Leaders of the Asia Pacific Economic Co-operation (APEC) forum converging for their annual summit in Auckland, New Zealand should continue supporting efforts to strengthen and restructure the global financial architecture.

The APEC Business Advisory Council (Abac), said in a report to the 21 leaders that it strongly supports continued dialogue with the Group of Seven (G7) industrialized countries, the International Monetary Fund (IMF) and the World Bank for a change in the system.

Abac said the move is vital to strengthen financial systems and markets and reduce the vulnaberality of APEC economies to the financial turmoil. The report was submitted along with a letter by Abac chairman Philip Burdon to New Zealand Prime Minister Jenny Shipley, who will chair the seventh leaders' summit from September 11 to 13.

However, "for real economic recovery and growth to take place in the economies of the APEC region, there has to be renewal of confidence in their financial sectors," Abac said. In the 1999 report prepared by its financial crisis task force, Abac applauded the important and often painful policy measures undertaken by many APEC economies to address the causes and effects of the financial crisis.

Burdon said that "recovery appears to be within reach, but keeping the region on the road to recovery depends upon continued momentum in the areas of financial reform and corporate restructuring".

To improve the financial infrastructure and banking system, Abac proposed debt-to-equity swaps and exchange rate mechanisms to cushion currency instability similar to those in Chile and Mexico. Besides this, the report said that international financial institutions, especially the Asian Development Bank, should issue more bonds in Asia to act as a catalyst in the development of deep and mature domestic debt markets.

It said that the debt market in developing Asian economies was relatively small in terms of size and number of instruments with the combined market size of eight major developing economies at end 1995/96 representing only 6 percent of the Japanese bond market.

"In most developing Asian economies, debt markets play only minor roles when compared with stock and money markets," it said. Abac also recommended that the public sector should immediately implement the new initiative to overcome the Asian currency crisis and the Asian growth and recovery initiative by developing loan programmes to provide credit enhancements to government debt and working capital for restructured corporations.

This includes the New Miyazawa Initiative at the sixth APEC finance ministers meeting in Langkawi in May 1999. This should be done through mechanisms such as guarantees and measures based on the concept of collateralised bond obligations, Abac said.

However, the council expressed concern that the current capacity building work in APEC fails to integrate work by the finance ministers. The ministers were working on programmes for capacity building priority areas and requests that all be reported in one place in an accessible form, Abac said.