2004 APEC Finance Ministerial Meeting

I. Introduction

We, the Finance Ministers of the APEC economies, convened our eleventh annual meeting in Santiago, Chile, on 2-3 September 2004. Mr. Nicolás Eyzaguirre, Chile's Minister of Finance, served as Chairman. The meeting was also attended by the Managing Director of the International Monetary Fund, the President of the Inter-American Development Bank, the Vice Presidents of the World Bank and the Asian Development Bank, and the Deputy Executive Director of the APEC Secretariat, as well as by representatives from the private sector.

We met under the policy themes of "Fiscal policies for growth and stability in an open APEC region" and "Institution building in a world of free and volatile capital flows". In discussing the themes, we emphasized that to reap the benefits of enhanced openness and integration, member economies must have in place policies and institutions that lead to sustainable, broad-based and equitable growth in the region.

II. Global and Regional Economic Developments

We note with satisfaction the strengthening of this year's global economic growth and the continued favorable outlook for 2005, notwithstanding the risks associated with high oil prices. We stress the important fact that investment and trade are the leading factors behind the global economic recovery. In our view, both factors are crucial for stronger and broader based growth and for spreading the benefits of globalization. We also note that restored confidence in financial markets, revealed in lower spreads, has contributed to the recovery. Despite higher growth and increases in a number of commodity prices including oil, inflation is expected to remain moderate in most economies.

We also observe that the APEC region is growing faster than the world economy. Though the developed APEC economies are driving this recovery, it is the emerging economies within the region that are showing the highest growth rates, reflecting the sound macroeconomic policies instituted, buoyant exports and the recovery of domestic demand.

In pointing out that trade is one of the key factors pushing growth in the region and the world, and in consonance with the Bogor Goals, we reiterate our support for the WTO Doha Round. We welcome the Decision Adopted by the General Council on 1 August 2004 and call for reaching prompt and concrete results in the negotiations.

Ministers note that terrorism remains a threat to growth and stability and support actions to combat terrorism including increased compliance with accepted international standards to counter money laundering and terrorist financing, as well as other measures including fostering closer cooperation among financial intelligence units and customs. In this context, we urge FATF to make progress, as appropriate, in the enlargement of its membership.

III. 11th APEC FM Process Policy Themes

Looking forward to the Bogor Goals, the discussions under the two policy themes underscored the importance of sound policies and robust institutions to successfully meet the challenges of globalization.

Fiscal Policies for growth and stability in an open APEC region

We acknowledge the importance of disciplined and sustainable fiscal policies for their contribution to long-term growth and macroeconomic stability. Sustainable fiscal policies keep public indebtedness within limits that help to ensure continued access to international capital markets and reduce external vulnerability. At the same time, such policies allow social and investment expenditures to be maintained during economic downturns. Fiscal discipline will also help governments to better face the future fiscal challenges associated with population ageing.

Transparency is a key element for fiscal credibility and accountability, and hence for good governance. We underscore the need for strong institutions to ensure fiscal discipline while granting sufficient flexibility to manage economic shocks. We recognize that there is no single way of inducing fiscal discipline and that properly designed fiscal rules can be useful tools to guide fiscal policy.

We are pleased with the significant progress being made in a number of APEC economies in strengthening fiscal institutions. Such progress has improved our economic resilience and helped our region to both weather successfully the economic slowdown of the past years, and be in the forefront of world economic recovery. We agree to continue building on the progress made in order to address current and future challenges to fiscal sustainability.

Institution building in a world of free and volatile capital flows

We stress that financial integration can contribute to growth and economic development through benefits that include reductions in the cost of capital, greater technology transfers, increased investment opportunities, improved competitiveness in domestic financial markets and lower consumption volatility. However we also recognize that freer capital flows can heighten vulnerabilities, especially in emerging market economies, increasing the importance of sound economic policies, strong institutions, and appropriately sequenced liberalization. We note also that additional efforts at the international level can be helpful in this regard.

At the domestic level, economies are encouraged to promote deep and broad financial systems for developing alternative sources of financing and diversification of risks, well-supervised financial institutions, improvements in transparency for authorities and market participants and good governance in general, in combination with a sound macroeconomic policy framework.

At the international level, additional efforts should be made by the IFIs to provide, as appropriate, liquidity to emerging economies with sound economic policies and fundamentals at times of distress originating from external shocks, along with their efforts to help economies achieve sound policies and institutions for growth. We welcome the growing number of economies that include collective action clauses in their international sovereign bonds and the convergence toward collective action clauses as a market standard.

We also note the increasing importance of remittances as a steady source of financial flows that can benefit emerging markets and urge continued work on analyzing and reducing the institutional and regulatory impediments to remittance flows.

Ministers welcome steps being taken at the regional and national levels to develop capital markets and strengthen banking systems, which would over time facilitate freer and more stable capital flows and the choice to move to an exchange rate regime with greater flexibility, in some economies, if they deem appropriate.

We highlight the importance of enhancing the resilience of markets and institutions to growing capital flows. We reaffirm our support for the Bogor Goals as useful tools to promote sustainable and broad-based growth in the APEC region.

IV. Other Matters

We welcome the dialogues with the APEC Business Advisory Council (ABAC), and the Pacific Economic Cooperation Council (PECC) Finance Forum. They have provided valuable insights from the private and academic perspectives, as well as support for the work under the themes of this 11th APEC Finance Ministers' Process.

We would like to thank the Chilean Government and the Ministry of Finance for the arrangement of this APEC Finance Ministers' Process and the Chilean people for their hospitality.

We will meet again for the 12th APEC Finance Ministers' Meeting in Jeju, Korea, on 8-9 September 2005.