Pacific Blues

What is normally a staid annual gathering that seeks to dismantle tariffs and trade barriers has this weekend become a temporary war room for the relentless Asian financial crisis that has now engulfed South Korea, the world’s 11th-largest economy.

The meeting of the Asia-Pacific Economic Cooperation forum in Vancouver, Canada, promises to be dominated by talk of financial rescues rather than trade liberalization.

President Clinton and the leaders of the other 17 Asia-Pacific economies represented in APEC are to begin arriving late today for bilateral meetings Sunday and Monday and a leaders’ summit Tuesday. Secretary of State Madeleine Albright and her counterparts plan to meet today.

The tumultuous economic climate will test APEC’s credibility as it seeks to come up with concrete measures to address the region’s financial instability, while still working toward dismantling trade barriers within the region, according to Asia experts.

But APEC has been criticized as a high-level “talk shop” that produces weighty proclamations with few meaningful results.

“This is an opportunity for APEC to step up to a real-world problem,” said Michael Mullen, director of the Seattle-based national center for APEC.

APEC is a loose-knit economic organization formed in 1989 to foster trade across the region. But keeping free trade on the radar screen has been difficult in recent months as Asian political leaders have become more interested in protecting their own borders.

Even in the economically prosperous United States, President Clinton was forced earlier this month to abandon his campaign for congressional “fast-track” approval to negotiate trade agreements after encountering fierce opposition from labor and environmental groups.

“That undercuts Clinton’s ability to show trade leadership and to urge other countries to be more forthcoming [at APEC],” said Charles Morrison, an Asia expert at the University of Hawaii and chairman of the U.S. Consortium of APEC Study Centers.

Before the Asian crisis stole the show, the Canadian officials hosting this year’s meeting hoped the group would endorse accelerated tariff reductions in areas such as environmental and medical technology and pharmaceuticals. They were also seeking a strong push from APEC to conclude a financial services agreement being negotiated by the World Trade Organization, the global trade group.

But some prominent Asian leaders, faced with slowing economies, weakened currencies and stock markets that have lost as much as 40% of their value, are now urging their APEC colleagues to reassess this pressure to open their economies even further.

“We are leery of this globalization,” said Malaysian Prime Minister Mahathir Mohamad, who has blamed greedy investors and currency speculators for triggering the currency crisis that started in Thailand in July.

One issue likely to make it onto the official APEC agenda is the environmental and economic implications of hazardous smog that has enveloped Southeast Asia for months, according to Mike Jendrzejczyk, director of Human Rights Watch Asia, in Washington.

There is mounting tension in the region over what should be done to prevent a recurrence of the smog, which has been blamed on fires set by Indonesian farmers and timber companies.

Until now, APEC has ridden a wave of regional prosperity fueled by double-digit growth rates and a steady influx of foreign investment. Emboldened by expanding incomes and low inflation back home, the region’s leaders were able in the past to agree to a number of market-opening measures, including a commitment to free trade in the region by 2020.

Today’s picture is drastically different. The South Korean government, facing a plummeting stock market, mounting corporate failures and a loss of investor confidence, was forced Friday to seek a bailout from the International Monetary Fund. The governments of Indonesia and Thailand are already implementing painful fiscal reforms in return for their own IMF bailouts. And Japan, whose postwar expansion was the engine for the region’s dramatic growth in recent decades, has been unable to successfully jump-start its lagging economy.

So the immediate concern is to find a way to head off future financial crises in the region. A group of APEC ministers has proposed a regional financing arrangement to establish a line of credit for Asian economies experiencing financial problems. The emergency fund would supplement programs already offered by the World Bank, the IMF and others.

The Clinton administration supports the latest plan, though it initially opposed the concept of an Asian fund, fearing it would undermine the IMF and would create a “moral hazard” by bailing governments out without requiring them to change their bad habits.

Also under consideration is the establishment of an early-warning system in the region to identify problems, such as the huge buildup of corporate indebtedness in Thailand that helped trigger recent events.

“The IMF on its own cannot get emerging economies to adjust preemptively,” C. Fred Bergsten, director of the Washington-based Institute for International Economics, told Congress recently. “It is unlikely the industrial countries as a group . . . can do so. The best prospect is neighboring countries because they are so likely to be hurt themselves by fallout from a crisis.”

* INSIDE THE IMF: How the little-known agency wields its huge resources to bail out troubled economies. A1