THE Asia-Pacific Economic Cooperation (Apec) is one of the most influential regional trade blocs in the world, second only to the Group of 20 (G-20). Composed of both developed and developing nations, Apec member-countries together account for as much as 57 percent of the world’s gross domestic product (GDP).
Finance Undersecretary Gil Beltran also said that in terms of trade, Apec accounts for 54 percent of inward and 56 percent of outward foreign direct investments (FDI).
“Apec members include the most dynamic economies [in the world]. You look at the growth rates of member-economies as a whole, they topple that of world growth so [Apec] is growing faster than the rest of the world,” Beltran said.
“Adopting policies that will enhance [Apec’s] resiliency will push up growth rates, avoid the dampening impact of disasters and volatilities. We have had several crises in the past and we have learned from them. Based on these lessons, we are trying to adopt policies that will help us avoid crises in the future,” he added.
The need to shield Apec countries from future crises was the impetus for the Cebu Action Plan (CAP). The 10-year road map was drafted by the Philippines with inputs from other Apec members, multilateral institutions and the private sector through the Apec Business Advisory Council. Apec finance ministers formally launched CAP on September 11.
The road map enjoys broad support from various Apec members and is seen as the legacy of the Philippines—the host of Apec meetings this year. Peru, the host of Apec 2016, has already expressed its commitment to champion the CAP.
“The CAP also continues the progress toward the Bogor Goals of free and open trade and investment. In particular, economies committed to work toward more liberalized financial services and capital accounts across Asia-Pacific,” the Apec secretariat said in a statement.
“Likewise, economies emphasized how promoting trade and supply-chain finance, as well as alternative financing mechanisms in Apec, can boost inclusive growth, especially in improving access to finance for micro, small and medium enterprises, 40 percent of which are underserved in the region,” it added.
CAP’s four pillars
The CAP has four pillars—improving financial integration; promoting fiscal reforms; having greater financial resiliency; and accelerating infrastructure development and financing. The plan outlined short-term, medium-term and long-term “deliverables.”
“I would expect it [CAP] to develop and change as the years go on,” Apec Secretariat Executive Director Alan Bollard said. “It’s [CAP] one of the big deliverables this year.”
The first pillar, financial integration, is aimed at easing trade and investments, such as by rationalizing and harmonizing rules on cross-border flow of funds. The short-term deliverables under this pillar include expanding financial inclusion and literacy through the Asia-Pacific Financial Inclusion Forum and adopting domestic strategies to meet this deliverable.
Another short-term deliverable is the signing of the Statement of Understanding for the Asia Region Funds Passport (ARFP) that seeks to facilitate cross-border offering of funds across participating economies. To date, six of the 21 Apec member-economies have signed the ARFP. The signatories are Australia, South Korea, New Zealand, Thailand, Japan and the Philippines.
By next year, participating Apec economies must acknowledge the ongoing G-20 effort to facilitate remittance flows and begin working toward the reduction of transaction costs of remittances. The G-20 aims to enhance migrants access to less costly remittance services. This will help advance financial inclusion of migrant workers, including millions of overseas Filipino workers (OFWs).
Apec members are targeting to reduce the transaction costs of remittances to 5 percent in 10 years. Bollard said that in some parts of the region, the average transaction cost for remittances is around 16 percent.
In 2012, World Bank Migration and Remittances Unit Manager and Lead Economist Dilip Ratha said transaction costs vary from country to country and from one sending agent to another. However, Ratha said remitting $200 would cost anywhere from 10 percent to 20 percent of the principal amount.
Cutting transaction costs for remittances is one of the targets identified under Goal 10 of the Sustainable Development Goals (SDGs), or reducing inequality within and among countries. The target on remittances states that by 2030, countries must reduce to less than 3 percent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 percent.
“The costs of a remittance transaction include a fee charged by the sending agent, typically paid by the sender, and a currency-conversion fee for delivery of local currency to the beneficiary in another country. Some smaller money-transfer operators require the beneficiary to pay a fee to collect remittances, presumably to account for unexpected exchange-rate movements,” Ratha said in a blog posted on the International Monetary Fund (IMF) web site.
Other deliverables include developing regulations governing sharing public data with Credit Information Systems (CIS) between and among participating economies, and creating a common data format for Apec-based data collected by CIS. The list also includes the development of new financial instruments for the use of micro, small and medium enterprises (MSMEs), as well as developing policy frameworks for alternative finance.
Under CAP, Apec members must promote financial services liberalization; Capital Account Liberalization; and sign a multilateral memorandum of cooperation by participating Apec economies and increase the number of participants in ARFP.
