JOINT MINISTERIAL STATEMENT
APEC Finance Ministers Meeting

Kananaskis, Alberta, Canada
May 23-24, 1998


1.     We, the Finance Ministers of the Asia-Pacific Economic Co-operation
(APEC)1) forum met in Kananaskis, Canada to assess future prospects for
growth and development within our region in light of the Asian crisis and to
discuss policies and measures to improve such prospects. The meeting in
Kananaskis marked the fifth time this forum has convened.

2.     We welcomed Peru, Russia and Vietnam as official observers to our
meeting, and look forward to their induction as full member economies in
November in Malaysia.

3.     Our discussions focussed on two broad themes. The first was an
assessment of the current economic situation and policies to restore
financial stability and growth, including measures to strengthen social safety
nets to help cushion the impact of the crisis on the poor. The second was
the development and strengthening of financial markets in the region so as
to reduce the likelihood of future financial instability and to facilitate the
continued dynamic growth of the region. In this regard, we reaffirm our
commitment to doing our part to support the APEC goal of free and open
trade and investment by 2010 in developed economies and by 2020 in
developing economies.

4.    The Managing Director of the International Monetary Fund (IMF), the
President of the Asian Development Bank, and the President of the World
Bank joined our discussions.

5.    We had a constructive dialogue with the APEC Financiers Group and key
representatives of the APEC Business Advisory Council (ABAC) and the
Pacific Economic Co-operation Council (PECC) on measures to encourage
the resumption of private capital flows to affected economies. We also
recognized the importance of the Year 2000 problem and urge all the
economies in our region to take urgent action to address this issue. We
express our appreciation to the panelists who guided discussions in those
sessions.

Causes of the Financial Instability in Asia

6.    We reviewed key macroeconomic and structural issues in the APEC region.
The financial turmoil in Asia over the past year has affected not only the
APEC region, but has also been a major source of uncertainty in the world
economic outlook generally. In this regard, while there are many distinct
causes of the crisis in Asia, we also noted some similarities to the conditions
leading up to the financial instability experienced by Mexico and other parts
of Latin America in 1994-95, such as large short-term capital inflows,
growing current account deficits as well as inadequate banking supervision
and regulation.

7.    In the decade leading up to the Asian crisis, generally prudent
macroeconomic policies had contributed to strong economic growth in most
of the Asian economies. During the mid-1990s, however, signs of
overheating emerged as high investor confidence and ready access to capital
fuelled excess domestic demand in some economies. This contributed to
asset market inflation and large current account deficits, which were
financed by large capital inflows from developed economies. These inflows
placed strains on policy and institutional frameworks that, in the end,
proved excessive for some economies.

8.    In retrospect, some economies clung too long to an unsustainable and
incompatible mix of exchange rate and monetary policies, even after signs
of vulnerability had emerged. In those cases, rigid exchange rate
arrangements and close ties to the U.S. dollar limited the ability of monetary
policy to control overheating pressures and encouraged foreign borrowing
by the private sector, often at short maturities. The combination of these
factors contributed to an excessive accumulation of short-term, unhedged
foreign-currency-denominated debt. Inadequate supervision and corporate
governance, particularly in the financial sector, inadequate intermediation of
foreign and domestic savings, and government-directed lending also
contributed to inefficient investment.

9.    At the same time, strong growth masked existing structural problems,
including in the financial sector. Rapid cross-border capital flows in a
globalized and integrated financial market also introduced new challenges
for macroeconomic management and rendered some of these economies
vulnerable to adverse external developments, especially sudden reversals in
market sentiments.

10.    In 1997, these problems became more apparent as a result of a number of
developments in the major industrialized economies, including a weakening
in import demand, particularly for key export products from the Asian
region. The U.S. dollar’s rise in value against major currencies may have
also played a role in a loss of competitiveness of the region’s exports.

11.    Although the situations of individual economies varied across the region,
instability tended to spread to economies that markets perceived to have
similar vulnerabilities. In some cases, a lack of transparency in financial
systems contributed to these market perceptions. We also note that in some
cases markets did not appear to differentiate appropriately on the basis of
available information about the economic fundamentals of these economies.

