E&OE............................................................................................
I am grateful for the opportunity to be here tonight. There
could hardly be a more appropriate time for you to meet in Australia
- for two reasons.
The first is that in Australia we have recently implemented major
reforms to the regulatory framework for our financial system. The
Treasurer is justly proud of these changes and the complementary corporate
law economic reform programme. He has already spoken to you about
them and I will not say more than that we believe we have a system
which is at the leading edge of the world's best practice.
Given the financial storm that has hit the world, we are very pleased
that we strengthened our system when we did. And that is the second
reason why your meeting is so timely.
We confront an unprecedented degree of instability in international
financial markets. The impact on Australia's region has been
colossal. The debate about reducing this instability is vigorous.
It is crucial that we reach practical conclusions as soon as possible.
We know that the problems that led to the present situation stem from
a variety of sources: inadequacies in the management of national economies,
inadequacies in corporate behaviour, and inadequacies in the world's
financial system.
Efforts to rebuild stability need to take account of the part that
each has played. As banking supervisors, you have an important role
in all of them. I will say something about the issues of national
and international financial sector supervision but I would first like
to put my comments in a political and an Asia-Pacific context.
Economic growth
The point that we need to remember is that the ultimate aim of our
activities as governments and financial market supervisors is to improve
the security and welfare of our people. The key to this is sustainable
economic growth.
Without sustainable economic growth, improved living standards are
not possible. Nor is better education for our children, nor are jobs
for them, nor are health services, transport infrastructure, pensions
for our old people and so on. Nor ultimately is our capacity to defend
our sovereignty and maintain our security.
In the past two decades, economic growth has transformed Australia's
region, the lives of the people in it and the relationships between
the countries in it. Starting with Japan after the war, East Asian
economies have grown at extraordinary rates. Millions of people were
lifted out of poverty. Countries in the region became politically
more stable and open. The region developed a sense of shared interests
and a sense of community. The foundation and consolidation of APEC
was a visible sign of this.
Many of these benefits are now threatened. At a human level, unemployment
has increased massively. Families face great hardship. Food shortages
and malnutrition have reappeared. Children are being withdrawn from
school. The internal political pressures created by these developments
are immense. Relationships between countries are tested.
The most important aim of these countries and the region as a whole
therefore must be to get back on to the path of sustained growth as
soon as possible. This must be the focus of the APEC leaders meeting
which takes place in Kuala Lumpur in mid-November.
What should we do?
Keeping economies and markets open
The first thing APEC can do is make sure regional economies and markets
stay open.
Recent financial instability and the role of hedge funds and short-term
money flows have revived fears of globalisation. By opening their
borders to the free flow of goods, services and capital, governments,
it is sometimes said, have cost their people jobs and surrendered
their countries' sovereignty. Others say open markets are all
very well in good times, but in bad times we need to raise barriers
to protect ourselves.
APEC must stand against that view. Open markets provide the opportunity
for economic growth and the enormous benefits from it.
The worst possible response to the crisis would be to put up the shutters.
That would result in competition to raise tariffs and barriers within
the region and outside. We saw the consequences of this sort of policy
in the Great Depression of the 1930s. Others won't keep their
markets open, if we don't.
In 1994 in Indonesia, APEC leaders committed themselves to free trade
and investment in the region by 2010 for developed economies and 2020
for developing economies. That commitment helped bring the Uruguay
Round of the GATT to a successful conclusion, and the implementation
of binding agreements to reduce trade barriers around the globe.
In 1998 in Kuala Lumpur, APEC must recommit itself to those goals.
I would like to see a concrete demonstration of that commitment by
agreement to move ahead with early liberalisation in the full range
of sectors agreed in Vancouver last year. I would like APEC to challenge
others to enter a new broad-based round of trade negotiations in the
World Trade Organisation.
Economic governance
The second vital step for APEC economies is to take decisive action
to improve the transparency and accountability of government and corporate
decision making.
In part, present problems can be ascribed to a weak capacity to manage
international capital flows, to the vulnerability of companies and
governments to special interests and political cronyism.
There is no point in denying this. Efforts to do so will be received
with scepticism. Reforms are needed to regain international confidence.
APEC economies should therefore undertake to work immediately towards
implementing the relevant codes of international best practice.