The second pillar, fiscal reforms and transparency, promotes sound fiscal policy and accessibility of data on state revenues and expenditures. By allowing greater scrutiny, CAP proponents believe, governments will be forced to improve efficiency of public spending.
These will be done by initiating fiscal reforms such as public investment frameworks; rationalizing and phasing out of inefficient fossil-fuel subsidies; and scaling up public investments such as those for infrastructure projects.
The second pillar also advocates participating economies to adopt an Open Data Initiative on the government’s budget; sources and uses of funds; and debt borrowing and lending data. Participating Apec economies must also consider the benefits of joining the Open Government Partnership.
Participating Apec economies must also cooperate in terms of exchanging tax information and automatic exchange of financial account information (AEoI) when it comes to tax matters. Apec economies must also acknowledge the work of the G-20 on AEoI and common reporting standards.
The road map also provides for Apec cooperation in addressing cross-border tax avoidance, taking into consideration the ongoing work of the Organization for Economic Cooperation and Development (OECD) and G20 on the Base Erosion Profits Shifting (BEPS).
The third pillar, financial resilience, seeks to make households, communities, enterprises and governments resilient to various shocks, including natural calamities. A key feature of this pillar is the promotion of accessible and affordable insurance products.
It specifically addresses concerns on Disaster Risk Financing and Insurance. In the medium to long term, participating Apec economies must develop disaster-risk exposure models and disaster-risk insurance facilities for Apec economies covering central and local governments and individuals.
Apart from the ill effects of disasters on the financial resiliency of Apec economies, CAP also provides for measures that seek to develop and support capital markets. These measures include the promotion of cross-border investment in capital markets.
The third pillar includes the development of local currency bond markets in Apec economies that seek to promote risk-transfer and financial stability, as well as MSMEs and infrastructure financing.
Infrastructure development and financing—CAP’s fourth pillar—is geared toward improving mobility and connectivity in the region, by promoting more public-private partnerships (PPPs) for public infrastructure projects.
This pillar involves the creation of a knowledge portal that will serve as the online repository of infrastructure projects, including policy, legal and regulatory framework, tender process and sample contracts for PPP projects. The online portal will include best practices in PPPs; PPP pipelines across the region; directory of private firms, managers and consultants; and financial, legal and risk-mitigation instruments available for infrastructure investors.
‘Unique and ambitious’
In the course of its history, the Apec has had many road maps. These include the recently adopted Beijing Roadmap for Apec’s Contribution to the Realization of the Free Trade Area of the Asia-Pacific; the Healthy Asia Pacific 2020 Roadmap; and the Implementation Roadmap to Develop Successful Infrastructure Public-Private Partnership (PPP) Projects in the Apec Region, among others.
At the outset, it would seem that the CAP would be treated as just one of those road maps in the Apec collection of action plans. However, Bollard said the CAP is “unique” in the sense that it was the first time a road map was created by Apec finance ministers.
“This is new in that I think this is the first time we’ve seen a road map like this from the finance ministers’ work. Actually, the finance ministers’ work tend to be different in the past,” Bollard said.
“The Philippines has changed things at this level by [having] this road map by the finance ministers to give us a work program for the next 10 years. We will ensure that it’s picked up and the different component parts will get monitored and reported on,” he said.
Apart from being unique, some Apec observers believe that the plan is also ambitious, given its many deliverables. However, OECD Secretary General Angel Gurria said that while this was true, the CAP was meaningful since it seeks to address the pressing concerns of the region.
Gurria said the OECD will work closely with Apec economies to support the CAP’s implementation, particularly in the areas of taxation, SME financing, PPP and infrastructure investment.
For his part, Russian Federation Vice Minister of Finance Sergei Storchak said he believes that the CAP is a “comprehensive” work that seeks concrete results. Storchak said this will play an import role in the Apec region’s development.
“Every pillar in the Cebu Action Plan is very important. But what is most important is that the plan by itself is a comprehensive work aimed at very concrete outcomes and results. The fact that it is comprehensive, summarizing different aspects of previous jobs of different presidencies, plays a very big role,” he said.
Finance Secretary Cesar V. Purisima said Peruvian Vice Minister of Finance and Economy Enzo Defilippi expressed his support for the CAP in their meeting. Purisima said Defilippi also shared his optimism that the initiatives stated under each pillar of the CAP will be carried over when Peru hosts the Apec meeting next year.
“We also talked about strengthening the linkages between Latin America and Asia, in areas like trade, tourism and transportation. The Philippines’s relationship with Latin America stretches back centuries. We are optimistic we can work to improve the Galleon Trade of the 21st century,” Purisima said.
16 September 2015
By Cai Ordinario
