Finance ministers shirk their task

By Rod Oram

Business Herald Editor

When the next financial crisis hits Asia - as it surely will sometime - Apec will be just as ineffectual as it was the last time.

As the Thai baht collapsed in July, 1997, triggering a chain reaction that brought Asia to its knees, Apec wrung its hands with worry but it had nothing it could say or do to help.

Since then it and the world at large have learnt a lot about the causes of the Asian and other financial crises such as colossal short-term capital flows and inadequate financial systems. But Apec is taking a remarkably leisurely approach to try to prevent them wreaking havoc again.

Apec is ill-prepared because it is shirking its responsibility. Its finance ministers and economics committee made crystal clear yesterday they want to work on easy, non-controversial, long term technical issues such as training bank supervisors.

They have chosen not to deal with difficult, contentious issues such as the architecture of the international financial system, hedge funds, speculators and massively disruptive capital flows. Nor do they want any rescue role when the next crisis breaks.

On rescues, they are partially right to argue that other international bodies are better equipped. The International Monetary Fund has long experience and deep pockets and the Group of Seven largest economies has greater clout and political will than Apec.

But they should still be prepared to establish an Asian recovery fund, as Japan proposed last time only to be squelched by a US determined to preserve its power by keeping the IMF pre-eminent.

On reform, they are wrong to argue that others are better placed to do the work. The key body is the Financial Stability Forum set up by the G-7 in February. Tasked with finding ways to improve the structure and regulation of the international financial system, its members are drawn from bodies such as the IMF, the World Bank, the Bank for International Settlements (the central bankers' bank), governments and financial sector regulators.

The Apec finance ministers argue that they have enough input into the forum because some of them are members by virtue of being from G-7 countries. Moreover, smaller Apec economies such as Australia have joined.

But because the financial system is the very bedrock on which Apec is trying to build free trade and sound economies, Apec should be doing its own work to feed into the global discussion. It should have a reasonably coherent programme, just as it does on trade.

The politics of that are difficult to say the least, pitting the likes of Malaysia against the US. But if Apec leaders at this weekend's summit want to safeguard the progress they are making on trade and economic development, they must demand much more of their finance ministers.