12.    We agreed that speculation in financial markets was not the root cause of
the turmoil, although it may have played a role in exacerbating herding
behaviour and spreading volatility. We took note of the useful work done
by the IMF in its study "Hedge Funds and Financial Market Dynamics." We
agreed to keep these issues, including the role of institutional investors and
their investment behaviour, under consideration in our future meetings, with
contributions as appropriate by the IMF.

13.    In our discussions, we focussed on two dimensions of the response to the
recent turmoil. The first was the challenge of restoring stability and
promoting recovery in the affected economies. The second involved
reinforcing our financial systems, and indeed the global financial system, so
as to reduce the likelihood of future recurrences.


Restoring Stability and Promoting Recovery

14.    We acknowledge the crisis is a global problem with regional manifestations.
In reaffirming the central role of the IMF, we echo our APEC Economic
Leaders call in Vancouver regarding the Manila Framework for Enhanced
Asian Regional Co-operation to Promote Financial Stability, and we
welcome developments that support that call, including the formation of
regional economic surveillance mechanisms.

15.    We endorse the approach of the IMF, the World Bank and the Asian
Development Bank in addressing the financial instability in Asia. We
applaud the efforts of these multilateral institutions and bilateral donors to
provide valuable financial and technical assistance to Thailand, Indonesia
and Korea to help them meet the numerous challenges they face including
corporate and financial restructuring, balance of payments difficulties, trade
financing needs and the severe social effects of the recent financial turmoil.
We welcome the IMF’s creation of the Supplemental Reserve Facility, to
help address problems posed by sudden changes of market sentiment
toward individual or groups of economies. We also welcome the enhanced
financial resources provided by the Japan Special Funds, at the World Bank
and the Asian Development Bank, and the ASEM trust fund, at the World
Bank, for assisting economies in dealing with the effects of the recent crisis.


16.    We call for the early ratification of the increase in quotas approved by
the Board of Governors in January 1998 and of the New Arrangements to
Borrow in order to ensure that the IMF has adequate resources to respond
to any spread or intensification of the current crisis and to handle future
crises.

17.    We commend those economies in the Asian region that have taken difficult
and courageous measures to deal with the causes of the instability. We
welcome signs of improved prospects in Thailand and Korea as
implementation of their IMF-supported economic programs has progressed.
We expressed deep concerns about the recent economic and social situation
in Indonesia. We welcome the new President’s support for political and
economic reform and his commitment to implement the
recently-strengthened IMF-supported program. We look forward to
progress toward economic and political conditions that will permit the
restoration of confidence that is essential for recovery. Overall, the
long-term fundamentals in the region remain strong and we are confident
that the region will regain its dynamism. We agree, however, that there is no
room for complacency as difficult adjustments and challenges remain.

18.    We note the continuing importance of long-term capital flows, particularly
foreign direct investments, for growth in the Asian region. We discussed
this in our joint session with the APEC Financiers Group and concluded
that a sustained resumption will require not only a stabilized
macroeconomic and exchange rate environment, but also significant reforms
in the corporate and financial sectors and improvements in the transparency
of market arrangements. We have also noted that those economies that have
undertaken these reforms earlier have been able to weather the crisis better
and maintain investor confidence. The Philippines, for example, was the
first Asian sovereign borrower to tap the international capital markets after
the onset of the financial turmoil in Asia. Korea and Thailand, which have
shown their steady and strong commitment to reforms, have seen
improvements in the value of their currencies and have recently returned to
international capital markets.

19.    The recent instability has, however, left financial sectors in the region
severely weakened, with a large stock of non-performing loans and an
increased burden of foreign currency debt. Forceful action to restore health
to domestic financial systems in many economies is clearly vital for the
resumption of capital flows and growth. We endorse the work the World
Bank and the Asian Development Bank are carrying out in supporting the
affected Asian economies to reform and strengthen their financial systems
and promote sound corporate restructuring.