I have in mind as a start the Basle Core Principles for Effective
Banking Supervision. Other relevant ones are the principles of the
International Organisation of Securities Commissions for securities
regulation, their disclosure standards for cross-border offerings,
the IMF's special data dissemination standard and the IMF's
code of good practice on fiscal transparency.
This will not be easy for all APEC economies. They will need time
and help. That help can come from a great variety of institutions
and duplication needs to be avoided.
The Australian government has engaged a consultant to survey both
the needs of regional economies for technical assistance on economic
governance and what is being done to meet those needs. There are substantial
gaps.
I will be announcing in Kuala Lumpur a package of bilateral assistance
which will help economies fill those gaps, and I will be encouraging
other APEC members in a position to help to do likewise.
In Australia, we have been improving our own systems. I mentioned
our new corporate and financial regulatory framework.
We will shortly be introducing into Parliament the most fundamental
improvements to our tax system since the Second World War. The reforms
will make for a more efficient and reliable revenue base. They will
make industry and exporters more competitive. They will provide more
incentive for Australians to be creative and expand their horizons.
The government has invited the private sector to make proposals to
reform the corporate tax structure. We will build on the range of
tax measures we announced in December 1997 to make Australia more
attractive as a centre for financial services.
The government is committed to seeing a major Australian city become
a major world financial centre. I have charged the Treasurer with
producing an action agenda that will extend what we have already done
in order to achieve this outcome. In the new government, I have appointed
a minister for financial services and regulation specifically to work
on this with the Treasurer.
The international financial system
The third vital step for APEC is to put its weight behind proposals
for reform of the international financial architecture.
It is the case that many economies were ill equipped to manage capital
flows. It is the case that transparency and accountability were lacking.
But it is not the case that these economies got what they deserved.
Rather, they got a whole lot more than they deserved. And I don't
think anyone will dispute that.
Companies must take some of the blame. As the Treasurer said to you
the other night, sensible judgments about risk were abandoned. People
grew complacent, and got used to quick and easy profits. Then they
panicked.
The global financial system also failed us. The sudden withdrawal
of funds knocked companies and economies off their feet much as the
powerful undertow of an ocean wave pulls the feet from under swimmers
and drags them out to sea.
Economies all around the world have been affected by the contagion,
including some that are clearly well run. In mentioning Mr Stiglitz's
apposite analogy about even well-maintained rowing boats being swamped
at sea I don't want to be accused of taking sides in a sensitive
institutional rivalry.
I therefore strongly support President Clinton's call for urgent
action to reform the international financial system. The G22 has produced
some worthwhile discussion papers. We now need some practical outcomes.
To my mind three areas stand out as requiring action.
The first is the need for better targeted disclosure requirements
which would focus on the gaps in current information on financial
markets, including the major private sector participants. Measures
need to be developed for monitoring and supervising highly leveraged
short-term financial flows, off balance sheet commitments and derivative
transactions.
The second is the need for measures to better manage future crises
and to facilitate private sector involvement in crisis management.
These might include standfast arrangements to prevent lenders from
exiting economies in a destructive stampede, collective action clauses,
orderly workouts involving rollovers, reschedulings and debt-equity
swaps.
The third is the need for the IMF to be able to provide speedy and
substantial support to appropriately qualified countries caught in
international contagion, analogous to domestic lender-of-last resort
facilities.
Speaking to a group who might be dubbed the grand regulators
rather than masters of the universe, I should probably say
quickly that I am not in favour of unnecessarily burdensome controls.
We do not want to constrain the natural workings of the market beyond
what is necessary to ensure its stable operation.
It is clear that the private sector must be included in discussions
on how to improve the international financial system.
That is why I have established a task force to report to me on these
issues. I will preside over the first meeting tomorrow afternoon.
It will be composed half each from the private sector and the public
sector, with some of the most senior banking and financial services
figures in our country alongside the heads of the relevant government
agencies.
I am looking for substantive and imaginative suggestions for Australia
to champion in the appropriate international forums.
APEC economies have a big interest in early harvests from discussions
about these issues. We need an effective regional voice in this debate.
That is why I strongly support the G22 as the most appropriate international
forum to develop these measures.
We do not need to completely rebuild the international architecture.
The IMF will continue to have a central role, and the other institutions
such as the World Bank and the Bank of International Settlements play
important roles - each in its own field.
Nevertheless, the world has changed dramatically since these institutions
were established. In creating a consensus on improvements to the financial
system, a broadly based grouping of countries is a valuable asset.
