Economic Recovery in the Asia Pacific: Is It Sustainable?
Mr. Roberto F. DeOcampo
President
Asian Institute of Management
It's always a pleasure to be here in Hawaii. I wish I could come more often, but the last time I was here was in 1993 in the course of what was then the first of the APEC Finance Ministers Meetings. Lloyd Benson was then Treasury Secretary and I was a brand new Finance Minster.
Well, a lot has changed since then, and among the things that have taken place since 1993 is of course, the Asian Economic Crisis. And since the crisis started in 1997 it among other things, spawned a should I say, minor industry on the conferences dwelling on the topic of the Asian Economic Crisis because it was certainly a very interesting topic to talk about.
But aside from that, in the course of APEC Finance Ministers Meetings, we held in 1997 a particularly strategic one addressing the Asian financial crisis and coming up with what was then known as the Manila Framework. I had the honor of chairing that particular session and the Manila Framework outlined certain steps that were thought to be important towards addressing the crisis and also towards figuring out ways by which such crisis could be avoided in the future.
To my recollection that APEC Finance Ministers Meeting resulting in the Manila Framework came up with five general suggestions. The first was to have a quick response mechanism in order to confront crisis of this nature in as rapid a time as possible. That really meant the establishment of some kind of a quick response fund. The second was the increased capitalization of the multilateral institutions, particularly the IMF. The third was the establishment of a much more effective surveillance mechanism in order to watch out for capital flows and to be able to insure that problems could be spotted before they could turn into crisis. The fourth was to have a much more standardized and should I say, much more understandable monitoring and reporting systems, not only for countries but for corporations as well. I understood that accounting practices tended to vary from continent to continent and sometimes of course, public sector accounting practices were hardly understandable between countries and even to the multilateral institutions themselves. And finally, because of the nature of the crisis, the fifth recommendation had to do with the reform of the banking system because it was generally recognized that that was the root of the problem among countries that had suffered from the crisis: their banking systems failed; Asian economies had a tendency to be very dependent on banking as their major source of capital; and therefore, it was identified as a key entity, particularly within the financial sector, to be given a lot of attention towards reform.
Well since those things were outlined during the Finance Ministers Meeting and the Manila Framework a lot of course, has taken place: A fund has now been established by Japan; the increased capitalization of IMF has finally taken place; surveillance mechanisms are being put up in both IMF and the Asian Development Bank; people are beginning to get more serious and intense about having better accounting systems that are standardized and finally, wave after wave of banking reforms has been taking place in the various countries in Asia.
What all this has done of course, is to raise optimism about Asia; optimism in the sense that the Asian Crisis presented surprises: the surprise of its happening at all; the surprise of its depth and breadth; and finally, the surprise that we're going to be dealing with this morning, which is the surprise of the fact that in the eyes of most the recovery has taken place quite a bit faster than many had expected it to.
Even though there is optimism, one could say that even on the optimism front there is a wide spectrum. There are those whom you might consider enthusiastic optimists and then there are those whom you might say are cautious optimists. So between enthusiastic optimism and cautious optimism there are a lot of things to be talked about in today's very interesting session.
Those that are enthusiastically optimistic are going to point out of course that most of the Asian economies are now experiencing growth, where as there were a number of them that were at zero growth or even negative growth. Inflation rates appear to be fairly well under control. Interest rates seem to be at pre-crisis levels in most countries; and of course there have been signs that investment coming into Asia is making a rebound.
Those that are on the side of cautious optimism would say that "Yes, there has been recovery, but it tends as the economists say, to appear to be v-shaped." In other words, a bit too quick whereas one would might have preferred a u-shaped one. And they are saying that if it's v-shaped and too quick maybe the impetus for reform might diminish because of course, it is much easier to convince politicians to do reform action when they are in the middle of the crisis than when they begin to think that it's over.
The others would say that while the growth is there, it doesn't appear to be as healthy as it could be, and that many of the aspects of growth either are for the wrong reasons, or for inventory de-stocking.
And then of course, there are those that are going to say that the reform agenda that has to do particularly with the banking sector is not yet completely in place.
It took quite a long time for bankruptcy loss to finally get done in Thailand, there's still a wave of consolidation going on in the banking industry, certain aspects of the financial sector, particularly the domestic capital markets continue to be weak. Then there are the external factors to deal with, the questions of: What about the economy of Japan? What about the political situation in Indonesia?; What about what's going to happen in China in the future?
A lot of these questions which actually are at the heart of this morning's topic which is, "Is economic recovery in Asia sustainable." I, for one, start from the point of view that at least on the first part of that question, which is economic recovery; it is there. The signs are everywhere. The question is, "Is it sustainable?" -- and that I think is the important thing to think about now. So that we might not be experiencing the kind of tiger economy, fantastic growth of the past, but it might be more comfortable to be looking at growth that is a little more sustained and founded on much stronger ground. To address this subject matter this morning, which I am sure is of a particular interest to all of you here, we have three, very notable speakers.
Giving me of course, a break in needing to present any views at length of my own and giving me the opportunity to sit back here and learn some more from those that are going to speak this morning.