20.    We especially took note of the social impact of the turmoil and the
adjustment policies necessitated by it. In the coming months, as companies
restructure, the level of unemployment in a number of economies may rise
even further. The situation is placing strains on the social fabric and the
burden in many cases falls on the poorer segments of society and those
least able to protect themselves, especially women and children. In
Indonesia there is even evidence of food shortages and inadequate medical
supplies.

21.    These problems make it important to expand and strengthen social safety
nets and other forms of support that exist in these economies. In this
regard, we applaud the efforts of the ADB and the World Bank to date to
help the affected economies deal with the social impact of the turmoil. We
also recognized the flexibility that the IMF has shown in adapting its
program requirements to changing economic and social circumstances in the
region. We urge these institutions to continue to look for innovative ways
of offering support for those hardest hit by the instability.

22.    It will also be important for international financial institutions to consider
ways to support environmental protection in these economies as they
respond to the crisis.

23.    We welcome the efforts by those APEC economies less affected by the
instability to support economies’ prospects in the region as a whole by
pursuing policies that promote domestically-led growth. We commend
those APEC economies that have demonstrated their policy commitment to
maintain stability of their exchange rates, thereby helping to restore
confidence in this region. We encourage all economies to maintain
movement towards open markets. In this context, as called for by APEC
Economic Leaders in Vancouver, we appreciate efforts by other APEC fora
towards early voluntary sectoral liberalization, in the areas on tariffs,
non-tariff measures, trade facilitation, and economic and technical
co-operation.

24.    We recognized that adequate access to trade financing is imperative to allow
industries to import needed inputs to facilitate the recovery of domestic
production. In this regard, we welcome efforts by the OECD and regional
governments to maintain and expand existing official export financing
programs designed so that economies undertaking IMF-supported
adjustment programs do not experience unnecessary disruptions in their
trade flows. We encourage the ADB and the World Bank to look for
appropriate ways in which they may support the restoration of financing for
small- and medium-sized companies in affected economies, as the ADB is
already doing in Thailand through the use of credit enhancements. We
strongly urge our private sectors to base their assessment of individual
banks’ credit-worthiness on the relevant facts and not on any simple
regional formula. In addition, we noted that the private sector (both
creditors and debtors) should be encouraged to play a greater role in the
resolution of financial crises.


Developing and Strengthening Financial Markets

25.    The recent financial instability in Asia underscores the importance of
developing strong, resilient and well-regulated domestic financial markets in
the framework of a stable international financial system. In this regard, we
welcome and endorse the Basle Core Principles on Effective Banking
Supervision and urge the International Conference of Banking Supervisors
to endorse them at their meeting in October. We endorse the working party
report on Financial Stability in Emerging Market Economies prepared by
the G-10 in collaboration with a number of emerging market economies. We
also noted the efforts of the Asian Development Bank in evolving "Sound
Practices to Facilitate Development of the Financial Sectors in the APEC
Region" that reflect the lessons of the financial instability in Asia. In the
same vein, we also look forward to the results of IOSCO’s current efforts
to develop an appropriate set of principles for supervision of securities
markets.

26.    We strongly endorse the idea of enhancing surveillance of financial sector
supervisory regimes. We look forward to the international financial
institutions and the international regulatory community working together to
study ways in which this can be accomplished including options for better
co-ordination or enhanced forms of collaboration, such as a peer review
process. Any reform should strengthen or complement rather than duplicate
existing global or regional arrangements.

27.We welcome the successful completion of the World Trade Organization’s
Financial Services Negotiations. This agreement will achieve improved
market access and lower barriers among financial markets. Greater
competition in the provision of financial services can, if the prudential
regulatory framework is in place, contribute to capital market development.
We urged participating economies to ratify their commitments so that the
agreement can enter into force as scheduled on March 1, 1999.


Work in the APEC Finance Ministers’ Process on Developing and
Strengthening Financial Markets

28.    Promoting the development of strong, resilient financial sectors in our
region has been a central goal of the APEC Finance Ministers’ process
since its inception. Our work over the past year has continued to focus on
this objective, which has assumed even greater importance in light of the
financial crisis in Asia. At our meeting last year in Cebu, we launched six
collaborative initiatives to promote capital market development and facilitate
private investment in infrastructure projects as a response to our Economic
Leaders’ call for a concrete and practical work program. We also agreed that
our Deputies would prepare a voluntary action plan to support the freer
and stable flow of capital in our region.

