Back to growth - but slower

By Rod Oram

Business Herald editor

Apec economies will grow faster this year than last, but their long-term performance will be more subdued than before the Asian crisis, says Apec's economics committee.

The 21 economies will grow by an average of 2.9 per cent this year, up from the crisis-hit rate of 1.9 per cent in 1998, the committee said in its annual report published yesterday.

But Apec's growth will slow to an average of 2.8 per cent a year in the decade to 2015 from 3.3 per cent in the 15 years to 1995.

Two main factors are at work: population growth is slowing and economies have become more mature.

The economies can take steps, however, to combat the slowdown such as further trade liberalisation, strengthening of markets and upskilling of people to improve their productivity.

Without reforms, developing economies in Apec are forecast to grow on average at 4.1 per cent a year in 2000 to 2010, down from 5.5 per cent in 1990 to1997. Reforms would lift growth to 5 per cent, the committee said.

Its chairman, Dr Mitsuru Taniuchi, a senior official of Japan's Economic Planning Agency, said trade liberalisation would contribute about two-thirds of the improvement. The balance would come from measures such as streamlining of customs and mutual recognition of technical standards.

Overall, Apec's economies would grow 0.4 per cent a year faster if each economy achieved the reform measures to which it has committed itself. The impact would vary widely. The committee calculated Malaysia, as the best performer, would boost its growth rate by 4.5 percentage points a year.

New Zealand's growth rate would improve by 1.1 percentage points a year and Australia's by only 0.3 per cent. Some economies would show virtually no benefit: Japan, the United States and Hong Kong gaining only 0.1 of a percentage point a year.

Reform commitments tabled so far in documents such as each economy's Individual Action Plan are just the start, the committee said. If the plans were fully implemented, they would take Apec economies only about one-quarter of the way towards fully free trade.

The committee also reported yesterday on its further studies of causes of the Asian crisis.

"Financial instability, particularly volatile short-term capital flows played an important role. Economies had such problems as financial sector weakness and inflexible exchange policy that left them vulnerable to reversals (that is, flight) of capital."

Structural weakness was also apparent in the corporate sector, in economic policy-making and social safety provisions. Shortcomings among companies included inadequate governance and, in the case of banks, poor credit analysis and control.

Economic policy was deficient in, for example, the timetable of liberalisation. Some economies had made the mistake of opening up sectors in the wrong order, putting undue pressure on ill-prepared areas of the economy.

More work was needed, the committee said, on protecting people in times of crisis with safety nets such as minimum living standards.

One key to coping with economic crisis was a well-developed sector of small and medium-sized companies, the committee said. Such organisations were far more adaptable than large ones.

The committee stressed, however, that Apec's role should focus on long-term strategies for cooperation between economies to achieve robust growth.

Apec should leave crisis management to organisations such as the International Monetary Fund.

"International financial institutions are best placed to fight a raging fire by mobilising financial resources for crisis resolution. Apec's comparative advantage is to help its members redress structural weakness highlighted by the crisis so as to maximise the region's long-term growth potential."