A week ago the entire family endured the flights from Cuzco to Lima, Lima to Buenos Aires, Buenos Aires to Auckland, and Auckland to Christchurch. 30 hours en route is the time tax we pay in living out here on the edge of the edge; and most of the time it is a worthwhile trade-off.
At least these flights home were on-time, connections connected and luggage brought along. Aerolineas Argentinas is the Fawlty Towers of airlines – a farce that morphed into tragedy outbound as we spent 44 hours en-route, had to buy our own additional last-minute tickets from another airline to get from Buenos Aires to Lima in time, had no luggage for 7 days. Truly remarkable. The children (8 and 6) were heroes, as was my wife. Happily, the Amazon basin, Cuzco and Macchu Picchu were everything we had hoped, and APEC itself was a real eye opener.
I went to Peru to attend the “CEO Summit” stream of the APEC (Asia-Pacific Economic Cooperation) meeting as a business delegate from New Zealand at the kind invitation (and urging) of an old friend and business associate. I’ve long been curious about what really goes on at these sorts of political/business conferences, and APEC seemed a reasonable place to start, though in the meantime I’ve also attended a shorter ASEAN meeting in Manila. I primarily wanted to hear first-hand what the various leaders had to say for themselves in the current crisis and get a feel for investment opportunities; but I also wished to develop additional professional connections — particularly in China — and to contribute my own perspective as a global long/short equity investor to backchannel debates.
The 21 members of APEC account for 41% of the world’s population, 49% of global trade and 55% of GDP. APEC has lead world growth over the last decades, and will have to form the nucleus of any recovery.
The conference extended over just two days, with three evening functions thrown in; and I have to say the organisation and agenda vastly exceeded my expectations. As in Sydney last year, Lima virtually shut down with official holidays for businesses not involved in the conference; and security was everywhere though there didn’t seem to be any unrest even outside the cordon sanitaire. My interviews throughout Peru showed people hustling to get along, conditions having much improved over the past decade, with vocal but largely intellectual dissatisfaction at the gulf between the rich and poor.
As it happened this was the very weekend that Citi almost went under and the financial crisis continued to dominate the agenda. To cut to the chase, I came away from the conference more depressed and pessimistic than I had been going in. I was looking for clear leadership in decoupling the real economy from the financial carnage, and some sense of cohesion among the emerging country bloc. Instead, leaders seemed largely to be using the forum to complain about other countries (mainly the US), urge business people to continue investing in their particular country (where everything was going just fine, thankyouverymuch), and to forswear competitive protectionism (which I now consider to be much more likely). Herewith the blow-by-blow.
President Alan Garcia of Peru set a high standard at the conference opening, his prerogative as the leader of the host country. He focussed on the need to rebuild trust in international institutions – with thinly veiled criticism of the current US administration – and is clearly putting his hopes in Asia. “China has the trust of the world.” He sees the crisis not as a breakdown, but as inevitable turmoil associated with transition; “a paper crisis” not affecting the real economy. He struck me as a pragmatic Marxist – “Peru is a mining company.”
Prime Minister John Key of New Zealand was also impressive. He was sworn in only 24 hours before his speech, having successfully formed a new government in NZ after the previous week’s elections. He was a successful financier and currency trader and clearly can get things done. In my view as a NZ citizen and resident, NZ could not be luckier than to have someone with business and financial market experience at the helm just now. This is going to be a very tricky period for a very small open economy with an independent currency. He argued for renewed emphasis on re-starting and successfully concluding the Doha round of trade talks which would dramatically help NZ’s agricultural exports; and for the need to regulate global finance without stifling investment.
