KEY POINTS:
Prime Minister John Key will question whether there should be greater policy responses to curb credit growth in boom times, such as the recent housing boom, in a speech at Apec in Lima that will focus on the global financial crisis.
Mr Key will echo the call of the G20 meeting in Washington to increase trade liberalisation and say that failure to find agreement on the Doha Round would be "nothing short of political failure".
Mr Key was due to give the speech - his first as Prime Minister - to a conference of business leaders early this morning as the Weekend Herald went to press.
The written speech shows he made good on his intention to draw on his own considerable experience as a merchant banker. It is more a financial speech than a political one, explaining his views on the causes of the crisis.
Speaking about the inter-connectedness of the global economy, Mr Key talked about how New Zealand's housing boom had been fuelled by seemingly unlimited foreign-capital flows, allowing New Zealanders to rely on cheap fixed-rate debt, which in turn drove house prices ever higher.
"While the Reserve Bank worked hard to lean against these trends, the credit glut weighed against our Reserve Bank's power to contain demand through monetary policy adjustments."
Housing market booms occurred this decade not only in New Zealand, but throughout this region and the world, he said. The aftermath of those booms was at the heart of current financial market dysfunction.
"The question is: Faced with this situation again, would we do something different to address it?
"To my mind, this question should lead economies to consider whether monetary policy, fiscal policy and prudential policy should be more counter-cyclical and lean against credit growth in an upswing."
Mr Key doesn't provide the answer, but raising the question suggests perhaps some lines of thinking around changes to monetary policy. The Apec leaders summit beginning tomorrow is expected to endorse the G20's call for agreement in the Doha Round next month which would allow another year's concluding negotiations.
"Against the backdrop of those political statements and against the background of the international economic turmoil, a failure to follow through in Geneva and deliver the results we need would represent nothing short of a political failure.
"Now is most definitely not the time for any individual country to allow their worsening domestic economy to lead to a retreat from global trade and engagement."
Mr Key did not suggest the crisis was necessarily over.
"We have seen an expansion of credit and leverage at levels that were so unprecedented and arguably so uncontrolled that they now threaten the very stability of the world's banking system."
The implications for the real economy were likely to be profound and widespread, he said.
"Looking ahead, as economies weaken, new credit losses and new stresses on financial institutions are likely to be apparent. There is no precedent for such a large and widespread leverage boom as we have experienced in recent years and hence little way of knowing how far the unwinding process may have to run."
KEY'S DIARY
Today:
* Address CEO summit.
* Meet Indonesian President Susilo Bambang Yudhyono.
* Meet American Chamber of Commerce.
* Dinner with Australian Prime Minister Kevin Rudd.
Tomorrow:
* Meet Chilean President Michelle Bachelet.
* OECD Secretary-General Angel Gurria.
* Meet Singapore Prime Minister Lee Hsien Loong.
* Meet Peruvian President Alan Garcia.
