NEW ZEALAND INSTITUTE OF INTERNATIONAL AFFAIRS

The old Chinese saying 'May you live in interesting times' has recurred to me several times since I became Prime Minister six months ago.

Within weeks of taking office the so-called 'Asian economic crisis' and escalating tension over Iraq required significant decisions by my Government. So too did the growing momentum of the peace process on Bougainville, where New Zealand's role has been a catalyst for progress.

The Coalition Agreement has a well-defined set of principles which underlie our approach to New Zealand's international relations.

Our international policies are genuinely outward-looking.

Our interests in open markets and international stability are too large to simply be a spectator. We must work hard for New Zealand's interests. New Zealand needs the world more than the world needs New Zealand.

Our approach to international relations also reflects the values we share as New Zealanders.

New Zealand is active in international peacekeeping, in climate change negotiations, in United Nations work for increased rights for women , children and indigenous peoples; and in the continued pursuit of disarmament, because we care deeply about these matters and we believe we can make a difference.

Our international relations, in short, involve the pursuit of New Zealand's interests in the interlocking areas of economics, security and international citizenship.

My initial period in office has required a heavy focus on economic questions. The shock in Asia - I do not use the word crisis for I do not believe it to be one - will affect New Zealand's interests for several years to come.

Compared with the 7-10% growth rates experienced in South East Asia in the last decade we are looking at nil to low growth for the next few years. Similar low rates of growth are likely in Korea and Japan. On a brighter note the fiscal and deregulatory measures announced by Prime Minister Hashimoto last week should, as they are implemented, help Japan return to a positive growth path.

It is still too early to draw any firm conclusions from what remains an evolving situation in Asia.

Several points, however, are already clear:

the sudden and largely unexpected loss of confidence in a number of Asia's economies was no accident, nor was it a conspiracy;

underlying structural weaknesses in any economy, once they are exposed, can both trigger and amplify a loss of confidence by both domestic and international investors;

but confidence lost can also be regained through a process of successful policy reform. New Zealand's experience, and those of Mexico and Argentina, prove the point;

international cooperation, through bilateral and multilateral programmes, is important, but sound domestic policies are crucial if economies are to regain sustainable low-inflationary growth.

New Zealand learnt these lessons the hard way. We know that there are no shortcuts to success and that complacency is the enemy of competitiveness. As we look now to our north all of our Asian partners have each, in their own way, firmly embarked on addressing the structural weaknesses which contributed to the loss of investor confidence.

New Zealand's small size means our ability to materially assist is limited. We will, nevertheless, continue to offer such support and encouragement as we are able.

The Government's decision, last December, to offer up to $US 100 million in a supplementary loan, on commercial terms to Korea, reflected both regional solidarity and sensible self interest. So too has our involvement in offering technical assistance and advice on restructuring to countries such as Thailand and Indonesia. We remain ready to consider further such initiatives, bilaterally, through the IMF and World Bank and through APEC.

If a nation as small as New Zealand could turn its economy around in the space of a decade then we should have confidence that our larger Asian neighbours will be able to do the same.

In the longer term New Zealand should benefit from the economic liberalisation and deregulation which are a part of the recovery plan for the affected Asian economies.

While Asia's growth is likely to be flat for the next few years, strong economic performance in our other trading partners, particularly the Americas and Europe, mean we do not have all our eggs in one basket.

Meanwhile, New Zealand's ability to ride through the downturn is much the better for the reforms we have undertaken over the last decade.

The Government will play its part by continuing to scrutinise the level and quality of its spending. We shall continue to run fiscal surpluses for they are a buffer against external shocks. Further details of our intentions in this area will be in the 14 May Budget.

We shall also continue to bear down hard on domestic costs facing New Zealand firms. The reforms we have already answered in the electricity sector, and work underway on roading reforms, are but two examples of where the Coalition Government is serious about keeping New Zealand competitive. The forthcoming review of aspects of the Resource Management Act is a further example of where we shall be looking for reductions in regulatory costs, without sacrificing the quality of environmental protection.

