2000 APEC Finance Ministerial Meeting

Introduction

1. We, the Finance Ministers of Asia-Pacific Economic Cooperation (APEC), met in Bandar Seri Begawan, Brunei Darussalam, to discuss the regional economy and measures to ensure the sustainable growth necessary for increased economic prosperity in our region. Representatives of the International Monetary Fund (IMF), the World Bank and the Asian Development Bank took part in our discussions.

2. The Deputy Sultan of Brunei Darussalam, His Royal Highness the Crown Prince, Prince Haji Al-Muhtadee Billah, granted an audience to the APEC Finance Ministers and Representatives of the International Financial Institutions (IFIs). His Royal Highness noted the improvements in the region's economic prospects, but stressed that APEC still had an important role in helping to build stronger foundations in the region.

3. We note that Brunei's theme for APEC 2000, "Delivering to the Community", reflects the fact that skills development continues to be of crucial importance for the regional economic recovery. It is essential that all the benefits of the revolution in information and communication technology be harnessed for the betterment of APEC member economies.

4. As the region's recovery from the 1997/98 financial crisis has gathered pace, the challenge of maximizing the benefits, and minimizing the risks, of technological change and closer economic integration has become more sharply etched. Taking full advantage of the significantly enhanced opportunities offered by globalization is fundamental to APEC's shared vision of stability, security and prosperity for our peoples. Experience around the world has demonstrated conclusively that growth is a key requirement for an economy to be able to raise incomes and reduce poverty. We therefore welcome the significant improvements in prospects for growth in the region since we last met at Langkawi in May 1999. We resolve to continue to pursue sound economic and financial policies and to carry out the structural reforms necessary to sustain this progress. We also reaffirm the importance of free and open trade and investment for sustainable growth.

5. But globalization may also increase our economies' susceptibility to external shocks and social dislocation. We need robust institutions and well trained people to ensure that the opportunities are fully exploited. We also need well designed social policies and programs if all our citizens, especially the least fortunate, are to share the benefits of increased economic prosperity.

6. Equally, if we are to take full advantage of the promise of technological change and the "new economy", we need a sustained commitment to structural policies which underpin flexible and dynamic national economies.

Economic and Financial Situation

7. We are encouraged by the improvement in economic and social conditions in the economies affected by the crisis of 1997/98, underpinned by continuing strong demand in major export markets. In all of these economies recovery has depended on the extent to which a credible commitment to the implementation of structural reforms, especially in the financial and corporate sectors, has underpinned the steady return of investor confidence.

8. In the United States, the economic expansion concluded a record 113 months in August with remarkable absence of the type of inflationary pressures that typically accompany long expansions. However, a risk remains of inflation pressures emerging from a gap between the growth of demand and potential supply. In Japan a modest recovery appears to be underway, supported by strengthening corporate profitability and investment. However, the output gap is still large and inflation is negative. Increases in personal consumption are key for further recovery. China continues to grow at a robust pace. Economic conditions in other APEC economies have also improved significantly.

9. However, there is no room for complacency. Continued strengthening of macroeconomic fundamentals and pursuit of structural reform are needed in order to secure financial stability and sustainable economic growth in the region. Much remains to be done to implement crucial financial and corporate sector restructuring and to strengthen key domestic financial, economic and judicial institutions. It will also be important to restore the region's tradition of prudent fiscal management, while remaining vigilant towards inflation as well as the needs of the poor and the vulnerable. In economies where there is a risk of overheating, macroeconomic policy would need to be tightened in the context of a consistent monetary policy and exchange rate regime. We note the risks posed by oil price volatility to the world economic recovery and for developing economies that are heavily dependent on oil market conditions, and the need to stabilize prices at sustainable levels. In the light of rising world demand, we call for appropriate increases in supplies and other necessary measures to promote long-term price stability in the mutual interests of consumers and producers.

Forging a Stronger Global Financial System

10. Efforts to strengthen the international financial architecture have been intensified in the aftermath of the financial crisis. We welcome the progress that has been made since we met at Langkawi and urge continued implementation of reforms, including at a regional and national level. It is important to get the views of all economies in discussions on global financial issues, and APEC Finance Ministers have sought broader representation in this debate. In this regard, dialogue at the new forum of the G-20 is welcome.

