APEC 2013 - NEWS ANALYSIS

Resilience - a well-chosen theme

Policy coordination is key as a potential new crisis looms

The annual Asia-Pacific Economic Cooperation (Apec) meetings get under way this weekend among the lush foliage and pristine beaches of the Indonesian island of Bali.

Massive billboards welcome delegates with the official Apec 2013 theme: "Resilient Asia Pacific: Engine of Global Growth".

You don't normally give much thought to these slogans. The ones for business or trade conferences are typically filled with jargon while those for international meetings tend to be as vague and inoffensive as possible. The theme for last year's Apec meeting in the Russian city of Vladivostok, for example, was "Integrate to Grow".

Which is why this year's theme caught my eye.

Resilience is a more common goal in financial forums like the International Monetary Fund (IMF) or World Bank meetings, where central banks coordinate policies to ensure the smooth functioning of capital markets and cushioning of financial shocks.

Here at Apec, where the central goal is to lower barriers to trade and investment, resilience is an odd word choice.

But as the government shutdown in the United States enters its fourth day and the worry about its global impact begins to deepen, you begin to see how the word is actually quite appropriate.

It's even slightly sarcastic. After all, how often have the less developed economies in this 21-nation grouping - including host nation Indonesia - been buffeted by policies and practices of their more developed brethren?

In the 1997 Asian Financial Crisis, regional economies were decimated by a massive capital outflow that started with Federal Reserve chief Alan Greenspan raising interest rates in the US.

The US, in recovery from a recession in the early 1990s, had raised rates to head off inflation. The US dollar rose sharply against Asian currencies like the Indonesian rupiah and Thai baht, and hedge funds attacked these weakening currencies for profit.

Companies that had borrowed heavily in US dollars couldn't afford to pay their loans and collapsed. Governments fell in Indonesia and Thailand.

In 2008, the region was once again hit when the credit bubble in the US housing market burst and global financial institutions found themselves hundreds of billions of dollars in debt.

As credit seized up, Asian trade slumped and loan lines to its companies disappeared.

Now we are in 2013, and once again facing fears of being buffeted by the West.

The US is recovering from its recession and has decided to stop a bond-buying programme that has for the past few years kept interest rates low and allowed "easy money" to flow into the emerging economies of Apec.

The news touched off a major sell-off in the currencies and stock markets of Asian countries like Malaysia, Indonesia and India, and hit as far and wide as Russia, Chile and Peru.

Some analysts starting making eerie comparisons to 1997.

That was just two months ago. Now, Apec is grappling with a new potential crisis.

The current government shutdown in the US, if prolonged, could shave off up to 1 percentage point in US economic growth this year, some economists predict.

The US Treasury and IMF head Christine Lagarde have also warned that if the same impasse prevents the raising of the US debt ceiling by Oct 17, and the US defaults, there will be catastrophic consequences for financial markets and the world economy.

On Thursday, the Apec Policy Support Unit issued a report lamenting the timing of these developments. Sharp fluctuations in capital flows and possible rate increases are "coming at a time of unstable economic recovery" and "require appropriate policy measures to stabilise growth in the region", the report said.

It's a tacit reminder to Apec decision-makers that economic cooperation must go beyond the thorny technical details of reducing tariffs and dismantling cross-border investment barriers.

And economic leadership in a grouping like this means much more than a leadership by default that comes from being the biggest importers or exporters of goods and capital. In that sense, with the leaders of both Russia and China here in Bali, US President Barack Obama's absence will be awfully conspicuous.

After all, why should trade barriers come down if unbridled runaway growth in one member nation leads to a competition for resources that drives up global inflation? Or if there are nasty spillover effects from a mismanaged hard landing when those growth numbers come down?

And why should investment barriers come down if domestic monetary policies create large and unstable flows of hot money that can destabilise currencies and asset markets elsewhere?

The more inter-connected the world becomes, the greater the need for policy coordination that has the best chance of happening in forums like these.

And that is perhaps the key to building the resilience that the Indonesians have rightly identified as the ultimate goal for Apec and the people of its member countries.

ignatius@sph.com.sg