APEC: Chuan expected to be focus of attention
Thanong Khanthong says Prime Minister Chuan Leekpai's message at the Asia-Pacific Economic Cooperation summit will be heard clearer than the last time when he was in Vancouver.
LAST year at the summit of the Asia-Pacific Economic Cooperation (Apec) forum in Vancouver, Prime Minister Chuan Leekpai's call for world leaders to focus their attention on the Asia crisis fell on deaf ears. He tried to send out his message that the financial crisis was not limited only to Thailand or Asia, but would eventually develop into global turmoil.
At that time US President Bill Clinton and his top advisers looked confident that the financial crisis would stop within the borders of Asia. In fact, the Asian crisis was looked upon as a bonus to the US, for it would help cool down the overheated US economy without the Federal Reserve board having to raise interest rates.
Cheap imports from Asia would reduce the pressure of US inflation. Most important of all, the crisis would eventually force Asia to undergo structural reform and further open its markets, including financial services, to US industries.
However, since September this year, the situation has changed dramatically, with the collapse of the Russian rouble and the threat of the contagion effect spilling into Latin America.
After Long-Term Capital Management, America's largest hedge fund, was bailed out for US$3.5 billion, US businesses started to feel nervous about the liquidity crisis and the possible slow-down of the US economy because banks were protecting themselves by calling back loans or margins extended to the hedge funds and other businesses.
At the World Bank/International Monetary Fund meetings in Washington DC in October, the US and Europe were extremely nervous about the prospect of Brazil falling victim to the financial crisis. The IMF, backed by the US, immediately jumped in to offer Brazil $30 billion to pre-empt a crisis from happening in the US' backyard. Indeed, the Asia crisis has come full cycle by finally hitting US shores.
Since Chuan has presided over drastic reform in the Thai economy, which has won critical acclaim, he is expected to be the focus of attention. Thailand and South Korea have been cited as the first two countries which will come out the crisis because of their strong reform programmes.
Chuan and other regional leaders want the financial crisis to be on top of Apec's agenda so that the forum can push for a new global financial architecture. Apec was originally founded on economic cooperation, but it has evolved quickly to embrace trade liberalisation. Now, efforts to produce a new global financial architecture are on Apec's top agenda.
Chuan will be supporting creation of a new standard of the global financial system based on a study of the G-22 meeting in Washington in October. The new architecture will require more information transparency of countries and the financial system, involve loss sharing between debtors and creditors, require better risk evaluations on the part of the banks, help strengthen the banking system and improve surveillance and warning systems.
One of Chuan's most important messages is for Apec members to go Keynesian by stimulating domestic demand largely through government spending. Abhisit Vejjajiva, minister of the Office of Prime Minister, said yesterday that Chuan will be calling for a coordinated economic policy among Apec members to stimulate their domestic economies. ''If the stimulus policy is adopted by all countries, it will help stage a global recovery,'' he said.
Since the crisis-hit economies are cut off from private capital flows, they need official money to help them weather the crisis and avoid social impacts. The US$30-billion Miyazawa Plan is welcomed by Chuan as a package that will not only help Asia's recovery but will also cushion the social impact from the economic crisis.
Chuan aims to display Thailand's flexibility in adopting trade liberalisation in the nine sectors, which have become a contentious issue between the US and Japan after the latter indicated that it might back down on liberalising its forestry and fishery products. The Finance Ministry has prepared Thailand's positions for Chuan and Deputy Prime Minister and Commerce Minister Supachai Panitchpakdi, so that they have fall-back positions in their negotiations on trade liberalisation.
There are talks that part of the Miyazawa Plan might be used to relieve the corporate-debt burden. The US is trying to put together a package to help the Asian banks and corporates cope with their huge debt overhang.
Chuan will welcome this move, as removing the overhang will be one of the conditions for Thailand's as well as the region's economic recovery. Since the crisis erupted in mid-'97, more than US$10 billion in foreign capital has flowed out of Thailand, creating a liquidity crisis. If part of the foreign debt is restructured or encouraged to stay in the country, it would help stabilise the economic downturn and lead to recovery.