I can see merit in a leaders level meeting of the G22 to lock in measures
to improve the financial system, and would willingly lend my support
to any proposals to that end.
Growth-promoting policies
These three steps are vital elements for returning to the path of
sustainable growth and restoring confidence in the region's economies.
The fact is, however, that they will inevitably take time to have
an impact. In the meantime we are faced with the short-term problems.
We must focus on what can be done now to ensure that growth resumes
and to avoid a major credit crunch.
In this regard, the focus has to be in the first place on the largest
and second largest economies in the world: the United States and Japan.
The recent steps taken by the United States to maintain growth have
been reassuring. They are a practical demonstration of President Clinton's
recent promise to keep the US economy growing and open to the products
and services of others.
Japan has made very generous contributions to regional countries hit
by the crisis, having already pledged support worth $42 billion. It
has not always received due credit for that.
The steps that it has foreshadowed to recapitalise its banks and stimulate
its economy are welcome. The rest of the world, however, is waiting
for a sign that the measures are biting. Confidence must be rebuilt
in Japan's economy both amongst its own people and in the rest
of the world. With over two-thirds of East Asia's GDP, Japan
must get back on the right track if the rest of the region is to dig
itself out of the hole it is in.
With bipartisan support, the Australian government has made a significant
contribution to cushioning the impact of the recession in the most
affected countries and to restoring their financial health. Altogether,
we have pledged $3 billion for the three regional IMF packages. In
addition, we made large increases in aid for Thailand and Indonesia.
We have also taken a prominent role in trying to generate international
support for these countries and to deepen the understanding of their
individual characteristics, especially in the case of Indonesia.
As for Australia's own economy, it is still growing strongly.
In the financial year just ended, it grew 4 per cent. We will be affected
by the slowdown in the region and we have been buffeted by currency
volatility. But with a strong budget surplus, low inflation and low
interest rates, greater diversification of exports and strong domestic
demand we are well placed to continue to grow.
Regional economies in recession must not be allowed to contract any
further than they already have. Domestic demand must be encouraged.
The plight of the poorest must also be taken into account an
issue which the World Bank and the IMF have recognised through the
relaxation of fiscal targets.
Early this year, I personally urged the leaders of the major economies
and the World Bank to cooperate to ensure that trade finance was available
so that economic activity could continue.
Australia provided for an additional total of $1.4 billion in trade
credit insurance. Japan has recently announced a further $30 billion
worth of assistance some of which I understand will be available for
trade finance. Singapore's prime minister, Goh Chok Tong, has
made a proposal for a multilateral approach to trade credit. I think
it is time for a renewed effort to develop a coordinated international
approach in this area.
Neither pessimism nor optimism - but realism
Assessments of the region have swung all too quickly from extreme
and overblown optimism to extreme and unwarranted pessimism. We need
to keep a sense of perspective.
The impact of the financial crisis on the region has been huge, in
some cases devastating. At the risk of entering another ideological
struggle by mentioning Paul Krugman, I quote his calculation that,
were Thailand's experience translated to the United States, it
would be as if the $200 billion net inflow of foreign investment the
United States receives each year were suddenly to become in the next
year an outflow of $1 trillion.
I continue to be astonished sometimes by the lack of comprehension
of the scale of the impact of the crisis on a country like Indonesia.
We need to understand the huge task of political and economic restructuring
that is being required of Indonesia. Without being Pollyannaish, we
should recognise that despite all the difficulties it is indeed making
some progress. It needs help and it is worth helping.
We need to understand that not all countries in East Asia or even
Southeast Asia are the same as each other. Thailand's problems
are different from Indonesia's or Korea's.
The fact is that growth in the region hasn't been the result
of a miracle now gone bust or merely built on the back of speculation
and short-term capital flows.
It has been built on the hard work, the thrift, the skills, the ingenuity,
and the determination of people in the region to develop and to reap
the benefits of economic growth. And it has been built on the work
of regional governments in developing the infrastructure and systems
necessary to support and nurture that growth.
Those qualities, skills and infrastructure remain in the region. Many
- like Indonesia - are enormously rich in natural resources.
If APEC economies keep markets open, improve their economic governance
and engage in efforts to strengthen the international financial system,
they will regain international confidence and they will return to
sustainable growth.
[ENDS]