11. Progress has been made in developing international standards, codes and best practice guidelines in a wide range of areas, including regulation and supervision of banking, securities, and insurance; corporate governance; economic data dissemination; and transparency of monetary, financial and fiscal policies. In particular, we support the key standards identified by the Financial Stability Forum and encourage APEC economies to implement them in accordance with their circumstances and priorities. These standards will assist our efforts to evaluate and improve the legal, institutional and regulatory frameworks for our economies. In this regard, we urge focused and targeted technical assistance to assist countries in the implementation of key standards.

12. We affirm the importance of and encourage participation in the IMF/World Bank Financial Sector Assessment Program (FSAP) and Reports on Observance of Standards and Codes (ROSC) to strengthen financial systems by assessing countries' implementation of key financial and economic policy standards. These processes will contribute to adapting the IMF's surveillance role and the World Bank's developmental role. Voluntary disclosure of ROSCs can serve to promote policy transparency while enabling more effective measurement of progress towards meeting key standards. We note the importance of basing these assessments on the substantive quality of policies taking account of the circumstances of each economy.

13. It is imperative that the recommendations set out in the reports of the Financial Stability Forum (FSF) Working Groups on highly leveraged institutions (HLIs), Capital Flows and Offshore Financial Centers (OFCs) be implemented. We support the recommendations of better risk management by HLIs and their counterparties, better disclosure practices by HLIs and a review by foreign exchange market participants of existing good practice guidelines. We note that the FSF did not recommend direct regulation of HLIs at this stage but emphasized that it could be considered if, upon review, the implementation of the Report's recommendations did not adequately address the concerns identified. In the light of the growing importance of cross-border capital mobility we emphasize the significance of strengthening the collection, dissemination and publication of aggregate data on cross-border capital flows to cover both debt and non-debt flows. We also welcome recognition of the importance of managing economies' balance sheet risks, and encourage the rapid finalization of the draft IMF/World Bank guidelines for public debt and reserve management with special attention to the risk created by short-term foreign currency liabilities. Regarding OFCs, we urge the IMF, together with other relevant international bodies, to make concrete progress in its plan of action to conduct assessment of these jurisdictions' compliance with relevant international standards. We emphasize the importance of constructive engagement to assist economies to strengthen regulatory and supervisory frameworks.

14. In addition, there is recognition in APEC that economies' integration with world capital markets requires exchange rate policies that are highly credible and consistent with broader economic and financial policies. In this regard, there have been movements towards a mix of exchange rate regimes and macroeconomic policies more compatible with stability and avoidance of financial crises.

15. Private sector participation in the prevention and resolution of crises remains a major challenge. We note the progress that has been made in developing a framework for appropriately involving private creditors for that purpose and we urge the IMF and other relevant bodies to continue their efforts in this field of endeavour.

16. We support the efforts of the IMF and its members to engage in a comprehensive review of its core facilities to enhance its effectiveness. In this context we hope that consensus will soon be reached to make contingency facilities operational. Efforts to improve program design should continue. We also endorse the work of the Multilateral Development Banks to increase their focus on programs and policies directed at reducing poverty. In addition we encourage the international community, including heavily indebted countries themselves, to facilitate the effective implementation of the enhanced HIPC initiative.

17. All the IFIs should continue their efforts to strengthen their own governance and accountability, and to improve transparency. We emphasize the importance of ensuring that representation on the Boards of the IMF and the World Bank and quota/share allocation appropriately reflect the current world economy.

18. We welcome the recent developments in the area of regional cooperation. In the Asian region, ASEAN+3 Finance Ministers agreed on closer cooperation to monitor capital flows, enhance regional surveillance and implement the "Chiang Mai Initiative" that enlarges existing swap arrangements and establishes a network of bilateral swaps. A similar swap arrangement, the North American Framework Agreement, already exists in North America. Cooperative financing arrangements at the regional level designed to complement resources provided by the IFIs in support of IMF programs can be effective in crisis prevention and resolution. We are pleased to note the good progress in negotiations between Singapore and New Zealand to conclude a Closer Economic Partnership.

