PRESS RELEASE
Under Embargo until March 31, 2000
Subject: Summary of Presentations of APEC Policy Forum
Overview
The APEC Forum on Shared Prosperity and Harmony, which will be held March 31~ April 1 at the Seoul Hilton, will discuss the following: Surmounting the Economic Crisis through Liberalization and Reform; A New Financial Architecture for Preventing the Recurrence of Economic Crisis; and Regional Cohesion for the Alleviation of Social and Economic Disparities.The speakers at the Forum are expected to present detailed policy measures to provide APEC with an opportunity to develop into a true regional cooperation body, while, at the same time, facilitate future-oriented constructive discussions
In particular, the speakers for session III, titled “Regional Cohesion for the Alleviation of Social and Economic Disparities,” including World Bank’s president Wolfensohn and Professor Adelman, have expressed interest in Korea’s concept of productive welfare.
In the first session, on the experiences of structural reforms in overcoming the economic crisis, Hun-Jai Lee, the Minister of Finance and Economy of the Republic of Korea, will explain the details and achievements of the structural reforms pursued to date, and convey Korea’s will for continued reforms in the future.
On APEC trade and investment liberalization, James Sutton, New Zealand’s Minister for Trade Negotiations, will stress the importance of the Bogor Goals and call for renewed efforts in achieving them.
Professor Peter Drysdale of the Australian National University will describe the contributions of APEC to world trade liberalization and the challenges ahead, suggesting directions with regard to recent trade environment pertaining to free trade agreements and WTO’s new round of multilateral trade negotiations.
In the second session on foreign exchange and financial policies for preventing the recurrence of economic crises, Professor Barry Eichengreen of the University of California at Berkeley will provide an analysis of the International Financial Institution Advisory Commission’s report on how to reform the international financial institutions and strengthen the international financial architecture, emphasizing the importance of the establishing a sound domestic financial system in substantively a substantial reform of international financial environment.
In the session addressing ways to improve the monitoring of hedge funds and short-term capital flows, Chinese Taipei’s Minister of Finance Paul Chiu suggests that small and medium-sized economies should adopt a gradualist approach to the liberalization of their capital controls and that, under an open financial system, regional and international cooperation is essential to ensuring financial stability.
Morgan Stanley Dean Witter’s Chief Economist Stephen Roach will argue that financial crises, including the recent Asian one, stem from the financial activities of highly-leveraged institutions including hedge funds, and thereby, demands strengthened regulations of such institutions. In particular, he will stress the importance of discouraging short-term capital outflows for the stability of financial markets and suggests price, rather than quantity oriented penalties and taxes as an agenda for action. Furthermore, he will suggest that further crises is inevitable and underscores the importance of prevention of such.
In the third session on the search for a new social welfare paradigm, Professor Irma Adelman of the University of California, Berkeley, will point out the risk of widening social disparities when instituting Western solutions in light of Korea’s labor markets which are based on Confucian values.
She identifies Korea’s “productive welfare” as a concept supplementing the adverse consequences of Western solutions. She will suggest that, the concept is consistent with Korea=s communitarian values and with the strategy of continued globalization and marketization of the economy which Korea is adopting
In addition, she will argue that reduction of poverty through “productive welfare”equalizes the ownership of human.capital, while at the same time, alleviating income inequality.
Korea’s Senior Secretary to the President for Welfare and Labor, Kim YooBae will explain that productive welfare is one of the three national policy tasks of Korea and will propose establishing a ‘social and welfare policy cooperation channel’ that will allow an appropriate social and welfare policy measures to be explored in connection with economic development and market liberalization.
In discussing regional cooperation for the alleviation of gaps in knowledge, Alvin Toffler will lay out a unique theory of his own, titled “What is a third wave information society?” Mr. Toffer emphasizes that the third wave signifies a transition from a brute force to a brain force economy and will be accompanied by painful social, cultural, institutional, moral, and political dislocations. Such new economy and social system will have many features of the pre-industrial past and create a new civilization of the third wave.
Through his video speech, James Wolfensohn is expected to praise President Kim Dae-jung’s concept of productive welfare, and will emphasize that poverty can not be solved through compassion and sympathy alone, but is also dependent upon whether the poor can siege the opportunity to obtain knowledge and resources. Moreover, he will explain that the World Bank is not interested in the knowledge related to simple technology, but rather the dissemination of information that can actually be applied. Further, he will stress the importance of the establishment of an environment to utilize technology, rather than the importance of information communication technology development or the level of technology.
