KEY POINTS:
American business leaders have privately warned there will be "absolute carnage" on world markets if nothing is done to deleverage the US$60 trillion ($113.4 trillion) credit derivatives market in an orderly fashion.
Despite the fuggy air at last week's summit in Lima, business leaders were clear that the
signals coming from the 21 countries comprising the Asia-Pacific Economic Co-operation (Apec) were extremely concerning.
Apec Business Advisory Council (Abac) representative Tony Nowell, one of two New Zealanders on the 62-strong body, said the influential group of business people believed that the danger had not yet been "fully appreciated".
Nowell said Abac was worried the US credit derivatives market was not fully backed by real assets.
"It's got to be deleveraged," he told the Herald on Sunday. "If there is not an orderly workout there will be absolute carnage."
The complex issue sparked a division within Abac members.
Some wanted the matter dealt with within the more rarified confines of the G20 group, which contains just nine of
Apec's 21 member nations. But others believed it should be top of mind at the political leaders' discussions over the next two days.
The Abac members will get their own chance to push some of the world's most powerful politicians to front up to the full scale of the crisis during a "Chatham House" rules session this morning
after the political
leaders' first
"retreat". While the 63 members are all Government-appointed (each country gets three nominees), Nowell believed this should not prevent Abac from pushing them into action.
Some believe that the G20 group mustered by US President George Bush eight days ago has ducked its responsibilities.
The final G20 summit statement glossed over the issue, making little reference to the need to clamp down on unregulated hedge funds and the credit derivatives market.
The Federal Reserve Bank of New York and the US Securities and Exchange Commission also wants more disclosure around credit-default swaps, after calculations the market may be US$14 trillion bigger than the US$33 trillion that has been registered.
The US-bred financial crisis dominates this year's Apec discussions, pushing other "hot-button" issues - such as climate change - off the priority agenda.
A survey of 400 opinion leaders released by the Pacific Economic Co-operation Council (PECC) last week said 24 per cent believed the financial crisis was the major issue.
"We've been swamped by bad economic news and you don't have to look at our survey results alone to see that the interest and focus on climate change has dissipated somewhat," said Yuen Pau Woo, the report's co-author.
The survey also found 78 per cent of opinion leaders predicted the US would suffer much weaker growth in the coming year and a US recession was the main risk for the region.
In previous years, high energy and food prices dominated concerns.
The PECC expects real GDP growth for the region to slow to 1.2 per cent next year, down from around 3.5 per cent in 2007 and this year.
PECC chairman Charles Morrison noted the varying degrees of optimism in member economies. "What is interesting here is there is much more pessimism in the US than in other geographic regions," he said.
"At a time when the world is looking to the Asia-Pacific for leadership in responding to the global crisis, the summit is an opportunity for leaders to discuss the role APEC can play."
Morrison, who is also president of the East-West Centre, believes the financial crisis will require sustained regional and global co-operation.
Simmering in the background were worries over a potential protectionist backlash if countries hunkered down while the financial crisis played out.
New Zealand Trade Minister Tim Groser persuaded his own counterparts that it was time for capitals to send their trade ministers back to Geneva to try to get agreement on the final negotiating framework by the end of this year.
This was a tall order, but Groser - a former World Trade Organisation agriculture committee chairman - used the severity of the global financial system to turn other ministers around.
The Bush White House is also putting its shoulder to the wheel on trade.
However, realpolitik dictates many nations will hang back until President-elect Barack Obama has been sworn in before making any deals.
* Fran O'Sullivan received assistance towards her Lima trip from the Pacific Economic Co-operation Council.
