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WRAPUP 5-APEC sticks with stimulus to cement fragile recovery

Published 11/12/2009, 06:59 AM

* Pace of exit strategies will differ across Asia Pacific

* Finance ministers endorse "market-oriented" exchange rates

* Ministers extend anti-protectionism measures into 2010 * WTO chief voices concern over jobless recovery

By Nopporn Wong-Anan

SINGAPORE, Nov 12 (Reuters) - Pacific rim ministers agreed on Thursday to stick with stimulus plans as long as it takes to achieve a sustained economic recovery, warning that unemployment is still too high and systemic barriers to new growth remain.

"The global economic situation has eased considerably," trade and foreign ministers of the 21-member Asia Pacific Economic Cooperation (APEC) said in a statement after talks in Singapore.

"But the recovery remains fragile; the growth profile over the next few quarters is likely to be uneven. Unemployment remains unacceptably high in many of our economies."

U.S. Treasury Secretary Timothy Geithner said the emergency measures put in place by APEC member governments -- including some $1 trillion in Asia and $787 billion in the United States alone -- had prevented a deeper downturn.

He said the pace at which "exit strategies" from those fiscal and monetary stimulus steps are implemented will vary. This is because the group includes China and other Asian economies that avoided a recession, but also the United States and Japan which were plunged into recession after last year's credit crisis.

Geithner made it clear that for the United States a return to healthy economic growth remained the imperative.

"The challenge is growth. First growth, but make sure we have business confidence restored, investments expanding again, unemployment coming down, financial sector definitively repaired -- that's our basic challenge," he said.

For its part, Japan said it was not yet ready to unwind policies put in place to revive the economy because domestic demand is still very frail and the corporate outlook is bleak.

"We are most definitely not in a situation to consider exit policy," Japanese Parliamentary Finance Secretary Shinichiro Furumoto told a media conference at the APEC meeting.

Australian Treasurer Wayne Swan told reporters before going into the APEC meeting: "What we have to do is to make sure that we don't withdraw global support too early."

APEC member economies account for 40 percent of the world's population across four continents, more than half of global gross domestic product and nearly half of world trade.

STRUCTURAL PROBLEMS

APEC finance ministers agreed that, beyond the phasing out of stimulus measures, they needed to tackle structural problems that stand in the way of sustainable, longer-term growth.

"What came through strongly in our discussions today was the sense that structural reforms have to be at the core of efforts to strengthen domestic demand over the medium to long term," said Singapore's finance minister, Tharman Shanmugaratnam.

Such steps include reducing public debt burdens, implementing growth-enhancing reforms to meet infrastructure needs and addressing long-term demographic challenges.

The ministers also endorsed "market-oriented" exchange rates, a somewhat surprising stand given that several Asian countries manage their currencies to some degree.

"We will undertake monetary policies consistent with price stability in the context of market-oriented exchange rates that reflect underlying economic fundamentals," their statement said.

China has effectively pegged the yuan against the dollar since the middle of 2008 to help fend off the global downturn.

U.S. President Barack Obama told Reuters in an interview that he would raise the currency issue on a visit to China next week. His administration says an undervalued yuan is one factor contributing to economic imbalances between the first- and third-biggest economies in the world.

China's central bank said on Wednesday it will consider major currencies in guiding the yuan, suggesting a departure from the effective dollar peg.

FALSE DAWN

World Trade Organisation Director General Pascal Lamy cautioned of a false dawn in the recovery.

"There's certainly a recovery happening, certainly in this region, which has suffered less from the crisis than from other regions of the planet," he told CNBC in an interview on the APEC sidelines in Singapore. "But I would be prudent whether or not this would be sustainable six months or a year from now."

He said rising unemployment was the main threat to free trade and could spark greater protectionist policies around the globe.

Jobless queues have jumped across the industrialised world since the global economic crisis erupted a year ago and have been a prime reason nervous governments have resisted calls to start winding back stimulus measures.

The U.S. jobless rate hit a 26-½ year high of 10.2 percent in October and economists polled by Reuters expect it to rise to 10.5 percent by the middle of next year.

APEC's trade and foreign ministers pledged to refrain from raising new barriers to trade and investment, and said a review of measures taken by member economies that began last July to ensure they were not protectionist would continue into 2010.

The ministerial meetings will be followed by a weekend summit of leaders of APEC. (Writing by John Chalmers; Additional reporting by Glenn Sommerville and Vidya Ranganathan; Editing by Bill Tarrant)

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