1998 Mumbai - The Asian economic turmoil
Note: This policy statement was Issued on the 27th of October of 1998 during the 17th CACCI Conference in Mumbai, India.
1. The achievements and foundations of the Asian economic miracle will prove to be more durable than the pain caused by recent events.
2. CACCI recalls that over the past 30 years Asian economies have generally enjoyed relatively high rates of economic growth, strongly rising incomes (resulting in reductions in poverty) and increasing literacy rates.
3. Per capita income has risen ten-fold in South Korea, five-fold in Thailand and four-fold in Malaysia over the past 30 years, while per capita incomes in Hong Kong and Singapore now exceed those in some western industrialized nations.
4. Restoring sustained high economic growth will require regional governments and business to meet and surmount a number of significant challenges.
5. CACCI and its member national/economy chambers believe the recent Asian turmoil offers a number of clear lessons for policy- makers. These are:
6. Openness, not isolatio nism, is the way forward. Globalisation of financial and product markets continues to offer unprecedented opportunities by increasing the pace of investment, trade, job creation and economic growth;
7. Priority must be given to tackling economic problems at their roots, rather than just dealing with the symptoms. Governments must implement consistent macroeconomic policies which encourage sound and durable economic growth, in conjunction with low inflation, fiscal discipline and favour sustainable external balances;
8. Governments must strengthen domestic financial sectors. The effectiveness of central bank supervision of financial systems and institutions must improve considerably. This may require the closure of fundamentally unsound financial institutions;
9. There is a need for reconsideration of the appropriate role of government in national economies and societies. Public spending can productively be applied to primary health care and primary/secondary education, especially in lesser developed countries; and,
10. Governments will also have to implement structural reforms beyond just the financial sector. Such structural reforms should include introduction of comprehensive competition policies, and reduction in trade barriers and labour market rigidities.
11. Given the above lessons from the crisis, CACCI agrees on the need for members to support, individually and collectively, policies to overcome the present crisis and prevent future ones. However, CACCI recognizes that attempting to turn the clock back can pose great risks to the dynamic economic expansion that brought widespread prosperity. CACCI maintains that a more balanced approach would be to introduce certain adjustments to the economy, both on the governmental level, and on the private level, to the extent necessary to correct past excesses.
12. From this standpoint, CACCI agrees to recommend to their governments and to their private members the following adjustments which it considers necessary in the present situation:
13. Those nations with weak banking systems should take urgent measures to strengthen their systems to regain public confidence.
14. Further deregulation in the banking sector should be balanced by requirements for managerial discipline and disclosure of information on the part of the financial institutions. World accounting standards should be unified to facilitate information exchange.
15. Regional and global mechanisms should be set up to monitor and regulate (if necessary) short-term financial transactions.
16. Governments and international institutions, such as the IMF, should consistently work towards reducing volatility in exchange rates.
17. The IMF should be strengthened by increasing available funds. Also its conditionality terms applied to nations in need of emergency aid should be reassessed to take into account social welfare and basic human needs. Closer coordination with the World Bank is desirable.
18. Governments affected by the present crisis should take appropriate macro-economic measures in the financial and monetary fields to stimulate economic recovery, depending on the countries concerned.
19. Small and medium enterprises should be assisted to overcome the present credit crunch by providing adequate finance.
20. Governments should have more frequent exchanges of views and information concerning the economic situation with the private sector, including chambers of commerce.
To the Private Sector:
21. Management should be more accountable to employees, clients and shareholders. Disclosure of information on their financial status should be more detailed and frequent, wherever it is not the practice currently.
22. Continued support for deregulation, lowering of trade and investment barriers, and integration with regional economies, and with the world economy, should be maintained.
23. Companies should continue to increase their competitiveness and productivity through, inter alia, sound management, training of employees, and adoption of information and other technologies.
24. Continue to support foreign direct investment. When investing overseas, companies should encourage employment of local managers and workers, transfer of technology, and give consideration to environmental concerns.
25. Furthermore, CACCI reaffirms the Statement it made to the APEC Leaders Meeting in November 1997 (See attached). CACCI and its member national/economy chambers regard sound policies focusing on commercial and economic liberalism as offering the best prospects for ensuring the second phase of the “Asian economic miracle.”