29.    This year in Kananaskis, we discussed and welcomed the progress achieved
so far under the initiatives launched in Cebu. We plan to continue our
efforts over the next year in three priority areas: capital market
development; capital account liberalization; and strengthening international
financial systems. Further details of the initiatives and their
recommendations are in Annex A.


Capital Market Development

30.    Over the past year, we examined ways to further capital market
development under a number of collaborative initiatives. We examined ways
to strengthen clearing and settlement infrastructure within our economies.
On this initiative a final report has been issued to us.

31.    We conducted a regional forum on pension fund reform, which produced a
very useful technical report on the issue including the role pension funds
can play in mobilizing private savings and broadening the demand base for
long-term debt instruments. In the next year, Chile will host a second
forum, to be co-ordinated by Chile and Mexico, which will focus on policy
issues in this area.

32.    Under our initiative on securitization, participating economies drafted
recommendations on supporting the development of asset-backed
securitization, including a voluntary action plan which interested individual
economies can implement to support the development of securitization in
their markets. We endorse these recommendations.

33.    We recalled that the impetus for much of our work on developing and
strengthening capital markets was to facilitate private financing of
infrastructure. Over the past year, we have continued our work on this
subject through our initiative to support co-operation among
export-financing institutions. In particular, we welcome the protocol
agreement signed by fifteen Export Financing Institutions and Export Credit
Agencies from across the region which will provide a framework for
co-operation among them when market demand for infrastructure recovers.

34.    We recognized, however, that the recent period of financial instability has
significantly changed the circumstances for financing infrastructure projects.
There is a need to analyze the impact of this on infrastructure development
in the region and to explore strategies to promote private financing for
infrastructure over the medium term. We call upon the Asian Development
Bank to work in this area and to report back to us at our next meeting.

35.    We received a progress report on the collaborative initiative to support the
development of credit rating agencies and strengthening of information
disclosure standards, and look forward to further results next year.

36.    We agreed to begin work on a new collaborative initiative on the
development of domestic bond markets in the region, which will be
co-ordinated by Hong Kong, China. This should be able to build on the
contributions on this subject from the APEC Financiers Group.


Capital Account Liberalization

37.    We agree to continue to implement policies to enable economies to benefit
from and minimize the risks of capital account liberalization. We reaffirm
our commitment to continue working on designing a Voluntary Action Plan
For Supporting the Freer and Stable Flow of Capital.

38.    We recognize that economies should pursue capital account liberalization in
an orderly manner. Prerequisites include sound macroeconomic policies,
effective prudential regulation and supervision, and an active effort to
promote capital market development. Some of our economies have also
found the use of market-based prudential safeguards to be a useful
complement but not a substitute for these preconditions. We asked our
Deputies to work with the IMF and the World Bank to compare the
experiences of economies in managing the capital market liberalization
process, including the results from the use of macro-prudential measures, in
order to study how to promote freer flows of capital while maintaining
macroeconomic and financial stability. We asked for a report at our next
meeting.

39.    We asked our Deputies to work with the IMF to examine how to monitor
effectively capital flows, including short-term capital flows, with a view to
providing information to the market and promoting stability.


Strengthening Financial Systems

40.    Under our initiative to Strengthen Financial Market Supervision, two action
plans were developed for strengthening training of bank supervisors and
securities regulators in APEC economies. We endorse these plans and call
for their timely and comprehensive implementation. We thank the Asian
Development Bank for its assistance in developing these plans and for its
commitment, together with that of the South East Asian Central Banks
Research and Training Centre (SEACEN) and the Asia-Pacific Regional
Committee of IOSCO, to assist in their implementation. We look forward to
receiving a progress report at our next meeting.

41.    We welcome other training initiatives launched within our own region: the
joint initiative of Canada and the World Bank to establish the Toronto
International Leadership Centre for Financial Sector Supervision; the
opening of the ADB Institute in Tokyo; the IMF-Singapore Regional
Training Institute (STI); and bilateral training assistance provided by
individual economies.

