Rebuilding the Global Economy: Are New Models of Growth Required?

Ms Chong Siak Ching,
Chairman of the APEC CEO Summit 2009,

Mr Teng Theng Dar,
Chairman of ABAC,

Chairmen and CEOs,
Distinguished guests,
Ladies and Gentlemen,

I am delighted to join you all this morning for the APEC CEO Summit and to have so many distinguished delegates with us in Singapore. I think it is one of the largest turn-outs for a CEO Summit that APEC has experienced and we will try our best to make this a worthwhile and a memorable experience for all of you.

We are meeting at a significant moment for the Asia-Pacific region and for APEC. First of all, this is the 20th anniversary of the organization of APEC since the first meeting was held in Canberra in 1989 at Australia's initiative. It is timely for us to review our progress, to examine our approaches to cooperating in the region and to chart the way forward for the APEC economies. Secondly, this is the moment where the global economy is emerging from the crisis and the measures which the Governments take in the next few months and years and the reactions of corporations to the crisis and opportunities which are being created will determine how quickly we recover and whether countries and economies can sustain our growth.

APEC was founded back in November 1989 at the time when the Asia-Pacific was emerging as a prosperous and dynamic region visibly standing out from the rest of the world. Many of the economies in the region felt that it was time to create an environment where all participants can prosper in peace, and particularly, an organization which can promote free trade and to address the concerns which the countries had about protectionism and the slow progress of the Uruguay Round. It was an idea which was in the air and several possibilities were being discussed. The Australians had a serendipitous proposal which took off. It started off with 12 economies - six ASEAN countries and six others: Australia, New Zealand, Canada, Japan, Republic of Korea and the United States. And gradually over the years, it has expanded until now we have 21 members in the family.

A considerable amount has been achieved over the last 20 years. The member economies have promoted free trade amongst themselves. They have concluded free trade agreements, and there are over 40 FTAs which have been signed. The number of FTAs may by itself not be a totally comprehensive indicator because you can have too many of them and it can become a spaghetti soup. But as an indication of the 'free-ness' with which trade is flowing, we can see that total exports had gone up six-fold within the region and average tariffs in member economies had come down by two-thirds from 17 per cent to around five per cent.

And most important of all, the result of all these is economic growth, which in this region has undisputedly outpaced global growth rates. And in some member economies, there has been an astonishing rise in prosperity within 20 years, more than doubling or even tripling of their per capita GDPs. So these are all clear evidence of the benefits of free trade and globalization and the good work directly or indirectly which APEC has done.

This last year has been a difficult one. APEC members have been affected by the global financial crisis like all other countries. Trade volumes have come down sharply. At one time, we thought they would collapse but fortunately they have now stabilized. Financing dried up and some observers feared with reason that the world was in danger of entering another depression. Fortunately, Governments and countries took drastic steps to tackle the crisis. They restarted their financial systems, slashed interest rates to virtually zero, recapitalized their banks, undertook unconventional policies such as quantitative easing. Central Banks are doing things never envisioned in their Charters in order to come up from unanticipated, unprecedented situation. Governments implemented fiscal stimulus measures --- discretionary spending on a large scale; deep tax cuts; direct transfers to households; all kinds of vouchers, hand-outs, cash for clunkers; schemes to encourage people to buy, to spend, to keep confidence up and to prevent going into a self-fulfilling trough. There were also measures to restore confidence - signing swap lines between Central Banks and the pledges by leaders such as in the G20 group in London in April to "promote global trade and investment" and to "restore confidence, growth and jobs". They are holding themselves up, not to a legal commitment, but to a moral obligation and a reputational standing that this is all what we all know what we ought to do. And if we do not quite achieve this, we know that we have fallen short of a desired standard of conduct and policy making.

As an open and exported oriented economy, Singapore felt the impact of the global crisis more than most countries. We responded aggressively with emergency measures. And last December when things were looking very grim, we introduced a programme called SPUR - Skills Programme for Upgrading and Resilience -- to help workers upgrade their skills and therefore keep their jobs, with programmes with actual training courses and government support.

Then we worked out a comprehensive response to the crisis which we introduced in an early budget in January this year. There were many items, but there were two key programmes in the Budget. One was the Jobs Credit Scheme, which meant that the State took over a part of the social cost of employing workers, of contributing to their Central Provident Fund account (which means their pension funds), rather than the employers paying for these contributions. And this reduced the cost of employing the workers, kept businesses viable and preserved jobs.

