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By and large, the Asia Pacific region today enjoys growing prosperity and relative peace. The region's GDP is set to expand by 5.0 percent this year, and possibly 4.3 percent next year, while some economies will be spectacularly above that. There has been no international conflict in the region for more than a quarter century, although in some areas there is internal unrest.
Some of the potentially serious risks that PECC has warned of in earlier studies have been avoided, including a serious currency crisis, the growth of protectionism, or an avian flu pandemic. There are positive indications that, for the first time in several years, the major economies are beginning to reduce the large current account imbalances across the Pacific, increasing the chances of successful adjustment. Regional cooperation in such areas as health risks, disaster preparedness, and terrorism has increased.
well-functioning regional institutions are essential to meet the challenges of the early 21st century
Despite this positive environment, the region faces a number of continuing and emerging challenges that, unless effectively addressed, could substantially change the future outlook. Some of these are associated with the previous decades of success in economic reform and trade liberalization. Growing inequalities and resurgent protectionist sentiments remain challenges that need to be addressed if the economies of the region are to have the political and public support for further reform and market opening. Energy security and resource sustainability are of high concern around the region.
Other challenges have to do with relations among the Asia Pacific economies, which can inhibit cooperation. Moreover, there is considerable disenchantment with regional institutions, including APEC. PECC's first survey of its membership on regional cooperation issues shows that among a group that strongly supports regional cooperation, there is concern that economies have not sufficientiy invested in regional institutions and that the work of these institutions is not adequately meeting the needs of the region.
No significant issue in the region can be resolved solely by unilateral action. Regional cooperation and well-functioning regional institutions are essential to meet the challenges of the early 21st century. We believe that Asia Pacific economies need to renew their commitment to institutions such as APEC, and to take a fresh look at the architecture of regional institutions across the Pacific.
This first PECC State of the Region Report consist of three main parts: (1) the near-term economic outlook, drawing on the up-to-date forecast of PECC's Pacific Economic Outlook panel of experts, (2) issues for the medium-long term, drawing on contributions from our editorial committee and on a survey of regional opinion leaders, and (3) a discussion on the future of regional cooperation