Canada's APEC Diplomacy from Vancouver to Kuala Lumpur

In addition to combating the Asian financial crisis through the global institutions of the G7 and IMF, Canada employed its influential position in the regional institution of the APEC to address the crisis and its impacts. Canada's ability to do so was augmented by its position as chair of the APEC Economic Leaders Meeting, held in Vancouver in November 1997, and as chair of the APEC Finance Ministers Meeting held in Kananaskis in May 1998. Although APEC was not designed as a forum to deal with finance issues, and while its AFMM component had been established only in 1994, Canada was able to mobilize APEC to forward and gain support for its initiaitives. It did so by building on its historic emphases in APEC - to maintain the group as a manageable transoceanic club able to provide collective leadership through consensus, and to spur the task of trade liberalization and economic openness, but to do so with a balanced emphasis on a broader array of social concerns such as sustainable development and civil society engagement (Kirton 1998, Kirton 1997b, Kirton et al. 1997, Hampson and Molot 1997).

Although the Vancouver ELM had not been organized to focus on finance issues, the intense concern with the Asian crisis at the time it was held led both the leaders themselves, and business community representatives gathered in their parallel forum, to quickly add this subject to their agenda, and explore what responses might usefully be made.

APEC leaders were divided on both the causes of the current crisis and the best way to respond to this and future crises. The leaders of most of countries that were affected felt that the crisis was primarily the result of foreign currency traders motivated by short term greed. They felt that greater controls should be placed on such investors. Many of the leaders of unaffected countries, on the other hand, felt that the crisis was primarily the result of flaws in the affected economies. Canada shared the IMF analyses that structural flaws, particularly in the financial sector, were the primary cause, exacerbated by inappropriate exchange rates and a downturn in exports. In addition Canada, along with many of the affected members economies, was concerned about the social impact of the crisis, and the hardships that stabilization policy would have on populations which did not have adequate social safety nets in place.

At Vancouver it was resolved that the APEC members would work together to help resolve the crisis but that the IMF should retain a central position in this process (APEC Secretariat 1998, APFC 1998). At the same time it was decided that the crisis should not be addressed by resorting to protectionism, a great Canadian concern, and that trade liberalization should continue. Finally, it was felt that APEC could play an important role in the resolution of the crisis by acting with international financial institutions through economic and technical initiatives that would strengthen regional financial markets and their regulation.

Canada's next opportunity to advance its objectives through APEC came with its hosting of the AFFM in May 1998 (Rayfuse 1998). Here Canada's emphasis was on mounting a targeted effort to deal more directly with the social dimensions of the Asian crisis. Prompted in part by a World Bank report which indicated that the effects of the crisis would be devastating not only on the poor but also on many in the newly emerged middle class, Canada expressed particular concern about the impact of the crisis on the position of women and children. The crisis resulted in a disproportionate number of women loosing their jobs and many children being forced to stop their education in order to help their families cope with the economic difficulties. The latter was also of economic concern since it would negatively impact the development of human capital, a process that APEC was dedicated to foster. This concern was consistent with Canada's strong investment in APEC's program on Food, Economic Development, Energy, Environment and Population (FEEEP), which focuses on the impact of rapid economic development and population growth on the supply of food and energy, and the environment (Kirton 1998, Curtis 1998). This initiative was aimed at promoting growth that was sustainable in the long term; similarly Canada's concern was to promote recovery that would not be detrimental to the general population of the affected countries and would not negatively impact future sustainable growth.

Another Canadian initiative, raised by Finance Minister Paul Martin, was the proposal to create a global financial services mechanism to supervise financial institutions, regulators and markets (Martin 1997). This mechanism was felt to be especially appropriate to the condition on crisis-ridden Asian economies, and an important means of their recovery, as it would survey financial supervisory and regulatory systems and try to identify serious problems before they grew into full-blown crises. When this proposal was first made by Martin to his colleagues from Asia, there was resistance, on the grounds that their national supervisory authorities needed no surveillance, an indication that the attachment to sovereignty was still strong. However, the financial ministers were slowly won over to the idea. They proved cautious support, on the conditions that it would help co-ordinate and enhance the performance of financial institutions and regulators, and not duplicate existing global or regional arrangements.

