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SCMP Reporter

There will be immense pressure on regional leaders at next week's Asia-Pacific Economic Co-operation forum summit in Kuala Lumpur to reinvigorate efforts to deal with the regional crisis.

 Leaders have been bombarded with wish lists and ideas, and an ambitious blueprint for a concerted Asian recovery programme has been prepared. Hopes and expectations are running so high, disappointments are certain.

 In particular, it is unlikely there will be any historic leaps forward on the liberalisation front - Apec's raison d'etre.

 However, Malaysia's ambassador to Apec, Mahathir Mohamad has cautioned: 'It just has to be borne in mind - the [International Monetary Fund] is [supposed] to play the central role in tackling the crisis.

 'Apec is not an institution equipped for such a role as it does not have the expertise nor carry the resources.'  A blueprint of what could potentially emerge has been drafted by the 18-member Apec Panel of Independent Experts, the same people who drew up the blueprint for Apec's historic Bogor Declaration on free trade in 1994.

 Trade Development Council chairman Victor Fung Kwok-king was Hong Kong's representative on the panel.

 It makes impressive reading, but it has yet to be seen whether it can prove feasible and politically acceptable.

 Their proposed package, provisionally known as the Concerted Asian Recovery Programme (Carp), champions a set of simultaneous international stimulus measures to kick-start growth, on a scale never seen before in world history.

 The centrepiece will be an agreement by Apec's 21 leaders to stimulate domestic demand in their respective economies, through new fiscal and monetary initiatives, by 2 per cent of each country's gross domestic product. (Russia, Vietnam and Peru will formally join Apec this week raising its membership from 18.)  Based on World Bank multiplier calculations, growth in crisis-hit countries would then be boosted by 4 per cent next year.

 Fred Bergsten, who chaired the panel, believes the chances of Carp being adopted in some capacity are 'very good'.

 'Malaysia is intensely interested in having a successful summit. The United States has also indicated it is interested,' said Mr Bergsten, director of the Institute of International Economics in Washington.

 His team of experts has concluded it is highly unlikely any individual country can escape the crisis through purely national initiatives, as France's dismal 'dash for growth' illustrated in 1982 when the rest of Europe was in recession.

 The US is naturally said to be supportive, given its reluctance to be the sole source of import expansion for a host of troubled countries trying to mastermind export-led recoveries.

 Asian countries have traditionally relied on each other for half their exports. Re-igniting import demand within their own countries, particularly in Japan, is seen as a way of resolving at least half the problem.

 Monetary expansion is seen as the second part of the equation. Currencies have largely stabilised and inflation tapered, which Carp believes makes further rate cuts feasible.

 A united rate-cut stimulus could well result in budget deficits in many troubled countries.

 It is proposed this can be partly financed through borrowing, partly through the US$30 billion worth of new credit lines Japan has offered to Asia through its New Miyazawa Initiative. Japan is expected to outline its plan for an Asian fund at the Apec summit.

 The World Bank, Asian Development Bank (ADB) and Japan have been discussing ahead of the summit guaranteeing bonds and loans issued by Asian countries and key corporates to enable them to attract better spreads and encourage capital to flow back into the region.

 A strategy could be unveiled in Kuala Lumpur.

 The Apec Business Advisory Council (Abac) has backed the idea.

 IMF deputy managing director Stanley Fischer has said his institution would be supportive of guarantees by multilateral development organisations like the World Bank and ADB, provided they did not become a permanent feature.

 Carp also proposes that the second line of defence funds which key foreign lenders have pledged to countries undergoing IMF reform programmes be activated.

 The World Bank estimates that every $10 billion of new foreign funding will support additional fiscal stimulus of 1 per cent of GDP in these nations.

 Stimulus is just one aspect of Carp's 11-part plan.

 Accelerated trade liberalisation is another key element. It is here this Apec summit could prove most disappointing given the temptation for countries to throw up protective barriers in difficult times.

 Carp calls for the full implementation of last year's commitment to fast-track trade liberalisation in 15 sectors agreed in Vancouver, which it is estimated would free up $1.5 trillion worth of trade.

 From a Hong Kong perspective, the most important sector included is toys.

 Members are supposed to present their voluntary individual action plans for liberalising nine of these areas (see story below) by the end of next year at next week's summit.

 The Australians and Americans have been accusing the Japanese of making the initiative a potential 'failure', by refusing to liberalise two of the nine areas, namely fishery and forestry products.

 There are concerns that if Japan opts out, others may be tempted to follow. Japan wants fishery and forestry liberalisation talks stalled until the next round of World Trade Organisation talks next year.

 Much is riding on the Japanese. They are likely to emerge from this summit either heroes or villains. Perhaps both.

 However, if every country in the region is prepared to play its part, it is hoped Japan, which accounts for three quarters of the Asian economy, will find it politically easier to enforce tax cuts and bank reforms to reinvigorate its economy and thus the region.

 As the dominant economy in Asia and the world's second largest, it is appropriate that Japan should lead any such region-wide initiative.



Stimulus strategies top agenda