At that time, the Committee did not foresee the events that would shake the region in subsequent months. The original intent of the project was to facilitate a regional dialogue on financial services liberalization and regulatory reform that would lead to step-by-step improvements in the efficiency and stability of regional financial markets. However, as the Asian financial crisis swept the region the discussions took on a higher degree of urgency and relevance. As economies embroiled by the crisis struggled to make rapid adjustments to restore investor confidence and market stability, other economies braced themselves and struggled to ward off the effects of the widespread contagion. Thus, the Committee’s work program and recommendations on financial services liberalization and regulatory reform have become even more timely and important.

PRINCIPAL OBJECTIVES

The main purpose of the work program is to give voice to the private sector's views on the state of financial services liberalization and regulatory reform in the economies of the Asia Pacific. The committee sought the views of both consumers and providers of financial services in reviewing current liberalization and reform efforts. It focused in particular on weighing the need to promote market-driven regulatory reforms against the value of regulations carried over from a non-liberalized, non-competitive era.

 IMPLEMENTATION PLAN

To carry out this work program, the Committee visited seven PBEC economies (Chile, Chinese Taipei, Korea, Japan, Indonesia, Malaysia, and the Philippines) to gather information and opinions from consumers and providers of financial services and government officials.

During the period August 1997 to January 1998, the Committee met with over 100 PBEC members and benefited from frank discussions on the means to strengthen financial service markets. PBEC members turned a critical eye to domestic regulatory regimes in exploring ways to find better, more affordable financial services in more stable markets. Even in economies left relatively unaffected by the financial crisis, both users and providers openly discussed the benefits of liberalization and the need for progressive regulatory reform to build advanced financial markets.

WTO LIBERALIZATION OF FINANCIAL SERVICES

The landmark agreement reached in the World Trade Organization (WTO) on financial services in December 1997 went far in opening the door to increased international competition in financial services. In light of these advances, the committee sought the private sector’s view on whether the regulatory infrastructures of the region were developing apace to meet the needs of increasingly sophisticated and competitive domestic markets.

Many believe that the next round of the WTO negotiations, building on the national treatment principles of the December 1997 agreement, will focus on the area of regulatory reform. Thus, the recommendations included in this report and the Committee’s subsequent work will focus on: 1) helping PBEC member economies by providing private sector advice on regulatory reform as they liberalize their markets; and 2) providing support for the inclusion of regulatory regimes in the next round of the WTO financial services negotiations that begin in the year 2000.

RESPONDING TO THE ASIAN FINANCIAL CRISIS

The coincidence of the WTO financial services agreement and the Asian financial crisis has underscored the need for progressive regulatory reform. In the case of some Asian economies, protected financial sectors or sub-sectors that functioned without adequate guarantees for transparency, regulatory supervision, or competition collapsed when investor confidence waned. There is now a need to build a more open, market-driven financial system, one in which lenders can trust in transparent and independent financial supervision and regulation.

In order to restore confidence and create an environment conducive to private investment in economies affected by the crisis, governments are faced with the urgent need to implement regulatory reforms that promote regulatory trans-parency, establish structures for prudent financial market supervision, and allow for increased competition. In effect, regulatory reform efforts are part of a trust-building mechanism in restoring investor confidence.

These reforms should take into consideration the needs of users of financial services as much as of providers. Companies are handicapped if they do not have access to the same types of modern, financial services products that are available to their competitors. In many economies, particularly those attempting to develop mid-size companies, the availability of modern, reasonably priced financial services products become critical to their survival. Steps towards building a market-driven financial sector will take significant political will to accomplish, but are necessary in setting economies back on the right track.

While some economies struggle to rebuild shaken investor confidence and recover from the current crisis, others in the Asia Pacific are looking towards strengthening domestic financial markets as a means to increase the availability of capital for domestic companies and stimulate overall economic growth. More and more, economies are working to modernize financial sectors, often in close coordination with the users and providers of financial services, as a means for attracting investment and to provide advanced financing instruments for rapidly expanding domestic business sectors.

THE CHALLENGE OF REFORM

PBEC economies face key policy and implementation issues that will determine to what extent they will be able to develop truly competitive and consumer-focused financial services industries. Throughout the Committee’s meetings in the PBEC region, there was a strong consensus on the need for Asian governments to develop a set of pro-competition principles that would help restore confidence in the region, enhance the competitiveness of financial service providers, and improve the quality of services for consumers.

Adopted by the PBEC Board of Directors 05/24/98