The Williamsburg Conference 1998

The 1998 Williamsburg Conference Statement: Responding to Asia's Economic Crisis, Queenstown, New Zealand, March 20-23, 1998.

Over the past year, the Asia-Pacific region has been buffeted by the most serious economic crisis since World War II. Largely unanticipated, its scope was grossly underestimated. The crisis is having profound effects on the region and the rest of the world.

To better understand this crisis and its consequences, the Asia Society in partnership with the Asia 2000 Foundation of New Zealand brought together leaders in government, business, academia and journalism from 18 countries and economies on both sides of the Pacific for the twenty-sixth Williamsburg Conference. Held in Queenstown, New Zealand on 20-23 March, the conference was convened by Tommy Koh of Singapore, Yoshio Okawara of Japan, and Nicholas Platt of the United States. This is the first time in its history that the Williamsburg Conference has been convened in New Zealand.

Although the participants were especially concerned about the current economic crisis and avoiding another one, they examined three other related issues: political transitions in the region: the role played by the major powers - namely, China, Japan, and the United States; and the relationship of Australia, New Zealand and the Pacific Islands with Asia.

Economic Crisis
The participants warned that the consequences of the crisis have yet to be fully felt. There was broad consensus about the reforms required at the national level, including strengthened banking systems, effective prudential supervision and regulatory capacity, and improved transparency and accountability in business and government. Participants endorsed the need for continuing trade and investment liberalization through the APEC and WTO processes.

There was vigorous debate about the appropriate international responses to the crisis. It was the unanimous view that the IMF has a central and irreplaceable role in restoring international and domestic confidence in the affected economies. There was agreement that the IMF measures should be tailored to the particular circumstances of each country. In addition, bilateral, regional and international assistance will be required to finance trade. Humanitarian aid may be required to relieve social distress in some countries.

Discussing the realities and risks of the new global capital market, the participants agreed on the need for sound macroeconomic and fiscal policies (particularly avoiding borrowing short term to finance long-term projects), and the maintenance of transparent and accountable financial systems. Greater regional financial cooperation, such as early warning systems, could also play a role.

Political Transitions
The participants recognized that the current economic crisis has influenced important political transitions in some parts of Asia. Indonesia was a subject of particular concern. Participants noted that countries with a functioning succession mechanism are better able to cope with the pressures of change. The participants also agreed that good governance and improved transparency would encourage a more participatory and accountable relationship between government and their people.

Oceania and Asia
Discussion on the links between Australia/New Zealand and Asia centered on the evolving dynamic nature of those links and the possibility of "multiple identities." Neither country is Asian, but both countries are part of the Asia-Pacific community, and movements of people, goods and services, investment, and ideas are increasingly linking these countries to Asia. Participants emphasized that despite the current financial and economic crisis, the Asia-Pacific remains at the top of the foreign policy agenda of Australia and New Zealand.

Williamsburg 1998 saw the South Pacific discussed for the first time. While globalization may provide niche opportunities for the countries of the South Pacific, many of the problems faced by the region - global warming, drought related to El Niño, pollution from forest fires, -- are also challenges to many other countries in the Asia-Pacific region. Participants agreed that a number of the challenges cannot be controlled or dealt with by Pacific Island states alone.

The Major Powers
Relations between the United States and Japan are going through a positive phase based on viable security alliance arrangements. Relations between the United States and China have improved following a period of stress. Increasing interactions among China, Japan, Russia, and the United States were also noted. The Asian financial crisis has occurred in a period of strategic calm. Responses of the major powers to the crisis are important to the solution to the crisis. However, if such responses are not coordinated and mutually supporting they have the potential to cause misunderstanding and friction.

Participants welcomed Japan's contribution to the IMF rescue packages for Thailand, Indonesia and Korea, as well as its various forms of bilateral assistance. The Japanese economy will remain stagnant unless appropriate initiatives are taken. This stagnation will have significant implications, given the importance of the Japanese economy as a driver of regional economic growth. A number of participants urged Japan to take steps to reflate the Japanese economy. Others noted that this would be difficult for Japan given its high level of non-performing assets, worsening public debt position and aging population. It was agreed by all that Japan's capacity to reinvigorate its economy will have a vital impact on regional recovery.

Participants agreed that China's commitment to maintain the current value of the renminbi is an essential contribution to Asia's recovery. They also noted that some of the lessons of the financial crisis might be of value to China: in particular, that systems for good financial governance need to be put in place before financial markets are deregulated.

Participants noted that the United States, if it is to respond effectively to the crisis, should continue to support the IMF efforts to restore confidence in regional economies. It should also keep its markets open, support further trade liberalization including "fast-track authority," and maintain its security commitments to the region.

The future is unpredictable and there is more than one plausible scenario. However, the participants expressed confidence in the future of the region of its strong economic fundamentals. If the affected economies institute the requisite reforms and restructuring they are likely to bounce back. A stronger and more competitive Asia is likely to emerge from the crisis.