We are also moving to establish a longer term focus to our immigration policies, and to encourage increased inbound tourism, including through the pursuit of more open skies aviation agreements.

It was no accident that my first two international visits were to our first and second largest economic partners: Australia and Japan.

In March I was honoured to be the first New Zealand Prime Minister to make an Official Visit to Japan since 1976. I found our relations with Japan to be in very good heart and appreciated the opportunity to discuss bilateral relations and regional developments with Prime Minister Hashimoto and senior business and political leaders in Japan.

CER I welcomed the opportunity in February to meet Prime Minister Howard on this the 15th anniversary of the CER closer economic relationship between Australia and New Zealand.

CER has been an undoubted success for both its partners. We each enjoy the benefits and the security of having a single trans-Tasman market for goods, services and labour.

There is still work to be done if the full benefits of the single market are to be realised.

Greater cooperation in the areas of aviation beyond rights, detailed work on business taxation, and the incorporation of investment within CER are all cases in point.

But the larger gains now, perhaps, are to be pursued by both CER partners looking outward. In my view the demonstrable benefits of openness and regulatory harmonisation achieved through CER are relevant as Australasia looks to forging even closer links with the ASEAN Free Trade Area and with the broader APEC grouping.

CER was always intended to be an outward looking agreement. Its success can be a useful catalyst for linking the trans-Tasman partners have with other regional partners.

APEC New Zealand's year as Chair of APEC will be a challenging diplomatic responsibility. Chairing the CHOGM, the Commonwealth Heads of Government meeting, in 1995 had its own demands. But APEC is to CHOGM as the Olympics are to the Commonwealth Games.

Our responsibilities will include hosting not only the Leaders meeting, in September, but also meetings of Trade, Foreign and Finance Ministers, as well conferences of senior officials, non Governmental representatives and business people from all the APEC economies.

As Chair of APEC we shall also need to guide the work and discussions of all these meetings.

It's a tall order, not least as we will be the first of APEC's small economies to assume the responsibility of Chair. It will be a challenge but it will also provide New Zealand with significant opportunities.

I am confident that we can do the job well.

APEC is important to New Zealand. Its members provide:

70 percent of New Zealand's exports and imports, 10 of our top 12 export markets 12 of our top 20 tourism sources 80 percent of our inbound foreign investment As such, we have a strong vested interest in continued growth among all APEC members, through the progressive establishment of a region of free trade and investment by 2020.

We want and need to be part of an Asia Pacific community.

The Government is already working on the policies and themes we will want to pursue next year, and we are in close touch with Malaysia - the current chair of APEC.

The Asian economic downturn, and its economic and social effects, are likely to be on Leaders' minds next year as they will be in 1998.

We believe APEC has a role in addressing these difficulties. Increased policy dialogue, economic and technical cooperation, and human resource development are all areas where APEC economies can work together to support a return to sustainable economic growth.

I expect that we will also want to encourage continued progress towards the achievement of the agreed APEC goal of trade and investment liberalisation. A good start has already been made through the ongoing Collective and Individual Action Plans to which APEC economies have committed themselves. We hope these Plans, and initiatives such as the early voluntary sectoral liberalisation agreed to at last year's Vancouver Summit, will enable APEC to lend its weight to the launch of further multilateral trade negotiations early in the new Millennium.

In order to chair APEC successfully, the Government will need to draw on the insights, advice and help of a broad range of New Zealanders. The logistical task alone of hosting the meetings will be demanding, particularly for Auckland. I hope that we can look to members of this Institute to contribute your experience and networks to the process.

Security International security issues have also required active attention during my first six months as Prime Minister.

Iraq's refusal to comply with UN Security Council obligations on weapons inspections posed a stark choice for New Zealand.

Would we stand aside, and let other countries carry the burden of pursuing Iraqi compliance' Or, would we join international efforts to deter Iraq from continuing to evade its UN obligations and prevent UNSCOM's inspectors doing their work.

The Coalition Cabinet chose participation. We did so both because of principle - New Zealand's longstanding opposition to the use or threat of use of indiscriminate weapons of mass destruction - and because the facts of Iraq's possession of such weapons and its willingness to use them were in no serious doubt.