Building Stronger Foundations

19. Our long-term objective remains to build stronger foundations for sustainable growth in the region by further developing financial and capital markets. Through the APEC process we are building the capacity of our institutions and our labor forces to enable economies in the region to do so. Taken together, our work in APEC on capital flows, strengthening financial markets, corporate governance, insolvency regimes, and financial disclosure and accountability is therefore very timely. Details of the collaborative initiatives we have been pursuing in APEC, as well as new initiatives for the coming year, are contained in the Annex.
Promoting freer and more stable capital flows

20. Fundamental to the development of reliable and efficient financial markets are sound and credible financial policies. In that regard, we endorse the policy conclusions of the Voluntary Action Plan for Promoting Freer and More Stable Capital Flows. In particular, we note that economies are likely to derive substantial benefits from opening to cross-border capital flows provided that sound and credible economic and financial policies are adopted, and robust structures are established to manage risks effectively. We therefore resolve to continue policy reforms that enable us to take advantage of the opportunities available in international capital markets. We will establish in APEC a voluntary policy dialogue on strengthening financial markets, particularly focusing on issues related to the implementation of international financial standards and codes, and we look forward to a report on the results of this initiative when we next meet.
Strengthening financial systems

21. We need to be able to manage difficulties in our financial systems should they occur. We therefore instruct our Deputies to undertake a study of APEC economies' experiences in managing bank failures, with the goal of developing a set of recommendations based on case studies that illustrate the various lessons drawn from the management of bank failures in our region, and to report back to our next meeting.

22. Over the previous two years, APEC economies have made significant progress towards strengthening financial supervisory systems through the development of training programs for banking supervisors and securities regulators. Given the progress being made in this initiative, we will extend it for a further two years, focusing on more intensive work to assist national regulatory organizations to implement model curricula, and continued provision of regional courses. In addition, to improve the skills and knowledge of life insurance regulators in the region, we welcome Australia's offer to lead a three-year project on managing regulatory change in life insurance and pensions.
Strengthening economic and corporate governance

23. Sound economic and corporate governance will encourage the return of capital to the region. We welcome the efforts of the OECD and the World Bank to raise the awareness of and the commitment to corporate governance reforms in the region through Roundtable discussions. APEC will undertake a policy dialogue on strengthening corporate governance in this region, starting in early 2001. As part of these efforts, we note the importance of insolvency law reform, and we welcome Indonesia's offer to host a conference in early 2001 to build on the November 1999 conference in Australia and work carried out in other international forums on insolvency law reform. We will assess progress on these initiatives at our next meeting.

24. Financial transparency in the private sector is an important ingredient in risk management and sound corporate governance. We have formed a taskforce on company accounting and financial reporting to improve the quality of financial disclosure and auditing practices in APEC economies.

25. The development of good practices in APEC is facilitated by policy forums directed at experts and practitioners who are able to share experiences and explore common issues. We welcome the contribution to developing sound economic management made by the APEC forums on privatization, pension fund reform and public sector management, held since we last met.

26. An increased private sector role is an important strategy to achieve structural adjustment, particularly in emerging economies. We note the development of a network of public officials, through the Privatization Forum and its cooperation with the OECD Privatization Network, to support and strengthen the capabilities of APEC economies to involve the private sector in government enterprises and services. We also welcome the ongoing development by the Forum of a Compendium of Best Practices for Privatization.

27. We recognize the importance of strengthening transparency and disclosure standards for all market participants for the effective functioning of markets. In this regard, we look forward to the finalization of the report on the results of the survey of Credit Rating Agencies (CRAs) that has been undertaken. A Workshop will be held in Manila next month to discuss the results of the survey among representatives from APEC economies, multilateral financial institutions, CRAs and the investor community.