Origin of Press Release: APEC Forum Organizing Committee (Tel: 3460-1220)
Research & Development Team, Korea Institute for International Economic Policy (Tel: 3460-1156)
Economic Cooperation Division, Ministry of Finance and Economy (Tel: 503-9130)
APEC Seoul Forum Homepage:
Economic Cooperation Bureau
Ministry of Finance and Economy
Republic of Korea
< Reference 1 >Topics to be Discussed at the Forum
Session 1: Surmounting the Economic Crisis through Liberalization and Reform
Hun-Jai Lee : “The Importance of Structural Reform and Liberalization in Overcoming the Crisis: The Korean Experience”
James Sutton: “APEC Trade And Investment Liberalisation : Finding Effective Ways For Substantial Liberalisation”
Peter Drysdale : “APEC Trade and Investment Liberalization - The Way Ahead”
Session 2: A New Financial Architecture for Preventing the Recurrencce of Economic Crisis
Barry Eichengreen : “Preventing a Recurrance of the Asian Crisis”
Paul Chiu: “Short-term Capital Flows and the Related New Financial Architecture in Newly Developed Open Economy”
Stephen Roach : “Architectural Reform - Managing Financial Market Volatility in the New Millenium”
Session 3: Regional Cohesion for the Alleviation of Social and Economic Disparities
Irma Adelman : “The Korean Social Contract and Korean Institutions for Alleviating Social and Economic Disparities”
Richard Freeman : “The Shared Capitalist Model of Work and Welfare”
Glen Cain: “The New Welfare Reform in the United States: Its Background and a Preliminary Appraisal”
YooBae Kim : “Productive Welfare in Korea - Developmental Linkage between Growth and Welfare”
Le Thi Bang Tam: “Finding Effective Ways for Liberalization”
< Reference 2 >
The Importance of Structural Reform and Liberalization in Overcoming the Crisis: The Korean Experience
by Hun-Jai Lee
Minister of Finance and Economy, The Republic of Korea
I. Korea's Strategy for Crisis Management
Korea has made a remarkably swift recovery from the crisis, which was spurred by three factors: timely macroeconomic policy adjustments, implementation of sweeping reforms, and strengthening the social safety net to preserve national cohesion in carrying out reform programs.
Timely Macroeconomic Policy Adjustments
On having fixed the foreign exchange liquidity problem by successful debt renegotiation and support from international organizations, including the IMF, Korea changed its macroeconomic policy stance from tight to accommodative both on the monetary and fiscal sides. As a result, interest rates were lowered and fiscal stimulus given, resolving the severe credit crunch induced by high interest rate policies and providing momentum for the recovery.
Structural Reform in the Four Key Sectors
Having restored stability in financial markets, the government initiated drastic structural reforms taking the so-called "four plus one" approach. The "four" refers to the comprehensive reforms in the financial, corporate, public and labor sectors, and the "plus one" represents market opening. Special emphases vis-a-vis the reform efforts have focused on the following. First, dealing with non-viable financial institutions and facilitating dissolution of non-viable corporations have been pushed aggressively. Second, reforming corporate governance in corporations including large conglomerates has been carried out extensively.
Market Opening and Liberalization
Other than the aforementioned three factors, market opening and investment liberalization also played an important role in overcoming the crisis in Korea through the provision of financial resources, job opportunities, the transfer of technology and management knowhow.
II. Importance of Structural Reform and Liberalization in Crisis Management
Then, "Are structural reforms and market liberalization actually essential for overcoming a crisis in any country?"
The answer to that question will be different depending on the sources of the crisis. In the case of Korea, the economic crisis was caused not by a temporary shortage of foreign reserves, but by long-standing structural weaknesses in the economy. Therefore, for preventing recurrence of economic crisis and achieving sustainable economic growth which constitute "the overcoming a crisis", structural reforms were necessary.
The next question that may arise is "What is the optimal sequence and speed of reform?". As far as Korea is concerned, I doubt that there was an optimal way of sequencing in carrying out sectoral reforms. All sectors have shown serious structural problems and moreover these problems were closely interrelated. Hence, simultaneous pursuing of reforms in all the areas was required.
Future Challenges
In the wake of the crisis, Korea faced additional challenges - the widening of the income gap, and increasing fiscal deficits and government debt. In order to address the former, the Korean government has established a new work-based social welfare system under the name of "productive welfare". Also to restore fiscal soundness, the government has instituted a plan to achieve a balanced budget by the year of 2003. For your reference, it may be worth noting that Korea's current fiscal deficit relative to its GDP is still much lower than the OECD average.
Finally, there are two tasks necessary for building a solid economic foundation for the new century. First, the government-driven reforms must be extended to self-generating reforms by the private sector. Second, Korea must shift its economic orientation toward that of a knowledge-based economy and information society.
APEC Trade And Investment Liberalisation : Finding Effective Ways For Substantial Liberalisation
Address by Hon Jim Sutton
Minister for Trade Negotiations, New Zealand
As Chair of APEC last year, New Zealand welcomed President Kim Dae-jung’s initiative in hosting a discussion of the many issues which faced the region in the aftermath of the economic crisis of 1997-98. New Zealand too was affected by the crisis and we firmly believe that closer cooperation is important to avoid a repeat. Trade and Investment liberalisation lies at the heart of the APEC - Asia Pacific Economic Cooperation – agenda.
