Asia > Indonesia assumes the 2013 APEC chair

Asia: Indonesia assumes the 2013 APEC chair

2013/02/26

Indonesia’s choice of APEC theme, ‘Resilient Asia-Pacific: Engine of World Increase’, reflects concern over downside risks that need to be managed if the regional economy is to achieve sustainable increase.

So far, APEC has successfully built its reputation in promoting regional integration by focusing on promoting open trade and investment . But given the current world context, better Asia Pacific economic integration can only be realised if the region promotes better coordination of cross-border macro and financial issues. APEC finance ministers are able to play a additional substantial role in this by promoting sound and credible policies, particularly in two areas.

Prime, finance ministers could strengthen their dialogue and develop strategies to ensure the region remains financially stable. Stability is a key issue, despite recent assessments that estimate world increase to pick up marginally in 2013 and the reduced danger of downside risks. The world financial market is still uncertain and business confidence remains weak in the region. An opinion leaders’ survey conducted by the Pacific Economic Cooperation Council in 2012 showed that macro and financial issues dominated APEC business leaders’ concerns about increase. Issues such as the euro zone and US deficit crisis, and exchange rate and capital flow volatility, are presently replacing tariffs and impediments to business as the major concerns.

The nature of globalisation is that a lot of problems presently can only be solved by international coordination. APEC is increasingly interdependent, which means that utilising domestic monetary and fiscal policy instruments is limited by international market conditions and by policy decisions taken by other economies. Finance ministers have less macro policy space and fewer effective policy instruments. They must balance adopting proactive and timely policies with the efficient use of resources. APEC finance ministers could help address these challenges by building a common considerate of the risks faced by the region and the policy options available to member economies. An improved dialogue process could enhance the effectiveness of domestic policies through open coordination. While it is unlikely that APEC could take collective action on macroeconomic policy itself — due to substantial diversity part APEC members and the immaturity of the dialogue process — it can spread macroeconomic best practice and work on translating best practice into domestic policy.

Second, finance ministers should explore new policy instruments to promote regional increase. Until presently, a lot of APEC economies have been dependent on a production and investment model, designed to support export-oriented activities. This reliance on exports makes the Asia Pacific particularly vulnerable to external factors, such as the current contraction of world accumulation request. Indeed, East Asia’s exports increase slowed in 2012, and trade as a whole no longer contributed to regional increase.

There is concern that increase may remain stalled in advanced economies for some time. Asia Pacific economies need a new long-term strategy. They need to find new sources of increase. In recent years, there has been some interest in infrastructure investment and its increase-lifting potential, and Indonesia has proposed to put infrastructure investment and building connectivity at the centre of its APEC 2013 schedule.

Finance ministers could play a substantial role in turning this ambition into reality but they have to confront huge challenges. Financing is one of them. With some economies in a difficult fiscal position, resources are often tied up and financing needs to be prioritised. But there are still various public and private sources of finance that could be mobilised — public–private partnerships are one example. An extra could be to develop local capital markets to bring down the cost of financing and prevent mismatching the risks of long-term infrastructure finance with short-term lending.

Beyond the financing issue, finance ministers need to show leadership on strengthening the institutions through which infrastructure projects can be delivered, so that projects become bankable for both international financial institutions inclunding the private sector. For example, finance ministers could help create an institutional and regulatory system to streamline infrastructure investment and facilitate public–private partnerships. These steps play an significant role in identifying productive projects, determining the level of market support for projects, and helping resolve issues necessary to bring projects to fruition.

Herfan Brilianto is Deputy Director at the Fiscal Policy Office, Ministry of Finance of the Republic of Indonesia. The views expressed in this article are those of the author.

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