Fighting Financial Crimes

28. We welcome the agreement to establish an APEC working group that would conduct a survey of the domestic legal and regulatory frameworks for fighting financial crime, building on work already completed by APEC members of the Asia/Pacific Group on Money Laundering (APG). We recognize the need for strong measures to combat money laundering, tax evasion, financial fraud and other criminal or unethical activities. We welcome the work of international groups in combating financial crimes, including the Asia/Pacific Group on Money Laundering (APG), and related efforts by the Financial Action Task Force on Money Laundering (FATF), the OECD, the FSF, and the Committee on Hemispheric Financial Issues (CHFI). In this respect we encourage the International Financial Institutions to work further with their members in developing sound financial and capital markets and good governance.
Improving social safety nets

29. The social impact of the crisis revealed the need for well-designed, flexible, targeted, and cost effective social safety net policies and programs to respond to the needs of the poor and vulnerable. The experiences in administering social safety nets of the APEC economies are the subject of an on-going study. Three main themes have emerged from this review so far. First, the need for adequate pre-crisis safety net planning. Second, the importance of accurate and timely information on the poor and vulnerable groups. Third, the need to have a range of instruments to ensure adequate targeting and coverage. On the basis of this study we will develop a set of guidelines for responsive and fiscally manageable social safety nets to present to APEC Leaders.

Creating new opportunities with information technology

30. We recognize that information technology (IT) has the potential to increase economic growth. A stable, non-inflationary macroeconomic environment will help businesses and consumers exploit the advantages presented by IT. We note that IT lowers the costs and speeds up delivery of financial services products, thereby contributing to overall greater efficiency and convenience of the financial sector. In this regard, we call on economies to formulate and implement appropriate policies and arrangements to facilitate electronic financial transactions. We also support efforts by APEC member economies and the International Financial Institutions to ensure that the benefits of IT are as widely shared as possible.

31. We welcome the work by the APEC E-Commerce Steering Group, in conjunction with the Subcommittee on Customs Procedures, the Transportation Working Group and other related forums, for "Paperless Trading" as defined in APEC Blueprint for Action on Electronic Commerce. We agree that, building on work in other competent bodies, a working group on electronic financial transactions systems, consisting of financial experts from member economies, will be established to develop and implement programs to foster paperless trading in collaboration with the E-Commerce Steering Group.

32. We also welcome the progress made by the Sub-Committee on Customs Procedures (SCCP) towards trade facilitation, including the elevation of "Paperless Trading" and "Integrity" as new SCCP Collective Action Plans. We urge APEC customs authorities to enhance harmonization of customs data elements, taking into account the outcomes of the G-7 Experts' work. Reaffirming that trade facilitation and enforcement must be well coordinated, we encourage customs authorities to continue strengthening their cooperation.

Achieving APEC's vision

33. We value the contribution of the private sector to our discussions. We welcomed the opportunity for a dialogue with the APEC Financiers' Group, the APEC Business Advisory Council's Financial Architecture Task Force and the Pacific Economic Cooperation Council. We note their views on strengthening economies against future crises, including their work on corporate governance, financial standards and private sector involvement in resolution of financial crises. We task our Deputies to work with the private sector to continue consideration of their recommendations with a view to incorporating them in our on-going work. ABAC will present its final recommendations to Leaders in November.

34. The APEC Seoul Forum on Shared Prosperity and Harmony was successfully held March 31st - April 1st , 2000. In this Forum, senior officials and distinguished scholars discussed policies to prevent the recurrence of economic crises and to alleviate economic and social disparities among APEC economies. We welcome the Forum and hope that this kind of policy dialogue will continue among APEC economies.

35. Effective co-ordination and management of work across the APEC process is important to achieving our goals. We endorse proposals from our Deputies to improve information sharing and coordination between APEC forums and within capitals, including on crosscutting issues. Building closer linkages across APEC's work programs will be made easier for the People's Republic of China with the alignment of the APEC Finance Ministers' process with the rest of the APEC process.

36. We would like to thank the people and Government of Brunei Darussalam for the hospitality extended to all delegations and the excellent arrangements they have made to make the 7th APEC Finance Ministers Meeting a success. We also thank the Co-Chairs of our meeting, Pehin Dato Abdul Rahman Taib of Brunei Darussalam and Hon Dr Michael Cullen of New Zealand.

37. APEC Finance Ministers will next meet in Suzhou, People's Republic of China, in September 2001.