MAIN PAGE | SPEECHES & EDITORIALS | 1999 | MARKETS AND GOOD GOVERNANCE
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | SPEECHES & EDITORIALS | 1999 | MARKETS AND GOOD GOVERNANCE
Markets and Good GovernanceToward Development with a Human FacePresident Joseph Ejercito Estrada Republic of the Philippines Tuesday, May 18, 1999 The Challenges of the Next Century for the Pacific Basin
INTRODUCTION I wish to congratulate you for convening your 32nd International General Meeting with the proactive theme "The Challenges of the Next Century for the Pacific Basin." In deed, the challenges to the continued peace and prosperity of our common home are many. Most of these challenges, as you know, have been brought to light by the Asian financial and economic crisis. We should let the lessons from this common experience inform and enlighten the work we must now do. EAST ASIAN SUCCESS AND THE FINANCIAL CRISIS Not too long ago, the next one hundred years were being proclaimed as the "Pacific Century." That was because our region's economic and social progress in the last quarter-century had been most remarkable. From backwater territories supplying little more than raw materials to the developed world, East Asian nations rose to compete in the major leagues of high finance, consumer electronics, and that old industrial car production. Being our region's success has the explosive growth of the global market. Armed with high savings rates, investment in human capital, and pro-growth policies, economies in the region diligently pursued industrialization for the world market. And in this we succeeded greatly. Ironically, however, our current pains have fundamentally the same root. It was the same impetus the same globalization which facilitated our growth that fanned the fires of the Asian crisis. The globalization of finance has been occurring at a rapid pace. And financial transactions have seen changes not just in direction but in their nature. The significance of financial movement now relates investment and speculative capital. And this implies near instant feedback, especially when problems develop. Rapid feedback is particularly troublesome when coupled with the extensive practice of borrowing short-term money for long-term purposes. The result is fast growth and greater wealth, but with a dangerous accompanying uncertainty. Naturally, the very success of East Asian made it so attractive to this finance. Like a magnet, the region attracted nearly 60 percent of all short-term capital flows to developing countries. But that was before the bubble of confidence burst. When the bubble did burst-when the foreign capital flows reversed direction East Asia's currency and stock markets collapsed. The financial reversals soon affected the real economies. Then you know the rest of the story. Evidently, restoring Asia's vitality does not and cannot mean going back to business-as-usual, be it in Asia or anywhere in the world. If there is one thing the crisis has clearly taught us, it is that all of us: borrowers and lenders, producers and consumers, governments and businesses Can all afford to be complacent. LEARNING FROM THE ASIAN FINANCIAL CRISIS True, the crisis has lifted the veil masking weaknesses in the individual economies of our region. But it has also brought to light the facets of the global system that we need to improve. One such facet exposed by wisdom after the fact is the inadequacy of the international financial architecture to deal with the movement of capital flows, particularly of the short-term variety. The fact that so many external creditors could pull their money out at short notice was one of the main reasons why the crisis began and spread so fast. And once the crisis started, the success of any policy response hinged much on how the panicky markets reacted. Thankfully, everyone is now agreed that we have to do something about this. For us, a key is in finding a solution to the problem of conflicting information in the conduct of international financial flows. We agree that a positive step is the development, on an urgent basis, of a set of internationally agreed-upon codes and standards. These, if rigorously implemented, will promote greater openness and transparency in national policy making and more intense cooperation between the public and the private sections. We will actively participate in the review of blueprints for several codes and standards now in existence, including IMF's Code of Good Practice on fiscal transparency, The Draft of the Monetary and Financial Code, and OECD's Draft Code of Corporate Governance. We support the G-7's initiative to ask the World Bank to set down principles of good practice in social policy, to inform the policies of donors and borrowers alike. Naturally, international financial institutions should be equipped to monitor and enforce the new rules. The IMF and the World Bank deserve all our support in developing their capabilities for proactive and comprehensive monitoring. We must also guard against complacency, especially once things are going well again, and commit to make the surveillance system a positive tool for global economic health and welfare. We are pleased that ASEAN, with the assistance of the ADB, now has its own functioning economic surveillance system. Our hopes are high that with a strong and responsive world financial system, we may yet avoid a repeat of our present problems. But this is only half of the picture. Economies most adversely affected by the crisis have since acknowledged that weaknesses in their own national economies made them vulnerable. The Philippines was not among the first of Asia-Pacific countries to grab the opportunities offered by the new global economic order. While many of our neighbors have gone full speed, we started all too cautiously, slowed as we were by the difficult transition from dictatorship to functioning democracy. Yet, thanks to my worthy predecessors in government, the Philippines began rebuilding its political, social and economic institutions in time. While we were not among the first to enjoy the boom, we were also not among the ones hit hardest by the bust. To ensure recovery and sustained growth, I believe that Asian economies must prioritize reforms that will strengthen corporate governance systems and reduce barriers to competition. Those reforms include strengthening bankruptcy laws and debt-resolution practices, improving corporate disclosure requirements, increasing accountability to shareholders, and strengthening shareholders' right. If there is transparency, accountability and consistency in government's rule-making and rule-enforcement, there