2005 APEC Finance Ministerial Meeting

I. Introduction

We, the Finance Ministers of the APEC economies, convened our twelfth annual meeting in Jeju, Republic of Korea, on 8-9 September 2005, under the chairmanship of Dr. Han, Duck-Soo, Korea's Deputy Prime Minister and Minister of Finance and Economy. The meeting was also attended by the Managing Director of the International Monetary Fund, the Managing Director of the World Bank, the President of the Asian Development Bank, and the Executive Director of the APEC Secretariat as well as by distinguished representatives from the private sector.

We met under the policy themes of "Free and Stable Movement of Capital" and "Meet the Challenge of Ageing Economies." In discussing these themes, we were pleased to note that APEC economies are moving toward freer and more stable capital flows and acknowledged that we must all play our part by putting in place the appropriate policies and strategies to address the importance and urgency of the challenges that come with ageing economies in the APEC region. With the 4th anniversary of the September 11 terrorist attack approaching and the continued threats of terror worldwide, we reiterate the importance of actions to combat terrorist financing, money laundering, and other abuses of our financial systems, and in this regard, we urge FATF to make progress, as appropriate, in the enlargement of its membership.

We expressed our sympathy for the tragic human losses from natural disasters experienced since we last met, and stressed our commitment to work together in dealing with their consequences.

II. Global and Regional Economic Developments

We note that global economic growth has moderated over 2005, but is still likely to remain robust, despite high oil prices. Though growth in APEC regions is expected to ease in 2005, we observe that member economies are experiencing faster growth than the global economy. On the exchange rate front, we welcome the recent moves by China and Malaysia towards a more flexible exchange rate regime. We also reaffirmed that continued liberalization in trade and investment has been an essential driver for the economic prosperity in the member economies. In order to stimulate growth, and enhance the standard of living in the region, we agreed to promote continued progress towards the Bogor Goals of free and open trade and investment in the APEC economies. We reiterate our support for the successful conclusion of the WTO Doha Development Agenda negotiations within the context of a comprehensive agreement and, to that end, call for making significant progress at the upcoming Hong Kong Ministerial Conference. We also noted the upcoming UN Summit on MDG and look forward to cooperation on achieving the goals for development.

We reiterate that all economies have a shared responsibility to take advantage of the relatively strong global economic performance to address key risks and vulnerabilities in their respective economies. To ensure orderly adjustment of global imbalances and to help achieve more sustainable external positions and stronger medium-term growth, we emphasize the importance of appropriate policies and the need for concrete actions by all in a timely and effective manner. In the APEC region, these include fiscal consolidation to increase national savings in the United States; greater exchange rate flexibility for some economies as appropriate, supported by continued financial sector reform, in emerging Asia; and further structural reforms, including fiscal consolidation, in Japan.

We discussed the risks of sustained high energy prices to economic growth and on-going development in the APEC economies. In this context, we noted the importance of adequate investment in oil production and refining capacity, as well as technology transfer for energy conservation and developing renewable energy sources. In addition, we welcomed recent actions to reduce demand-distorting subsidies and urged continuation of these efforts. Noting the discussions at the G-8 and ASEM meetings, we call for the dialogue between the oil producing and consuming countries to be strengthened through forums such as the International Energy Forum and the G-20. 

III. 12th APEC FM Process Policy Themes

On the two policy themes under discussion, we noted the greatly increased importance of capital flows among member economies, and resolved to take measures to address the challenge of ageing population. In particular, bearing in mind the special characteristics of remittances as an alternative source of finance for development, we recognized the need to help improve the efficient flow of remittances in some member economies. We also adopted the "Jeju Declaration on Enhancing Regional Cooperation against the Challenges of Population Ageing" to renew our commitment to address the challenges and seize the opportunities of population ageing.
1. Free and Stable Movement of Capital

We noted the increasing importance of capital flows in the APEC member economies as evidenced by the size of global capital flows into and out of the APEC economies increasing almost 8 times to 1.4 trillion US dollars in the past 20 years, compared to the 3.7 fold increase in the size of APEC's GDP during the same period.

We acknowledged the increasing level of FDI as well as portfolio investment flows into and out of the region. We observed that increased capital flows within the APEC region are, in general, economically beneficial, and these flows reflect the breadth and depth of increased economic activity among APEC economies and between APEC and the rest of the world. As detailed in Annex C, we also noted that worker remittances are an increasingly important component of international financial flows, and encouraged continued efforts to improve formal remittance services.

Recognizing the contribution of free and stable capital flows in supporting economic growth, we emphasized the importance of open, well-supervised, and systemically sound financial services sectors. In that context, we urge all member economies to pursue a meaningful outcome of the financial services negotiations in the Doha Development Round. We resolved to continue our efforts to promote capital account liberalization, in a manner consistent with maintaining financial stability, and to build deep, resilient and efficient capital markets including by developing institutional investor base. We also recognized that the pace and manner of liberalization needs to be well sequenced and tailored to the specific circumstances of each economy.

2. Meet the Challenge of Ageing Economies

We note that some APEC economies are undergoing an unprecedented demographic transition characterized by slowing population growth, a growing proportion of people over 65, and a declining proportion in the population of working age. While the dynamics of the transition vary among member economies, we concurred that all member economies would eventually face the challenge of population ageing.

Studies suggest that population ageing will likely bring significant fiscal pressures. On the one hand, ageing population will bring increased demands for health care, social security and public pension expenditures; on the other hand, tax revenue growth will slow as more taxpayers enter their retirement years. Research also suggests that population ageing may have important impacts on economic growth and on the growth of aggregate savings and investment.

In this context, we acknowledged the urgency and the importance of domestic economic, fiscal and financial market reforms including areas such as sustainable pension systems, wider array of savings products and enhanced financial literacy. We reaffirmed that international cooperation as set out in the "Jeju Declaration" is essential to meet these objectives. 

IV. Other Matters and Venue of the Next Meeting

Considering the importance of private sector input, we welcomed the active informal dialogue with the APEC Business Advisory Council (ABAC). Also we appreciate the contribution of the Pacific Economic Cooperation Council (PECC) Finance Forum on ways to promote APEC economies' cooperation and enhance the financial system. They provided both valuable insights from the private and academic perspective and support for the work under the themes of the 12th APEC Finance Ministers' Process.

We thanked the Korean people for their warm hospitality, and the Korean Government and the Ministry of Finance and Economy for the well-organized arrangement of the 12th APEC Finance Ministers' Meeting.

We agreed to meet again in Hanoi, Viet Nam for the 13th APEC Finance Ministers' Meeting on 7-8 September, 2006.