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Statement by the Secretary for Trade and Industry, Mr Chau Tak Hay, at the APEC Ministerial Meeting in Kuala Lumpur today (Sunday) - Agenda Item VII: Financial Crisis: -
The financial turmoil which started in Asia last year has now become a global concern. The APEC meetings here in Kuala Lumpur provide us with a timely opportunity to review the situation and to consider how to respond to the financial crisis.
In times of economic difficulties, trade is often blamed for aggravating the economic hardship of domestic industries and workers. Even if trade is not named as the scapegoat, it is all too tempting for people to turn inward and concentrate on their domestic problems. Another instinct is to resort to protectionism, or at least, to halt liberalisation.
But both responses are wrong remedies. The financial crisis was not caused by trade liberalisation. Neither will restrictions on trade resolve it. On the contrary, protectionist measures would only aggravate our problems. If I may paraphrase Santanyana: "Those who do not read history are doomed to repeat the mistakes of their predecessors." Madame Chair, let us not repeat the mistakes of the 1930s. We must resist protectionism and press firmly and steadfastly ahead with the goal of free and open trade and investment, as laid down by our leaders in Bogor and reaffirmed by them many times since then.
I am not saying that we need only to concern ourselves with trade liberalisation and nothing else. Indeed a great deal of effort, both outside and within APEC, has been extended on alleviating the impact of the financial crisis on member economies, on helping members better cope with the problems and above all reforming the international financial architecture. Within APEC, I note with encouragement the outcome of the Finance Deputies meeting last week. They have agreed to work on restoring stability, promoting recovery and building a social safety net for affected economies, as well as to help reactivate trade stalled by the liquidity crunch. Funds have also been pledged to implement these measures.
Mismatch between the region's need for capital to finance long-term projects and the availability of mostly short-term loans has been identified as one of the causes of the financial turmoil. To ensure that the region will have sustainable sources of funds to fuel our future growth, Finance Deputies have agreed to examine the development of domestic bond markets in the region. Hong Kong, China is pleased to be the co-ordinator for this initiative and we look forward fruitful discussions with fellow members economies.
Also with a view to forestalling a recurrence of similar turmoils, Finance Deputies have recognised the need to enhance transparency and prudential regulation of market operators, as part of the effort towards revamping and strengthening domestic financial systems and the international financial architecture.
One area of particular concern to Hong Kong, China is private sector leveraged funds. Hong Kong remains an ardent supporter of market forces but as a responsible government, we have an ultimate responsibility to preserve the integrity of our financial markets. Free markets do not mean freedom to manipulate. Mobility of capital has been one of the most important factors contributing to globalisation of trade and investments. But, we need to guard against the potentially destabilising affects of short-term capital flows, especially when they are colossal in size relative to the size of the financial market in the economy being affected. Hong Kong, China believes we need to examine ways in which we can strengthen the international financial architecture to cope with these volatile capital flows and to monitor more closely the activities of leveraged, private sector financial institutions, including the hedge funds.
The search for corrective measures will require international co-operation. It is important that such discussions involve Asian economies. Not only are they the most affected economies, their experiences will also provide invaluable reference. A mismatch in prescription will only lead us further and further away from recovery. Only dialogues involving the Asian economies can best ensure that any solutions identified can suit the needs of the region.
End/Sunday, November 15, 1998
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