will be a level-playing field in which the market can do what it does best: create wealth for all. In creating wealth, we must ensure that this will be redistributed, that all may share and enjoy the bounty of our collective efforts. We disadvantaged and marginalized. We must enshrine a development approach with a human face. THE PHILIPPINES' CHOICE: FREE MARKET, GOOD GOVERNANCE The Philippines is fortunate that the impact of the Asian crisis, while serious, have not been as damaging as those inflicted on our neighbors. We kept the Philippine economy afloat through sound macroeconomic fundamentals, prudent fiscal management, and good governance. We adopted a market-oriented approach to development, guided by the principles of liberalization, deregulations, and privatization. And in order to provide an environment supportive of economic recovery, we ensure stability in our political system. We sought industrial peace through social contracts between business and labor, down to firm level. Now, the Philippines is back on the growth track. Gross National Product (GNP) is expected to grow between 1 and 1.5 percent in the first quarter of this year, compared to 0.8 percent last June. Our banking sector remains in good health, with the capital adequacy rations of our banks averaging nearly 18 percent, way above the bank for International Settlements' recommended 8 percent and our own statutory requirement of 10 percent. Our export section, being less oriented towards Asia, rode the turbulence well and registered respectable growth of 17 percent last year and 18.5 percent in the first two months of 1999. The Peso-dollar exchange rate has stabilized at a range of 38 to 39 Pesos per US dollar, compared to more than 42 Pesos per dollar in October last year. Treasury bill rates are going down and commercial lending rates are back to pre-crisis levels. Inflation rate was 8 percent in April, down from a high of 11.6 percent at the start of the year. But we are not out of the woods yet. We need to sustain the gains we have achieved so far. We need o generate more resources for our growth requirements. And we are moving to provide more avenues for partnership with foreign investors. My Administration is working for legislation aimed at developing our capital market to meet our growth financing needs, while at once ensuring that investors who put in their due diligence as well as trust in us are amply protected. To hasten infrastructure modernization, we are pushing ahead with various schemes to attract private sector participation. We are also pressing on with the privatization of state corporations, partly to raise funds for infrastructure improvement. My administration is also pursuing legislation to open up the retail business to foreigners, add to the attractiveness of our special economic zones, rationalize our power sector, and attract more regional headquarters. In the not too distant past, many economies in Asia, including my own, restored very swiftly to protectionist measures during times of economic distress. You may rest assured that the Philippines, for one, will stay the course of liberalization. Open trade has been our major growth engine; we are not about to believe that it is something else now. In short, the Philippines has made its choice: we are for free and open markets. We are for interdependence. We are for global partnership in development. As president, being popular is easy, but knowing where to invest it is the real test. I assure everyone, as I have shown during the past nine months, that we have the political will necessary to make harsh decisions and bite the bullet. THE NEED FOR INTERNATIONAL COOPERATION The global economy is the sum of its parts. If the parts don't work well, neither will the whole. Asian economies are not at their top form now. Now we appreciate so much everyone' concern and assistance. In particular, the responses of developed countries and international financial institutions helped much to stabilize the situation. The interest rate cuts and the funding packages initiated by the US and other countries had been a big boon. We are also very grateful for Japan's commitment of large sums of resources, despite its own difficulties, for the mitigation of human suffering and the rebuilding of conditions for recovery in crisis-stricken countries. But the continued recovery of our region also depends on the openness of our trading partners. Let's face it a strong European and Asian commitment to open trade is vital to keeping America committed to open partnerships. U.S. "Retailation" for errant trading partners and belligerent U.S. postures in WTO negotiations will become more pronounced if Washington gets more and more attracted to "Unilateralism". CONCLUSION My friends, the basic goals of all Pacific Basin societies are pretty much the same. We all want our peoples to live under a regime of peace and prosperity. And, in common with most of you, the Philippines also believes that the regime of peace and prosperity. And, in common with most of you, the Philippines also believes that the regime must also be one of freedom, good governance and social justice. Political stability and regional security are concerns common to us all. These, after all, are preconditions for economic vitality. Our part of the world, southeast Asia, has political anxieties currently centering on China's efforts to project its power into the South China Sea, which is Southeast Asia's maritime heartland. Thus, China's sweeping claim to the paracels and the spratlys is not merely about barren and uninhabitable islets. It is about Southeast Asia's bottom-line security. And this is why, Singapore's lee Kuan Yew can say that "over the spratlys [Issue], ASEAN cannot remain neutral." I believe that you, too, think that way. So much has been said already about the "Asian values" as opposed to "western values" and about the "ASEAN Way" as opposed to a formal, legalistic way or between a consensus-driven approach and a majority-rule approach. We do not wish to argue in favor of one and against the other, for it is not needed. The fact is that the so-called poles are converging, and sticking to one, to the exclusion of the other, goes against the wave of the future. That future is, for us, one based on what are here already: interdependence, mutuality of interest, globalization of action, and trust. We see true cooperation to mean full engagement. And this can come about only if there is will, transparency, and above all, openness. The Pacific century may yet come to be. With cooperation, we can make it happen. For ourselves and for our children. Thank you. |