And we also had a Special Risk Sharing Initiative, which is a scheme for the government to share the risk for loans from banks to businesses - especially SMEs -- so that viable businesses could continue to have access to credit. The measures resulted in a budget deficit of five to six per cent of GDP. This was one of the largest deficits in our history. Or if you were to look at it the other way round, one of the largest fiscal impulses in our history. But the purpose was not to boost domestic demand. It was to help companies retain workers and to help workers to improve their skills and employability because we decided that the best thing we could do was to help keep companies afloat, keep workers in jobs and therefore they can look after themselves and see through the immediate crisis. The measures were supported both by employers and unions and they were effective both in stabilizing the economy and in maintaining confidence.

Today, Singapore and the global economy too, are experiencing a clear but modest recovery. The economies are holding steady, consumer confidence is returning, trade flows have stabilized and industrial production has shown some pick-up.

In particular, Asia is experiencing a strong rebound. Several economies are maintaining strong growth. China, for example, will well exceed 8 per cent this year. India is also continuing to grow steadily and Indonesia is experiencing more than 4 per cent growth which benefits its neighbours. The IMF predicts that Asia will lead the global recovery which I think is correct and its growth forecast for 2010 next year is: Asia - 6 per cent, G3 -1.2 per cent.

So we are in the right region in the world but risks still remain. The economic recovery is not yet on a firm footing, much of the rebound has been driven by fiscal stimulus measures and the effect will wear off in the coming months. Unemployment will remain high for some time. In America, it exceeds 10 per cent which is higher than its mean in a very long time. Bank balance sheets especially in America and Western Europe remain weak and lending is still tight. Therefore countries are watching the situation carefully and will only gradually unwind their stimulus measures, hopefully in a coordinated way so that you do not have disorderly change in the situation.

Nevertheless, we expect that the worst is over. In the long term, high growth will continue in Asia because China and India will continue to liberalise, especially China. Their demographics are favourable and they are big countries, with a young population, large workforce and low dependency ratios. There is a growing middle class with spending power, and urbanisation is creating new demands for infrastructure and services. There is rising education and skill levels so that the capability to produce, to participate in the global economy is strengthening. And Asian enterprises are increasingly prominent, increasingly operating beyond their home countries and opening up regional and global markets, and showing an interest in what is happening in the region and in the world, for example, by attending this CEO Summit. Provided we keep our markets open, provided we develop our economies and we maintain links within Asia and across the Pacific, the future looks bright.

ASEAN and South East Asia are strengthening cooperation amongst ourselves. We have an integration agenda which is making steady progress. We have signed an ASEAN Charter which contains significant lists of items which need to be done and which will be done. We have endorsed a blueprint to form an ASEAN economic community by 2015. And at the recent meeting in Thailand, we decided to pursue a Connectivity Initiative, to enhance the land, sea communications, internet, the physical, as well as people and system links between the ASEAN countries, so as to make ASEAN a more integrated entity, which is able to be a significant partner to China, India, America, and other regions of the world. And so that ASEAN can be the centre for regional cooperation and the focus for economic development in Asia even when China takes off, even when India offers enormous opportunities.

ASEAN is making progress in South East Asia, but in the broader region, the Asia-Pacific Economic Community, or APEC, is actively working too. In this meeting we have an active agenda for the future which builds on the G20 discussions which took place in Pittsburgh a couple of months ago, on the theme of "Sustaining growth and Connecting the Region. Sustaining growth, because we expect investments not to be very vibrant for a while longer, to stay depressed because of spare capacity in the system. We worry that high unemployment will weigh on incomes and therefore on consumption. And we know that the economies have to build up their long term capabilities and upgrade their skills of their workforces because that is the only sustainable way to keep growing, to keep improving standards of living, to keep improving lives not just only for a small elite but for a broad segment of population in all our countries. There is no short cut to keeping growth balanced, inclusive and sustainable. Hard work has to be done and not just by governments but also by companies, by workers and by economies cooperating together.

Hence the second limb of our theme in this APEC meeting, which is "Connecting the Region". In this world, the challenges are shared. They affect many countries, and all the countries are part of the game. And we have no choice but to stay together, and tackle the challenges collectively. We have to integrate our economies, link up so that there is more trade, more investments, more people movements, more mutual understanding. It will bring economic benefits, lowering transaction costs and increasing market size. Integration will also bring benefits beyond the purely trade and economic realm. Because it gives the economies stakes in one another's success, and establish the basis for a peaceful region.

