PECC and Asia-Pacific economic integration

The annual meeting of the Pacific Economic Cooperation Council (PECC) was held in Osaka, Japan in March 2009. New Zealand was represented by Professor Gary Hawke, former Chair of the New Zealand Committee of PECC and Senior Fellow of the New Zealand Institute of Economic Research (NZIER). Key officials for APEC and ABAC were also present. We offer you a summary and the full text of Professor Gary Hawke's commentary on the meeting.

At this meeting, economic forecasts for the Asia-Pacific were discussed along with structural suggestions to ensure continued organisational relevance for PECC in the context of growing Asian regionalism and the current global financial crisis.

Leading commentators have in the past pointed to “global imbalances” – such as an overreliance on export-led growth – as being at the root of the current crisis. During debates at the PECC meeting, however, it was emphasised that “global imbalances” should be acknowledged as a traditional driver of international trade and as a facilitator of sustained regional economic integration. Participants agreed that consumption-led growth should be a priority, but exports should not be affected.

It was generally agreed that repercussions of the global financial crisis proved “decoupling” in the Asian economies had not happened at the anticipated rate. However, analyses offered of the current situation suggested that Asian economies may rebound at a faster rate than initially expected.

Key presentations at the Osaka meeting dealt with International Monetary Fund (IMF) economic forecasts for the region, the economic outlook in the United States and Asia, and trends in rising protectionism examined in recent World Bank reports. Professor Hawke’s commentary notes published here in full deal with the key issues of policy responses to the economic crisis and the importance of restoring confidence in the global trading system.

In his comments for the policy responses session, Professor Hawke stresses the importance of economic literacy for policy-makers and warns against knee-jerk populist reactions by the media and public which detract from the key message to be drawn by the effects of the crisis – the need to build up on adequate technical and administrative expertise.

On the issue of fiscal stimulus, Professor Hawke argues in favour of government expenditure being directed along informational and coordination lines. The issue of insufficient regulation has frequently been brought up by experts analysing the causes of the financial crisis over the past few months. Professor Hawke argues that the crisis would not have been prevented by more extensive regulation and instead advocates more cooperation between central banks without excessive consolidation of policy. “Using fiscal policy as an instrument for generating confidence requires more creative thinking,” concludes the author, citing Victor Fung.

On the topic of the global trading system, the paper proposes a credible surveillance mechanism as a means to ensure transparency, reduce tensions in policy-making and address the level of protection of current interests. An independent economic institution, it is hoped, will be better able than individual governments to assess compiled records.

A dialogue rather than a “name and shame” approach would ensure greater buy-in by governments of a new mechanism of this kind – and this is where there is room for an Asia-Pacific initiative. “Constructive dialogue offers the best prospects for mutual agreement,” adds Professor Hawke, which is where the Asian process of agreed objectives (as demonstrated by APEC and PECC) would be a useful approach.

The global trading system has come under increased pressure in recent months, with countries implementing protectionist policies such as higher tariffs or subsidies. New Zealand is now particularly concerned at rising protectionism as the United States has just followed the EU’s example and introduced export subsidies on dairy products. The paper argues in favour of financial cooperation as assurance against volatility.

Government intervention ought to favour adjustment and avoid protection for declining activities, Professor Hawke argues, based on lessons learned from Asian economic policies in the 1960s to the 1980s. This protection should apply to social as well as industrial assistance. Lessons learned from past depressions and crises warn against extension of social protection to deal with apprehensions of future insecurity instead of actual poverty.

Professor Hawke concludes that Asia-Pacific initiatives in transparency mechanisms can be efficient when dealing with economic integration. Asian growth in production and supply, and the unprecedented widening of the trade agenda in the region, have resulted in benefits that should spur further initiatives in economic confidence-building.

• Download the full commentary on the PECC meeting by Professor Gary Hawke (PDF, 15 pages).