42.    We welcome the initiative of the APEC Financiers Group to create a
private-sector training and education program for financiers across the
APEC region. We call on our APEC Deputies to work actively with the
financiers on this initiative and look forward to a status report.

43.    As part of our efforts to draw lessons from the recent crisis and strengthen
our economies, we agreed to launch an initiative to be co-ordinated by
Malaysia in conjunction with the World Bank and the Asian Development
Bank, to examine ways of strengthening corporate governance in our region.
This work would recognize work going on in other fora. As part of this
initiative, we welcomed Australia’s offer to host a seminar to bring together
senior business people from our economies to identify priorities for reform
in this area. We look forward to reviewing a report on this subject at our
next meeting.


Other Matters and Future Meetings

44.    We welcome the progress made by the Sub-Committee on Customs
Procedures (SCCP) in their twelve-point collective Action Plan to facilitate
trade in the region. The "Blueprint for APEC Customs Modernization" and
the "Guidelines for SCCP and Business Strategic Partnerships" are
important contributions for strengthening co-operation with the business
community. Reaffirming that trade facilitation and enforcement must be well
co-ordinated, we encourage customs authorities to continue strengthening
such co-operation.

45.    We also encourage our officials to expand coverage of bilateral tax treaties
with appropriate economies in the region in conformity with international
norms and to continue the useful dialogue on taxation through
APEC-OECD joint symposia of tax officials. We look forward to the
results of the next APEC-OECD tax symposium in Manila.

46.    We reaffirm our appreciation to the APEC Financiers Group for their
ongoing participation in the APEC Finance Ministers’ process. We had a
very useful discussion with the Group on the importance of implementing
the necessary measures to resolve in a timely manner Year 2000 problems
in our economies. We urge the World Bank and the ADB to help
economies to address this issue. We call on the supervisory and regulatory
authorities in our economies to work with one another, and with the Basle
Committee on Banking Supervision, IOSCO, and the IAIS as they review
and monitor Year 2000 compliance efforts by all financial institutions.

47.    We would like to thank the people and Government of Canada and the
Department of Finance for the hospitality extended to all the delegations
and the excellent arrangements they have made to make the fifth APEC
Finance Ministers Meeting a success. We also thank the chairman of the
APEC Finance Ministers Meeting, the Honorable Paul Martin, for his
valuable contribution to the success of this meeting.

48.    We look forward to the next meeting of APEC Finance Ministers in Penang,
Malaysia.

49.    Finally, we will report to the APEC Economic Leaders on the outcomes
and recommendations of this APEC Finance Ministers Meeting and on any
subsequent and related matters, on the occasion of their next meeting in
Malaysia in November.


_______________________________________________________________

Annex A

Regional Forum on Securitization: Although securitization is fast becoming an
important source of financing, many structural, regulatory, fiscal and other
obstacles continue to inhibit its further development. In an effort to begin to
address these obstacles, an international conference on securitization and a
workshop for regulators from within the APEC region were held in Kuala
Lumpur, Malaysia last December. A survey on the status of securitization
activities in APEC member economies was carried out to gather information on
these activities in APEC economies and to identify pertinent developmental
issues and regulatory concerns. Based on the outcome of these activities, we
encourage the development of securitization activities through (i) the continued
removal of impediments to market development; (ii) enhanced training and
technical assistance to facilitate the removal of impediments to market
development; and (iii) the continued sharing of expertise among our economies.
We have adopted a voluntary action plan to assist individual member economies
that are interested in accelerating the development of securitization activities in
their own markets.

Regional Forum on Pension Fund Reform: Officials from many of our
member economies, together with academics and experts from the IFIs, attended
the Regional Forum that was held from February 4-6 1998, in Cancun, Mexico.
The forum had as overall objectives the interchange of expertise, information and
best practices of pension systems across the APEC region, and the discussion of:
the lessons of Latin American pension reforms for APEC economies; the
potential for reform and its impact on the development of financial markets,
domestic savings, and income distribution; the strategies for the administration of
pension funds; the prudential regulation of pension funds investments; and the
relative role of the private and the public sectors in pension fund management. A
background report describing the pension systems of the APEC economies and
outlining the major issues and difficulties was prepared by the ADB.

