The world calls out for bold action

[suriya@xxxxxxxxxxxx]

                                        October 26, 1998 
     COMMENT AND TEXT / EAST ASIA ECONOMIC
                       SUMMIT 

 The world calls out
 for bold action

 The following is the complete text of the
 Action Plan for Global Growth and
 Reform of the World Financial System
 agreed to at the 1998 East Asia Economic
 Summit of the World Economic Forum
 from Oct 12-14 in Singapore.

 Participants of the Summit, deeply concerned about the drift of the
 world economy and financial markets and the growing risk of global
 recession, believe that strong and bold actions must be taken
 immediately on the following fronts.

 * The United States, Canada and Europe should adopt significant cuts
 in interest rates and Japan should further expand its money supply in
 order to bolster their own economies and the world economy against
 the rising threat of global recession in 1999.

 * The summit participants stress that Japan, as Asia's major
 high-income economy with a gross national product twice as large as
 all of the rest of Asia combined, has a special responsibility to help the
 region emerge from its current deep recession.

 To do so, Japan must undertake strong and bold measures to
 recapitalise its financial sector, using public funds as needed to ensure
 a speedy recovery of the banking sector and by adopting a dynamic,
 growth-promoting fiscal policy, with an emphasis on expanding
 domestic consumption. The participants note with encouragement the
 recent positive steps taken in this direction and urge Japan to
 implement these measures without further delay.

 * Europe, Canada and the United States should be prepared to adopt
 more expansionary fiscal politics, especially tax cuts, in the event that
 the growth outlook in the respective economies deteriorates still
 further in the coming months.

 * The advanced economies should immediately expand the provision
 of official loans and credit guarantees to the emerging markets in crisis,
 especially to cover basic necessities in foodstuffs, energy, and medical
 and pharmaceutical supplies.

 * The summit participants strongly support the Miyazawa Plan to
 provide $30 billion in Japanese assistance to the crisis countries of
 East Asia. Japan should be prepared to increase that sum, perhaps
 significantly, in the event that the contractionary forces in East Asia
 continue to gain momentum.

 * Europe, the United States, Canada and Japan should reconfirm their
 commitment to open trade in goods and services as the crisis is
 leading to significant shifts in trade flows. This commitment is made in
 recognition of the need of the emerging market economies in particular
 to generate current account surpluses during the period ahead as a
 key mechanism to restore their financial balance.

 In particular, the advanced countries must commit to abstain from
 allowing an arbitrary use of "safeguards" such as anti-dumping
 measures or countervailing duties to become protectionist policies in
 disguise.

 * Governments in the crisis countries of East Asia should commit to
 maintaining open markets for goods and services, recognising that they
 would be the biggest losers in a worldwide lurch towards
 protectionism.

 * The crisis economies in Asia should, on their part, accelerate the
 recapitalisation of their financial and banking sectors, which have been
 rendered insolvent by the current financial turmoil. This recapitalisation
 should be accomplished both through the infusion of public funds and
 the involvement of new investors, domestic and foreign, in the
 ownership and control of domestic banks and financial firms.

 * In light of the low inflation and high current account surpluses now
 prevailing in Korea and Thailand, participants believe that these
 countries should now adopt expansionary monetary and fiscal policies
 in order to promote a return to positive growth in 1999.

 * The crisis countries in Asia should facilitate the rapid restructuring of
 corporate debt in a pragmatic manner that recognises the legitimate
 interests of both creditors and debtors.

 At the same time, Japan, the United States, Canada and Europe
 should facilitate this restructuring by supporting realistic settlements on
 the foreign debt owed by Asian corporations to international creditors.
 This approach would serve as a positive model for an orderly
 workout in other emerging economies facing similar difficulties.

 * Governments in the crisis countries of East Asia should review the
 prudential limits on short-term capital inflows, including limits on
 short-term foreign debt. Participants stress that the unilateral
 imposition of restrictions on short-term capital outflows of previously
 invested capital would generate very negative longer-term
 repercussions.

 * Governments in the crisis countries of East Asia should commit
 themselves to further openness to foreign direct investment, including
 in sectors that were previously restricted to foreign ownership, such as
 banking and infrastructure, where such limits still exist. For it is
 precisely through the infusion of new capital and technology that these
 critical sectors could play their full role for stability and long-term
 growth.

 Governments in these countries should commit to continuing the effort
 towards greater transparency and the strengthening of the institutional
 infrastructure to support open markets.

 Towards a reform of the world financial system 

 * Group of Seven (G-7) economies should undertake to establish a
 new regulatory regime for the monitoring, disclosure and regulation of
 highly leveraged short-term financial flows, as well as
 off-balance-sheet commitments and derivative transactions.

 * Participants stress the need for a comprehensive reconsideration by
 the membership of the IMF and World Bank of the mandate,
 structures, functions and resources of these institutions, with the view
 of rendering them more accountable and transparent in their own
 operations and objectives and supportive of an open world economy,

 * The participants endorse proposals for an emergency "Global
 Growth Summit" but stress strongly that the emerging market
 economies should be represented equally along with the advanced
 economies at such a summit. This summit should also be the starting
 point for the elaboration of a new world financial architecture.

 These measures, taken together, would constitute a critical step
 towards a renewal of world worth, which is now the critical condition
 to stabilising emerging economies and world markets. They would
 also set the basis for the establishment of a new global financial
 architecture that responds to the realities of an open global economy,
 providing for the needs of both the emerging and advanced
 economies.