Mr Li said the privileged treatment encouraged capital to flow towards OECD members countries, whereas many Asian countries, where demand for capital to meet infrastructure spending requirements was vast, were being short-changed.

'It is unreasonable,' said Mr Li, representing Hong Kong at the meeting of the Asian Financiers Group (AFG) along with executive councillor and Hongkong and Shanghai Banking Corp executive director Vincent Cheng.

'There should be a level playing field,' Mr Li said.

Mr Ravalo said the latest Asian Development Bank data and other sources indicated Asia needed US$1.5 trillion over the next 10 years to meet its infrastructure spending requirements.

Mr Li, executive director of IBJ Asia, brought this issue up at an AFG meeting in Tokyo last year, but AFG leaders yesterday conceded it had not been accorded the further action it deserved.

After the Cebu meeting, the BIS standards issue will be one of several key agreements and recommendations put forward to regional finance ministers with the possibility of endorsement during the new Apec year that leads to the Apec leaders meeting in Canada next year.

Mr Li said that by re-writing the BIS standards book, it would no longer be necessary for Apec members to achieve OECD status to get fair treatment.

All four main key agreements centred on how to loosen capital flows and attract more capital towards infrastructure, which, Mr Ravalo said, was a limited resource, like any other commodity worldwide.

Several other areas were agreed should be worked on before Apec Canada 1998: A Hong Kong proposal for other countries to follow its lead in easing, if not waiving outright, profitability records for listing of infrastructure companies, to enable them to have easier access to equity markets. Hong Kong held up the recent successful listing of infrastructure firm Road King as an example.

For the Philippines to undertake a technical study into setting up information centres in each Apec member country, listing proposed infrastructure projects that may need foreign involvement.

For the education committee of the Asean Banking Council to draw up an inventory of skills and skills-training available within the Apec area.

Representatives decided against a proposal to set up a special institution for training, instead preferring to promote what training is already available in the area.

For credit and bond rating agencies within Apec to establish a forum to allow them to agree on best practices, so that countries with poor agencies can aim towards higher standards. Hong Kong strongly suggested that, in order to develop a good domestic bond market, member countries needed to have a good benchmark. Government bonds are usually used as benchmarks, but some countries' bonds within Apec did not have the liquidity to make this effective. To get around this, Hong Kong proposed that supernational bodies like the World Bank be allowed to develop benchmark bonds in these countries.

For Apec members to hasten the pace of introduction of real time gross settlement and scripless trading.

For an evaluation to be carried out on the status of domestic bond markets in various member countries. Representatives wanted to get a better idea of where each country was at the moment before moving on to the next stage of suggesting new initiatives to encourage members voluntarily to develop their domestic bond markets.

To hasten the move towards full and comparable disclosure of financial and capital market data and standardising accounting principles throughout the region.

It was suggested that the FAS-30 standard used by the banking community be adopted as a model.

To promote cross-listing of securities, to allow foreign companies participating in overseas infrastructure projects to be allowed to tap domestic financial markets as well as their home countries for capital. It was recommended that in countries where cross-listing was already available, stock exchanges should prepare short descriptive papers that could be circulated to companies.

Hong Kong also proposed to promote due diligence when evaluating bonds, with a particular emphasis on legal risk, an issue largely overlooked within Asia but now seen as very important in the US and Europe. Data would be checked by law firms before being released, thus giving investors a recall if mistakes were made.

Rafael Buenaventura, president of the Philippine Commercial International Bank and chairman of the third Apec AFG meeting, said these were all areas where progress should be achieved easily over the coming year, adding that there were also other longer-term objectives.

'We are looking to develop the environment and put the structure in place to encourage investment. It is very important that your economy is open enough so that people will come in,' he said.

All country representative agreed that the various agreements and recommendations had merit, but some members from less-developed countries expressed concern about the pace of their implementation, if endorsed.

The final proposal from the AFG meeting was that the forum be given greater clout, by adopting a greater legal status through governments formally appointing their two representatives.

Instead of a one-way flow of ideas from AFG to finance ministers, representatives would then be able to embark on a dialogue.