We recognized that pension funds can play an important role in mobilizing
private savings, and broadening, together with other institutional investors, the
demand base, especially for long-term debt instruments. Moreover, permitting
pension funds to invest in financial instruments other than low-income
government bonds can greatly enhance the supply of long-term finance to the
private sector. We also recognized that factors such as ageing populations, low
levels of national savings, unsustainable pressure on public finances and
distortions created by high social security contributions make pension fund
reform a priority for many APEC economies, placing it at the top of the economic
and social agenda. While pension reforms can be spread along a broad spectrum,
a sound prudential and regulatory framework is necessary for all types of public
and private pension schemes.

Strengthening Financial Market Supervision: Recognizing the importance of
sufficiently trained financial supervisors, we assessed the adequacy of existing
training programs for both bank supervisors and securities regulators. We
identified significant unmet training needs and limitations in the training
management process at the domestic level, and determined that enhanced
regional and international co-ordination to address these concerns would be
useful. Importantly, we recognized that improvements in training programs would
only be effective in enhancing the quality of supervision where a sound
supervisory and regulatory regime is in place, and that training programs should
be based on sound supervisory and regulatory principles.

Based on these results, we agreed to implement in a timely and comprehensive
manner the Action Plans for Strengthening Training of Bank Supervisors and
Securities Regulators in APEC economies. The Action Plans include measures to
improve the quality of training programmes at the domestic level and to
strengthen co-ordination in meeting training needs through regional and
international programmes. Regional advisory groups will be established to
oversee the implementation of the Action Plans, while the day-to-day
responsibilities will be overseen by a secretariat to be funded and located at the
ADB. We thank the ADB for its valuable assistance in implementing the Action
Plans and for funding the secretariat and the technical assistance requirements of
both plans.

Enhanced co-operation among export financing institutions: Export
financing institutions (EFIs) can play a catalytic role in mitigating risks and
mobilizing private-sector financing for infrastructure development.
Representatives of the Export Financing Institutions (EFIs) in the APEC region
have met several times to discuss the role of EFIs in promoting private sector
infrastructure projects, including the opportunities for co-operation among EFIs
through information exchange, knowledge transfer, possible co-lending, and the
opportunity for policy dialogue between EFIs and host economies.

EFIs also discussed their role in the wake of the Asian financial instability as an
important example of EFI co-operation. We recognize different mandates and
approaches in various EFIs, however we expect a synergy effect through their
co-operation. In view of strengthening EFI co-operation, we also welcome the
protocol agreement which sets out a framework for promoting technical
co-operation and has been signed by fifteen EFIs and Export Credit Agencies
from across the region.

Supporting the development of credit rating agencies and strengthening
information disclosure standards: We encourage the development of
independent rating agencies according to international best practices. In order to
assess the status of existing rating agencies we examined the current experiences
with credit rating agencies in the region to determine how well they are fulfilling
their key role in promoting the flow of timely and accurate information across
capital markets. The results of work completed thus far include the identification
of some of the important issues to be addressed, some of which pertain to the
scope for harmonization and increasing the transparency of credit rating agencies’
activities. We are currently examining experiences in the region regarding credit
rating services. We hope to identify ways to improve rating agencies’ ability to
promote the flow of timely and accurate information to capital markets. We also
encourage steps to strengthen information disclosure standards in the region
consistent with international best practices.

Strengthening clearing and settlement infrastructure: Modern clearing and
settlement systems are integral to capital market development. The ADB and
several member economies stand ready to provide technical assistance to help
strengthen clearing and settlement systems in economies with less advanced
systems. We welcome the report of the Executive Meeting of East Asian and
Pacific Central Banks (EMEAP) in this area.

Note:
1) Australia; Brunei Darussalam; Canada; Chile; China; Hong Kong,
China;Indonesia; Japan; Korea (Republic of); Malaysia; Mexico;
New Zealand; Papua New Guinea; Philippines; Singapore; Chinese Taipei;
Thailand; and the United States.