APEC warns of pitfalls on path to global recovery

SINGAPORE, Nov 13, 2009 (AFP) - The global recovery faces serious pitfalls including mass unemployment in rich nations, asset bubbles, and a lurch towards protectionism, the World Bank chief and Asia-Pacific leaders warned Friday.

World Bank head Robert Zoellick said the spectre of inflation, and doubts over when massive government stimulus packages can be safely unwound, were other real threats.

World Bank President Robert Zoellick (R) gestures as he speaks about the global financial crisis as Victor Fung, Chairman International Chamber of Commerce and Group Chairman, Li and Fung, looks at his notes at the CEO summit at the APEC summit in Singapore on November 13, 2009. (AFP photo)

"The reason I am flagging this issue is that we are in the stage of recovery where confidence is very important," he said at a business forum ahead of a weekend summit of the Asia-Pacific Economic Cooperation (APEC) group.

"If you have asset bubbles that are not properly dealt with, you could again undermine confidence in 2010, which is the year I am more concerned about."

Ministers from the 21-member APEC grouping, meeting in Singapore this week ahead of the summit, issued calls to resist protectionism for fear that new trade barriers could trigger a return to recession.

Russian President Dmitry Medvedev, who will attend the Singapore summit along with US President Barack Obama and China's Hu Jintao, urged APEC nations to limit state help for struggling firms.

"Excessive protectionist barriers that create hothouse conditions for unprofitable businesses run counter to the principles of free competition and ultimately do more harm than good to a country's development," he said in an article published by the Singapore Straits Times.

Malaysian premier Najib Razak said the summit was "a wonderful opportunity for us to make a very strong political statement that we will fight protectionism... that we want the Doha round to be completed".

"That, I think, is imperative for us to recover," he said at the business forum, referring to the World Trade Organization's stalled drive to tear down barriers to commerce.

Hong Kong chief executive Donald Tsang said that in light of the downturn, "now at least, everyone has a better experience of how much prosperity suffers when trade suffers".

In a sobering assessment of the fragile status of the recovery, Zoellick said that persistently high unemployment, particularly in developed nations, would create "second-wave" effects for banks just as they return to profit.

The US consumer, who has been the saviour in previous downturns, can no longer be relied upon to drag the global economy out of the doldrums by returning to enthusiastic spending, he said.

So the onus was shifting to developing countries such as Indonesia, the Philippines and Thailand, which he said were now able to "actually borrow more if they have access to financing" rather than to save and rely only on exports.

Zoellick also warned of signs that crisis-hit countries were attempting to shore up their economies by reverting to protectionism.

"By and large it's a low-grade fever, it's not a full influenza," he said.

"But if you've got large-scale unemployment one has to be careful, because political leaders are going to be under pressure to do something and unfortunately one of the things they often are tempted to do is to raise barriers."

APEC ministers have this week also called for massive government stimulus packages to be scaled back carefully, and not withdrawn before private-sector demand is strong enough to drive economic engines.

"If you look at the US stimulus programme and many of the stimulus packages, a lot of the money actually comes late in 2009, the start of 2010," Zoellick said.

"The question mark for everybody is whether the private sector will kick in by the middle of 2010 and that's part of an issue of confidence."

The World Bank chief said that a little-mentioned risk was the spectre of inflation, after Asia-Pacific central banks moved to "open the tap of liquidity" in the face of the crisis.

"This will be a challenge for the central banks in this region because traditionally their monetary policy has followed the Federal Reserve," he said.

The Fed has kept US interest rates ultra-low to foster recovery, but many Asia-Pacific countries are now rebounding fast and Australia has already hiked borrowing costs to forestall inflation.

Source: AFP

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