To my mind, it is hard to think of true economic cooperation in an environment where we continue to impose barriers against the goods and services we each produce. It is no accident therefore, that at only their second meeting, APEC Leaders in Bogor in 1994 agreed the 2010/2020 goals for achieving free and open trade and investment in industrialized and developing member economies.
But, what about delivery? “The cheque’s in the mail” is a line that eventually wears thin, even if it signed by the Leaders of the world’s largest economies. Five years on from Bogor, APEC’s credibility would be at risk if commitment was not backed up with concrete progress towards the agreed goal. Last year while New Zealand was in the Chair, APEC economies, with help from the Pacific Economic Cooperation Council, took a good look at progress being made towards the Bogor Goals under the existing machinery of individual and collective actions. The result may not have been an A plus but it did rate a solid B; for broadly on track.
The progress which has been achieved has been a combination of three elements unilateral liberalisation; multilateral liberalisation under the WTO; and liberalisation in the context of sub-regional initiatives. With continued commitment and political leadership, I see no reason why the momentum towards Bogor which has been built over the past five years should not be sustained.
Many APEC economies have undertaken autonomous programmes of domestic reform and opening of markets. APEC’s shared commitment to common goals provides a supportive environment for policies which economies implement in their own best interest.
Australia and New Zealand have been engaged in broadly similar reform programmes, but we are not unique. To highlight a few others; China and Chinese Taipei, and now Russia and Viet Nam have been and will continue to liberalise their economies as part of their process of accession to the WTO. Chile is part way through an autonomous tariff reduction programme which will see its tariffs, across the board, fall to 6 percent by 2003.
And in the economies of Asia, reform efforts have been given a boost in the aftermath of the economic crisis. So to say that unilateral liberalisation within APEC has run out of steam is to overstate the case.
Support for a new Round of multilateral trade negotiations under the WTO was a key feature of the “Auckland Challenge” issued by Leaders last September. We all know what happened at Seattle. Leaders and Ministers would be disappointed that their challenge was not taken up and that it did not prove possible to launch the Round as hoped. The challenge for us within APEC now is to build on the platform of Auckland and to make the maximum contribution we can to rebuilding momentum for the launch of a Round at the earliest opportunity. Fortunately not all was lost at Seattle. Progress was made in increasing understanding and narrowing differences on most of the outstanding issues. And importantly negotiations on agriculture and services are underway in Geneva. As individual APEC economies we must now ensure that we take part in the negotiations to seek the abolition of agricultural export subsidies and unjustifiable export prohibitions and restrictions. APEC and the World Trade Organisation need to work in the same direction. Progress in the WTO could make a huge contribution towards the Bogor Goals.
Economic integration initiatives between groups of economies have also made and will continue to make a contribution to the achievement of free and open trade and investment in the APEC region. CER between Australia and New Zealand, AFTA in ASEAN, and NAFTA in North America are relatively longstanding examples. But at Auckland and more so since Seattle there has been a proliferation of new initiatives between widely diverse groups of economies. This perhaps signals an impatience to get on with the job of liberalisation. It is worthwhile considering how we can best harness this energy to our common good.
I see two ways in which regional liberalisation agreements can contribute to the realisation of the Bogor Goals either top-down, or bottom-up. The top-down approach would involve the collective negotiation of an FTA amongst the APEC membership after the upcoming WTO negotiations. Meanwhile we should look to take advantage of the bottom-up approach. As I noted, following Auckland there are many sub-regional liberalisation initiatives underway such as New Zealand’s negotiations with Singapore, and the initiative we and Australia are exploring with ASEAN. As well, Korea is negotiating with Chile and is undertaking studies with New Zealand and Japan; and Japan is studying an agreement with Singapore. One-way to harness the energy of a bottom-up approach would be to envisage these initiatives as “building blocks” which could be knitted together. Clearly this would be best if the architecture of the individual agreements was consistent with that of the Bogor Goal in key respects such as comprehensiveness and the outer timeframes of 2010/2020. As you can see, I am optimistic that effective ways to achieve substantial liberalisation exist. But, the seizing of those opportunities requires political commitment and leadership.
APEC Trade and Investment Liberalisation: The Way Ahead
Peter Drysdale
Australian National University
Trade and investment liberalisation was from the beginning, and still is, at the core of APEC’s economic policy agenda. Yet APEC is not simply a trading arrangement, and certainly not a preferentialone. Economic and technical cooperation focussed on market strengthening in the course of economic transformation, are essential complements to APEC’s trade policy agenda.While APEC’s foundations were economic, the political objective was to accommodate East Asia’s growing power without disturbing the balancing role played by North America in regional economic and political affairs. There was a happy coincidence of economic and political interests, encouraging regionalism based on a distinctly global agenda, at the end of the Cold War.