Our decision also reflected New Zealand's belief in collective action to pursue and if necessary enforce Security Council decisions enacted under Chapter VII of the UN Charter.

The decision to commit New Zealand personnel to the Coalition was not without some controversy in New Zealand. However the results achieved to date reinforce the fact that our decision was the right one. Secretary General Kofi Annan had no doubt on this point when he acknowledged that by demonstrating firmness and making force available Coalition partners contributed to his successful cliff-edge diplomacy.

The situation in Iraq is by no means resolved. Iraq will be judged not by its words but by its actions. Iraq's retention of biological and chemical weapons poses a threat to international security. We hope that Iraq will be able to satisfy UNSCOM that it no longer poses such a threat to its neighbours. We look forward, in those circumstances, to the easing of UN sanctions against Iraq. But until that time comes, the international community, including New Zealand, needs to remain vigilant.

The Government has therefore, this week, decided that New Zealand's commitment to the Multinational Coalition will be extended for a further

month, to the end of May, as we and other Coalition members assess the latest reports to the Security Council from the UNSCOM weapons inspectors.

Defence Policy I welcomed the debate which ensued around our decision to deploy personnel to the Gulf Coalition. Debate and discussion lie at the heart of our democratic tradition and decisions need to be explained if they are to be understood.

The Coalition's defence policy is a case in point. The Government's policy is very clear. We have approved the five year defence investment programme outlined in the 1997 Defence White Paper. Our policy is to engage in a balanced modest multi-year investment programme to maintain and where appropriate enhance the capability of New Zealand's defence forces. We need a small but professional defence force to carry out a wide range of tasks including peacekeeping, maritime surveillance, disaster relief and the exercise of sovereignty either alone or in coalition with friends and allies.

Our military forces will always be appropriately small in absolute terms for our total population is smaller than that of many overseas cities. But we do need our personnel to be well trained and sufficiently equipped to carry out their wide ranging roles. These include the ability to operate safely and effectively in Coalition with the defence forces of other countries where - as in the case of the Iraq Coalition - we determine that to be in New Zealand's interests.

We value opportunities for our service personnel to work and train alongside counterparts from other countries. While in some respects the unfinished business over nuclear policies has constrained defence links with the United States we shall continue, where possible, to work alongside them in areas which support and enhance our common interests and goals.

The need to be able to operate with others requires some appropriate recognition of the importance for the New Zealand Defence Force staying on the same technology curve as our partners - even if the outer cutting edge of that curve is beyond our needs and means.

Over the coming years the Defence White Paper contains a framework for addressing the equipment and training needs of, in deliberate sequence, the army, the air force and the navy.

The Coalition has made a commitment to maintaining a naval capability of not less than three surface combatant vessels. There is no need to hurry a decision on replacing the Leander frigates before those vessels approach the end of their useful life in the next decade.

We shall look at all the options on their merits, including the possibility a further ANZAC frigate, as and when they are ready for decision. We shall assess them within the fiscal and policy framework contained in the Defence White Paper.

Bougainville Closer to home, one of my first diplomatic engagements - and one of the most satisfying - was to welcome delegates to the Lincoln meeting of parties to the Bougainville peace talks in January.

New Zealand, our Defence Forces, and Don McKinnon have attracted international recognition for the role we have played, with other regional partners, particularly Australia, to support the search for a peaceful resolution of the Bougainville conflict.

But if there are any plaudits to be given, then they belong primarily to the leaders and people of Papua New Guinea and Bougainville. It is they who have stopped fighting. It is they who have embarked on the courageous and more difficult course of peace.

It is they, and not we outsiders, who bear the task and the final responsibility for owning that peace and making it work.

New Zealand, like Australia and our regional neighbours, will stand alongside of and support that process. Despite the acute pressures on our defence and foreign affairs budgets we have made the additional monies available to do so. We are in for the long haul if such involvement is helpful and enjoys the support of Papua New Guinea and the Bougainvilleans.

