Romulo presents ABAC 2008 Report to GMA

Secretary Roberto R. Romulo, chairman of the Asia-Pacific Economic Cooperation (APEC) Business Advisory Council (ABAC) Philippines presented to President Arroyo the 2008 Report to APEC Leaders, following a similar presentation by ABAC chairman Juan F. Raffo to the APEC chair, President Alan Garcia of Peru. With the global economy in a precarious state, recommendations from business leaders come at a most judicious point in time.

ABAC has identified two major areas which need policy attention: A change in regulatory focus and an increased emphasis on transparency.

 Activity-based regulation should be preferred to entity-based regulation. In the past, regulation in many jurisdictions has tended to be primarily focused on the type of legal entity regulated - i.e., insurance regulators regulating insurance companies, bank regulators regulating banks, and securities regulators regulating brokerage firms. Such regulation is necessary, but in and of itself, can lead to unforeseen correlations of activity across entities (such as the creation of unacceptable leverage) which can result in systemic risk arising before it can be properly identified and evaluated. Substituting entity-based regulation with activity-based regulation (e.g., regulating derivative exposure in a given asset class by a single regulatory authority regardless of type of intermediary) will permit systemic risks to be identified and dealt with earlier and more effectively.

Transparency in the capital markets should be significantly increased. When financial intermediaries are permitted to keep most aspects of their activities confidential, it becomes very hard to identify where risks resulting from high leverage, concentrated market positions and many other factors are embedded portfolios of varying kinds without full appreciation of the cumulative risk these positions represent. Levels of disclosure by hedge funds, investment, and other intermediaries should be increased so that cross-entity systemic risk can be better identified.

Romulo said that the ABAC recommendations relating to the need to change in regulatory focus and transparency are equally applicable to the Philippine private and government sectors.

Noting that the WTO trade talks have yet to be concluded, the ABAC Report also calls for accelerated efforts on regional economic integration, including studies relating to the Free Trade Area of the Asia-Pacific and other options in order to achieve free flow of goods, services, labor and capital within the region.

ABAC has also recommended that governments implement special support programs for small and medium enterprises in the areas of technological infrastructure, financing capacity building, and training.

APEC groups together: Australia, Brunei Darussalam, Canada, Chile, China, Hong Kong China, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russian Federation, Singapore, Chinese Taipei, Thailand, US, and Vietnam.

The other Philippine representatives to ABAC are Doris Magsaysay Ho, president and CEO of the Magsaysay Group of Companies, and Arthur Ty, president of Metrobank.