President Hu Jintao of China was probably the most anticipated speech of the conference, with the large Chinese contingent on pins and needles ready to parse every phrase. I get the impression that the business community in China doesn’t have that much contact with the political leadership. In the event, he didn’t make any significant public announcements, sticking closely to a prepared script. He argued for better representation for BRIC countries in the IMF (a recurring theme), and for “people first, market socialism”. He said fiscal and monetary stimulus within China will boost consumption — but not of resources — with a goal of “scientific development” combined with “harmonius society”. He said corporates have to behave better, and the Asia Pacific should work together.
Prime Minister Kevin Rudd of Australia was certainly the driest speaker, and I had expected more. He barely lifted his eyes from the page as he droned out fairly pessimistic fare. Perhaps he had the flu. He talked about 200m being jobless in 2009, and another 60m thrown into poverty. “We’re all in this together.” AU on the other hand was solid financially – equal best in the OECD? – with positive ‘09 GDP, unemployment below 4% and lots of free trade agreements on the boil. Rudd first mentioned the logjam in trade finance, a problem he estimated at $25bn. He also brought up climate change, saying AU would move ahead with their climate initiatives and try and bring the US and China together.
President Susilo Bambang Yudhoyono of Indonesia pointed out that Indonesia is the 4th largest country in population, has GDP growth of 6.4% and is self-sufficient in rice. He equated poverty with instability, says the US sacrificed community for profit and businesses need to “share the wealth” (an Obama echo?). He’s spending 20% of the federal budget on education, and will spend more in the crisis.
President Michelle Bachelet of Chile spoke over dinner, so I don’t have the benefit of my notes though I remember being impressed. She reminded me very much of Merkel of Germany. She made no bones of her criticism of the current international order, with profits being privatised and costs being socialised.
President Lee Myung-Bak of South Korea lead off the second day. He made a point of his being a CEO for 27 years before politics. He cited South Korea’s increase from $100 to $20k per capita income since 1960, and thinks Latin America can do the same with “Asian technology and capital”.
President George W Bush of the USA was everything I had expected and less. He didn’t seem to have any idea what was going on in the world at large, felt himself to be immensely important and popular (having attended every APEC during his term), and was obviously enjoying his visit – the last overseas visit of his presidency (and perhaps for life depending on the international mood about enforcing the Hague Conventions). He didn’t listen to a word of his introduction, winked and chuckled his way through a sort of stump speech arguing for “staying the course”, and in the best Orwellian fashion called for free markets, free trade and free people (depending of course on what you mean by “free”).
Prime Minister Stephen Harper of Canada is an economist turned politician; having studied macro, political economy and economic history. “Canada’s proximity to the USA is our largest current problem.” He said the Canadian banks seem to be in relatively good shape having stuck to commercial finance, and the deficit is under control. Was very positive on free trade and NAFTA, FTA’s with Peru, Colombia. Update: On returning from Lima Harper became the first Canadian PM to suspend Parliament in order to avoid a vote that would have ended his government.
President Felipe Calderon of Mexico got straight to the point, said they were already seeing a lack of export demand and falling prices. He predicted that FDI will drop as well as remittances. He said the world must quickly correct structural imbalances and re-establish trust in institutions. He advocates bottom-up help for debtors and foreclosures, and will spend an additional 2% of GDP on infrastructure.
There were a dozen business VIP’s given a platform as well. Of these the most inspiring was Jack Ma who created Alibaba, the largest B2B network in China. He sees small business leading any recovery – “small is beautiful” – and this as a time for knowledge, passion and dreams. He want’s to use Alibaba – “nobody can stop the internet” – as a channel for SME finance, IT training and human development.
Perhaps the only substantive result of the actual leaders summit will be some action on trade finance, which is no small thing. I arrived home to find that the NZ cattle market has ground to a halt because a ship or two full of chilled beef went to Russia and was turned back due to an inability to pay for it. Thus are the excesses of Wall Street visited upon the real economy.
As I listened to these political leaders it occurred to me that markets are doing exactly what the governments won’t – insisting on transparency and refusing to kick the insolvency can down the road. The price action is thus something to be encouraged, not lamented or prevented.