Most important of all, we have to keep trade free. Free trade was the original raison d'être of APEC, and is still at the centre of APEC's concerns today. In fact, APEC's role in promoting free trade would become more prominent post-crisis, as the Asia-Pacific is set to drive global growth. The tariffs may have come down, as I have told you just now from 17 per cent to five per cent, but tariffs are only one sort of trade barrier. While tariffs may look low, the real problems which businessmen face may be far from negligible. So much work remains: to harmonize trade rules, to remove non-tariff barriers, to simplify customs regulations, to help companies realize more fully the benefits of free trade, and to help populations benefit more fully from free trade. Because finally, it is not just the companies making profits, which is a pay-off, but the populations who are able to buy the best products, the widest range, at the most competitive cost from wherever it may come from, and therefore enjoy the best standard of living.

Countries have to avoid taking protectionist measures that hurt one another and are ultimately self-defeating. It is not polite to say so, but countries in difficult times do come under pressure and do things which they know are not the right thing to do collectively, and which are in fact against their own longer-term interest. They close markets, they take measures which discriminate against imports, they find ways to give their own companies a little leg-up at the expense of others. This is understandable, but we have also to understand that these are not things which are going to help us to prosper even if they may bring a quick relief from an immediate political problem or economic problem. We have to work together not to protect our markets, but to take steps towards the vision of a free trade area of the Asia-Pacific. This is a vision, it will not happen for many years because there are many economic and political challenges which have to be overcome, but we can take steps towards this vision gradually year-by-year.

And one promising way to do this is to push ahead with the Trans-Pacific Partnership or the TPP. You may not have heard of the TPP, but I think it is worth your while to take note of this little nucleus, this little seed, which we hope will in time grow into a significant tree and pillar for free trade and cooperation in the Asia-Pacific. The TPP is a free trade agreement by a small but significant grouping - four countries, Brunei, Chile, New Zealand and Singapore. It covers these four small countries - Chile is not so small but the rest of us are. It covers developed and developing economies, and it covers both Asia as well as the Americas. It is a high quality agreement that maximizes the benefits for businesses. And it is designed so that other economies can join in and accede to the TPP, and over time this little seed can bloom and growth, and we will have a significant free trade agreement. It starts with a high standard template, and we can work to bring in other economies in stages, and that is what they are doing. The US, Australia, Peru and Viet Nam have expressed interest to join. We hope this will materialize as soon as possible. When it materializes, there will be a significant advance towards the ideal of a free trade area which encompasses the whole Asia-Pacific.

We have set ourselves an ambitious agenda. We need all parties to work together to achieve these goals. Governments need to build consensus and political support for a global action plan. G-20 meetings have seen governments cooperating and tackling the crisis, but the cooperation has to continue beyond the crisis. And following Pittsburgh, we hope we will be able to move discussions forward in this APEC meeting. Next year in G-20 meetings in Canada, and then in South Korea, and then to carry on further, into the following APEC meetings - next year in Yokohama in Japan, and the year after that in the United States. The US has not decided where yet, but some participants are hoping we will have a very serious meeting in Hawaii.

The international financial institutions - the World Bank and the IMF - also need to play their part, to build up and to be able to play their part. To help emerging economies to tide over their liquidity problems, to help reform and support the global financial architecture, and to advise countries and encourage countries to make reforms and changes to their economies so that they head off problems and so that they are forewarned, and we can avoid once again getting into an unsustainable position which will lead to a crash, as happened in the years until 2007.

Businesses too play a part, and it is an important one, because while the governments and the World Bank and the IMF can set the pre-conditions, set the stage and create the frameworks, finally we cannot create the prosperity. The private sector, businesses have to create the prosperity. The mood after the crisis has shifted. Before the crisis I think there was a certain momentum for laissez-faire, for free markets, to believe that the markets know what they are doing and business are able to create wealth. And if it is profitable, that means it is doing something right. After seeing what happened to the financial system, that is no longer a completely convincing argument. So the moods now is that governments should intervene more, to moderate the excesses of laissez-faire, and to make sure that things always go right. This is true to some extent. Governments do have a role because otherwise you would have countries which are prospering without governments. But one must not have the pendulum swing too far in the opposite direction, and believe that if we only put civil servants and politicians in charge of everything, all the problems in the world will be solved and we will prosper. Bureaucracy and regulation can at best create the pre-conditions for wealth creation, and channel the dynamism and the energies of the private sector along the right channels. But we still depend on the private sector to create wealth, to have that entrepreneurial spark, to have those animal spirits, to have faith in the future, and that creative imagination and drive to do well, to do something different to change the world. You not only make yourself wealthy, but to improve lives for a large part of mankind. And that depends on the business people, you are part of this. APEC economies have to work together to maintain a stable and conducive Asia-Pacific region. But I hope all of you will take full advantage of this, and participate in the development and the continuing integration of the region.

Thank you very much indeed.