[asia-apec 517] South Pacific Forum/Asian Crisis

[Gatt Watchdog]

>From National Business Review, July 17 1998
By David Barber

South Pacific states take Asian crisis as a warning to reform

The Asian financial crisis appears to have removed any lingering
doubts South Pacific South Pacific island states may have had
about following the path of economic reform, deregulation and free
trade.

While retaining concerns about the social impact of reform on
their peoples, they have reaffirmed their commitments to
far-reaching changes in the way they manage the fragile island
economies.

South Pacific Forum economic ministers meeting in Fiji last week
acknowledged they were experiencing some of the early warning
signs of conditions that crippled Asian economies over the last
year.

They agreed the best way to reduce the risks of suffering the
same fate was to push ahead with the action plan for economic
reform they adopted at their first meeting in Australia last year.

This includes deregulation of the all-important power, energy and
telecommunications markets, greater private sector involvement in
their economies and the eventual adoption of a regional free-trade
agreement.

They agreed they would pursue more competitive markets for power
provision, telecommunications and petroleum supply and promote
opportunities for foreign investment. They also agreed to
rationalise and progressively reduce tariffs.

Indicating a readiness to join the global trading community,
ministers asked the forum secretariat for a comprehensive
checklist of principles and obligations of the World Trade
Organisation and the Asia Pacific Economic Co-operation grouping
so that non-members could assess their value.

They also agreed the forum would seek observer status at the WTO
and form alliances with other countries with similar interests to
present a common front in the next round of trade liberalisation
negotiations.

Confirming a commitment to a "well-defined and rigorously applied
banking supervision and audit system", the ministers pledged to
strengthen their financial sectors and improve the business
climate in the region by stepping up government accountability and
transparency.

The ministers endorsed the International Monetary Fund's Code of
Principles and Good Practices on Fiscal Transparency as a model on
which Forum countries can draw.

Significantly for a group of economies striving to reduce
dependence on their public sectors, they called on their business
communities to make active contributions to government policy
formulation.

They also agreed to encourage business to use regional
organisations to report their views directly to economic ministers
at their annual meetings.

They acknowledged private sector concerns about taxation, access
to land and resources, the quality and cost of infrastructure
services and the availability of technical and managerial skills
and said they would put these on the agenda for next year's
meeting.

The meeting showed continuing nervousness about a free-trade pact,
with ministers seeking more information on the impact on
individual countries, especially the smaller and more vulnerable.

They had three suggested agreements before them - one for free
trade with each other, another including New Zealand and Australia
and the third bringing in the French Pacific territories.

Ministers asked the forum secretariat to prepare a framework
agreement for free trade among forum members, outlining the
benefits of preferential and non-preferential approaches and the
differing speeds as which member countries could adapt.

When that work is sufficiently advanced, forum trade ministers
will meet to discuss the issue and make recommendations.

Addressing the meeting, New Zealand Treasurer Winston Peters
outlined common themes in the Asian crisis of relevance to the
Pacific island nations, noting:
* financial sector weaknesses which contributed to excessive and
low quality investments;
* large-scale foreign exposures by poorly supervised domestic
banks - much of it short-term borrowing making currencies
vulnerable to collapse;
* a lack of transparency about the financial situation of
businesses and their relationship to government, and
* weak exchange rate policies making short-term adjustments
difficult.

"There are clearly lessons to be learned here for us," he said,
"not least the need to address the risks that many countries in
the Pacific face - risks similar to those that precipitated the
Asian situation."