A further Canadian proposal, presented for the first time at Kananaskis, was a call for a "roadmap" on capital account liberalization, designed to ensure that stabilizing flows such as foreign direct investment were liberalized before potentially destabilizing flows such as short term portfolio investment was. With the IMF's Interim and Development Committees having just accepted Canada's call for "properly sequenced" capital account liberalization, Canada suggested that the IMF and IBRD be tasked to examine the experience with sequencing in the Asian economies, to identify lessons to guide the construction of a global regime. APEC accepted this proposal, which was taken up by the IMF and IBRD, with a report due back to APEC Finance Ministers at their meeting in Malaysia in the spring of 1999.

In addition to the finance ministers meeting at Kananaskas, and as a result of a personal initiative by US President Clinton at the Vancouver ELM, a meeting of the G22 or "Willard Group", consisting of the G7 and major emerging economies, was held in Washington. Finance deputies met in February to prepare the meeting of their ministers and central bank governors, held in April. Their aim was to help resolve the global aspects of the crisis by getting non-APEC states involved in the crisis resolution process. It was hoped that this initiative would be instrumental in restoring market confidence. The April meeting created three working groups, dealing with strengthening the financial system, transparency, and crisis response. These reported back to a second meeting of G22 ministers (now involving 26 countries), held on the margins of the IMF meetings in October.

Canada was generally favourable to the establishment of the G22, seeing it as yet another forum, with a broader membership and valued by President Clinton, through which to pursue its agenda. But it recognized that the US Treasury was not enthusiastic about the creation of another group, and shared the concerns of many about the legitimacy of the body and who its reports would be forwarded to. Canada was one of the few countries to secure membership on all three of the working groups, where it worked to secure support for its proposals for peer supervision and controlled capital flows.

The 1998 APEC ELM, taking place in Kuala Lumpur in mid-November, proved to be a poor forum in which to advance Canada's finance agenda. By the time it was held, the crisis had essentially been stemmed. There was no enthusiasm, on the part of the US, Japan or other leading members to adopt any grand plans, such as that proposed by Fred Bergsten, for major G7-like programs of co-ordinated financial stimulus and surveillance or the creation of an Asian Monetary Fund (Bergsten 1998) . The ELM host, Malaysia, had moved dramatically in an antithetical direction to combat the crisis by imposing exchange controls in September 1998. And Prime Minister's Mathahir's decision to arrest his finance minister, who had resisted the imposition of exchange controls, on charges many regarded as a violation of basic human rights, forced Canada's agenda to shift to deal with such political concerns.

Nonetheless Canada was able at Kuala Lumpur to register several points. Its overall strategy was a defensive one of ensuring that APEC leaders did not endorse proposals emanating from the Malaysian host that could be seen as an endorsement of Malaysian actions or a general move toward closure. Canada believed that measures for fiancial easing were necessary, and continued to emphasis the human costs of such policies. Canada's also expressed a concern for human rights, for which the detention and trial of Malysian finance minister Dr. Anwar Ibrahim become a focus. Further, Canada vigorously voiced its concerns that some APEC members were responding to the crisis in a protectionist manner and thus endangering the progress made on trade liberalization. In particular Canada protested that the trade liberalization in the six sectors agreed on at Vancouver for Early Voluntary Sectoral Liberalization was being stalled.

Canada enjoyed some success in promoting these policies. Prime Minister Chretien noted in particular the reaffirmation of APEC leaders of their commitment to trade liberalization, open markets and co-operation. He also highlighted their agreement to strengthen financial system supervision, with transparency and private sector participation, the work of an APEC task force on short term capital flows and hedge funds, and strategies to build social safety nets (Canada 1998a)