KEY POINTS:
Peruvian President Alan Garcia is given to operatic flourishes. Garcia - the type of politician who speaks for hours without notes - astounded chief executives in Lima with a wide-ranging speech traversing everything from "Carlos" Marx to Ernest Hemingway sprinkled with a dash of asparagus, Omega 3 and
6.
It was a larger-than-life rant Latino-style.
It is one thing to take advantage of captive chief executives (they had, after all, paid US$2000-US$2500 ($3685-$4610) to hear a raft of Asia Pacific political leaders). But Garcia went too far when he altered the Asia-Pacific leaders' statement on the global economy to include the overly optimistic note: "We are convinced that we can overcome this crisis in a period of 18 months."
The reality is that only a sprinkling of the leaders from the 21 Apec economies, including outgoing President George Bush who won't be around anyway in 18 months' time, believed Garcia's article of faith. Some, like Prime Minister John Key, conscious of being subjected to earlier criticism for taking a counter view to Garcia, were diplomatic in the way they expressed their own equivocation. Others like Australia's Kevin Rudd were blunt.
Garcia later said: "We have agreed on this firm statement that will break the vicious circle of anxiety and uncertainty.We are going to fight this crisis to the bitter end."
But his certitude ran in the face of the very grim projections from leaders ranging from Hu Jintao (China) to Lee Hsien Loong (Singapore).
The leaders' economic statement would have carried greater weight if they had adopted the measures promoted by the Apec Business Advisory Group's (Abac) 63 Government appointees to deal with the economic and financial crisis.
Michael Phillips, who chairs Abac's working group on finance and economics, noted the credit contraction had prompted a monetary response which had forestalled systemic collapse. Phillips is one of three US appointees and chairs Russell Investments.
His view remained that the recession would be "extremely deep".
The monetary response had to be global - "decoupling" had not worked and everyone was in this together whether they liked it or not.
The fiscal weapon had to be employed through extra Government spending on public works to boost consumer recovery with the proviso that uneconomic industries were not subsidised - it was important not to try to preserve the status quo but be forward-looking.
There needed to be new architecture - such as a smoothing or amortisation mechanism - to attack excessive leveraging.
Many of Phillips' suggestions were contained in an Abac letter obtained by the Herald which was intended to go to Garcia in his role as Apec chairman on the Economic and Financial Crisis.
The letter stressed the need to take longer-term measures to create a global financial architecture to ensure the efficient operations of capital markets.
Abac suggested, as with any adverse financial event, the consequential problems could be best mitigated by a process of smooth amortisation.
It suggested a number of structural mechanisms that would create "time intermediation":
Clearing mechanisms for credit derivatives - especially credit default swaps and collateralised debt obligations - to increase transparency and reduce counterparty risk.
With respect to residential mortgages, Government guarantees for cashflows in the underlying securities pools.
Multilateral counterparty insurance to restore trust. The insured should be public private partnerships with the ultimate guarantee provided by Government and central banks.
Direct intermediation by Government entities between counterparties to provide a trusted clearing mechanism.
This central issue of "trust" was brought up repeatedly by politicians and businesspeople during Apec.
But the leaders' statement ducked the crucial issue, which was how to restore trust by ensuring a smooth, orderly unwinding of excessive leverage in a way which would reduce the risk of systemic strain and a steeper economic decline.
There were some stellar addresses: Singapore's Foreign Minister, George Yeo, noted the world was in the midst of an "epochal change" and what would emerge from the turmoil was unclear. But Yeo was sure Asia would play a greater role. Getting there would involve a top-down, bottom-up rebuilding process.
"Top-down, because in a multi-polar world, countries have to co-operate and co-ordinate policy actions ... And bottom-up, because society's values need to go back to basics."
Others like US economist David Hale called on East Asia to step up to the plate and assist the US through its difficulties.
The leaders have agreed to keep trade finance moving - a central issue according to Hale: "If we don't address the issue of trade credit, we would see a worsening deterioration of global trade in the next several months and [this] will have an adverse effect on the Asian economies and large economies and will make this the worst, if necessary, global recession in 2009." Hale noted 90 per cent of global trade valued at US$14 trillion dollars is fuelled by trade credit.
There were also strong concerns that developing economies will be hit hard as major consumer nations curtail imports - if trade finance wasn't available to their SMEs the global recession would severely deepen.
Key would have been disappointed at the lacklustre response to deleveraging.
But the NZ-inspired initiative to get the Apec Trade Ministers back to Geneva resulted in a direction from the leaders for the ministers to forge agreement on procedures for the world trade talks next month.
Some influential economies like Brazil and India are not part of the Apec nexus. But it was hailed as a positive - a good reason for Key to feel his first Apec had been an overall success.
