Business-as-usual in APEC won’t suffice. The region is on a dangerous path. The fundamental objective of APEC leaders must be to find circuit breakers to quell the policy turbulence that’s shaking the region. To get the region back on track it needs to break major deadlocks on trade, finance and growth.
The threats facing the Asia Pacific are as numerous as they are serious. The anti-globalisation movement strikes at the core of APEC’s mission and objectives. The trade war has escalated at an alarming rate, with no clear end-game despite the promised talks between Chinese President Xi Jinping and US President Donald Trump on the margins of the G20 summit. Tightening financial conditions and the rising US dollar threaten cascading crises in the region. Geopolitical tensions have been ramped up. Policy uncertainty from Brexit in Europe to ‘America First’ in the United States is higher than since APEC’s foundation. Corporate, household and government balance sheets are weak. Monetary policy space is narrow. The region’s crisis response mechanisms are uncoordinated, unprepared and under-resourced.
The value of APEC is that it is a vehicle to work through such big strategic issues. History shows that, when used effectively, APEC can deliver substantial outcomes, as it did with framing the Information Technology Agreement at the onset of the digital age or in providing the platform for China’s great trade liberalisation as it headed towards entry into the WTO.
APEC principles are the foundation of the confidence, trust and political certainty that underpin economic prosperity and security in our region. It provides a unique regional framework for forging a common economic agenda based on cooperation, open economies and free markets through independent national commitment to collective interests.
APEC’s focus this week must be to identify circuit breakers. It must steer the region off the dangerous path that it is currently walking.
On trade, APEC needs to find ways to calm political tensions and settle policy uncertainties while bolstering the trade regime. Boosting trade in services and reforming the WTO stand out as critical ways of achieving this. Achieving the same level of liberalisation in services trade that has already taken place in goods trade would halve the global trade imbalances that are fuelling political tensions, according to the Bank of England. Reforming the WTO to modernise the institution and address the concerns of APEC members is a practical way to lower tensions and bring countries back to the multilateral table.
On finance, an agenda aimed at strengthening the resilience of APEC economies and financial systems will be critical to their long-term sustainability. Developing and implementing sound regulation, deepening local currency capital markets and strengthening market integrity through sharing information, technical assistance, staff secondments and phase-in programs will be key. In the short term, APEC economies should work collaboratively to rebuild domestic buffers and strengthen the coordination between bilateral, regional and global financial crisis response mechanisms.
On growth, infrastructure remains the area of APEC’s agenda which, despite its strong political buy-in, has struggled to achieve tangible outcomes. This year has been no different. APEC needs to shift from welcoming reports and sharing experiences to implementing a long-term infrastructure agenda based around a concrete objective. A formal infrastructure ministers’ process with the goal of ’40 by 40′ could achieve this goal: a commitment to increase annual public and private infrastructure investment in the Asia Pacific by 40 per cent above that implied by the current average by the year 2040. This agenda can embrace the development ambitions of China’s Belt and Road Initiative and other infrastructure-funding initiatives at the same time as it builds a sounder basis for infrastructure borrowing across the region and beyond.
APEC provides a unique opportunity to prosecute the priority issue areas in Asia and the Pacific. APEC can’t just be G20-lite. The most recent communique from APEC finance ministers references the G20’s infrastructure hub, the G20’s tax agenda and the G20’s framework for strong, sustainable and balanced growth. While synergies are welcome, APEC should focus on the core issues of the Asia Pacific and the areas where it can add strategic value.
Yet, if APEC and the G20 have one thing in common right now, it is that both their host countries in 2018 are embroiled in deep domestic challenges. In the G20, Argentina has sought a bailout from the IMF following its currency crisis. In APEC, Papua New Guinea (PNG) faces a myriad of problems that threaten economic and social retrogression.
In this week’s lead essay, Stephen Howes shows just how rapidly the outlook for PNG has changed. ‘When PNG put up its hand to host APEC in 2013, its economy was booming. Prospects were bright. And reform was underway, in particular to clamp down on the corruption that has been the country’s curse,’ says Howes.
Fast forward five years and the environment could not be more different, Howes says. PNG’s steps to reduce corruption have been put into reverse. Economic growth has stalled. Diseases like polio have returned. Formal sector employment has declined for each of the past four years. Excessive borrowing in the boom years has now come back to haunt the government following a collapse in revenue. The government has done well to avoid a debt crisis, but its economic mismanagement has intensified the downturn. PNG, APEC’s poorest economy, represents a counter example of good policy APEC-style.
The opportunity costs of hosting APEC are high for an economy like that of PNG’s. ‘Much of the financial cost is being covered by other countries, most notably Australia and China, but the meeting cycle is a heavy one for any country, and a significant tax on PNG policymakers, elected and official,’ says Howes. The process should elevate policymakers’ understanding of what they need to do to turn the fortunes of their country around and hopefully builds capacities to do so. But there is little evidence yet of the understanding and capacity being mobilised into a PNG national reform agenda.
APEC is fundamentally about reform and development. That opportunity is still there for PNG to take. ‘PNG could have used its hosting of APEC to push through important change in a range of critical policy areas,’ says Howes. ‘It hasn’t. Whatever happens at the leaders’ meeting this year, in this fundamental sense APEC 2018 is a opportunity lost for its host.’
Even if PNG misses its chance, APEC can’t afford to leave the challenges its members now face unaddressed. It’s the right multilateral setting. It’s the right theatre in which to sort out different views and to begin to find common ground. It’s the right place to set strategic directions without coercion. And it’s the right instrument for initiating work programs among ministers or officials to follow up with action — on infrastructure development and cooperation, for example, that encompass the interests of providers, recipients and international institutions such as the AIIB, the ADB and the World Bank that can help — as well as for driving the conversation on the big trade and financial policy threats to the region’s prosperity and stability.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.