We welcome yesterday's signature of the Permanent Cease Fire Agreement and Australia's assumption of the leadership of the Peace Monitoring Group on Bougainville. Our intention is to see the nature of New Zealand's support evolve towards a more civilian character, with an increased focus on reconstruction and humanitarian assistance.

After nearly a decade of hostilities and mistrust, the new springtime of peace on Bougainville remains fragile. But even as much work lies ahead, so too has much been achieved. We have to remain hopeful and positively engaged to support that progress.

One of the benefits of opening the Lincoln Peace conference was the opportunity it provided me to meet with other regional leaders; specifically Prime Minister Skate of Papua New Guinea and Prime Minister Ulufa'alu of the Solomon Islands. Since then I have had the pleasure of meeting in my office Prime Minister Tofilau Eti of Samoa and Premier Lui of Niue - both longstanding friends of New Zealand with whose countries we enjoy special relationships.

Pacific Island Relations I look forward to meeting other regional leaders when in August I attend my first South Pacific Forum meeting in Pohnpei.

The Pacific Island region matters to New Zealand. Widespread though it may be, the Pacific is our neighbourhood. Small as New Zealand is in international terms, we are a large metropolitan economy compared to our neighbours.

New Zealand benefits from the richness and diversity that people of Pacific Island background bring to our national life, be that in business, in politics, in education or in sport.

Just as we gain from those linkages, so too does New Zealand have a responsibility to listen and respond where we can to the concerns that our Pacific neighbours raise with us.

One such area is the question of portability of New Zealand's national superannuation.

Partner Governments in the Pacific have asked that their older citizens who have lived in New Zealand should be able to receive their entitlement to New Zealand Superannuation in the islands.

I can see value to both New Zealand and our Pacific Island partners in finding some fiscally sustainable means of easing the current limits on portability of superannuation. Older people who, by length of residence in New Zealand, have gained eligibility for superannuation should be able to reside in their home country without unduly sacrificing that entitlement. Our island neighbours, in turn, could benefit from the additional spending power in their economies associated with such a move. Officials have been tasked to come up with options as a basis for further consideration by Ministers this year.

International Citizenship As a good international citizen New Zealand seeks effective human rights diplomacy aimed at doing what we can to make a difference.

In addition to our work in the United Nations New Zealand is actively supporting human rights capacity building in the Asia pacific. We are using our official aid programme to support human rights projects, and a growing network of Asia Pacific human rights commissions.

We remain committed to discussions of international indigenous issues including negotiations towards a UN Declaration on the Rights of Indigenous Peoples. Progress on the draft is not proving easy. We will remain at the forefront of such efforts even if it takes a decade to achieve a worthwhile conclusion.

We also give high priority to UN work on strengthening the rights of women and children. New Zealand supports the development of Optional Protocols to strengthen current UN Conventions on the rights of the child and eliminating discrimination against women. The presentation later this year of our report to the UN on the Status of Women in New Zealand will be an opportunity to compare our performance in this area against international norms.

Ou work towards protecting the environment will also continue with a particular emphasis this year on carrying forward the new Kyoto Protocol on controlling and reducing emissions of greenhouse gases. Some key issues remain to be resolved including what responsibilities developing economies should assume in the future as major emitters of greenhouse gases, and the need for a workable regime for international trading in emission rights.

Conclusions The international agenda before us is a challenging one, but it is also rich in opportunity for New Zealand.

Despite the uncertainties over Asia, New Zealand is better-placed than we were 10 years back, because of past reforms, to ride out the downturn. The Government's diplomacy is all about working to protect and create opportunities for New Zealand to make its way successfully in the international economy.

New Zealand needs to be remain outward -looking and to draw both on the values we share as New Zealanders, and hard-headed pragmatism, to gain value from our international relations.

The next 18 months hold unprecedented opportunities for New Zealand. We must be clear about our economic and security interests. We have the opportunity to lift our profile and make a helpful contribution to shaping growth, security and development particularly in the Asia-Pacific region.

APEC, the Americas Cup, the launch of new world trade negotations and the new Millennium are all avenues which the Coalition - and I as Prime Minister- intend to pursue with vigour and vision.

My challenge to New Zealanders, and to this Institute, is to join us in that effort.