Evolving solutions for global financial crisis
Sunday, 16 November 2008
Syed Jamaluddin
THE world's leading economies (G20) agreed at SAO PAULO on November 9 on the need to take measures to stimulate growth and fight the threat of a global recession. Central bankers and other top govt officials hammered out proposals for their leaders to take to an emergency summit on the financial crisis this weekend in Washington. Brazil pressed for emerging economic powers to have a bigger say in global finance. The 'BRIC' nations of Brazil, Russia, India and China forged a joint position calling for reform of institutions like the International Monetary Fund (IMF) to give more clout to the developing economies now driving global growth.
Countries such as China and the oil-rich Gulf states have amassed trillions of dollars in reserves that could help the IMF assist smaller countries withstand the turmoil. Brazilian President Lula said that the elite Group of Seven(G7) countries were no longer capable of working alone. According to him; it is time for a pact between governments to build a new financial architecture for the world.
The Bush administration is suggesting that the summit would reinforce existing authorities rather than create new ones. It has resisted suggestions that the gathering would create a new single international market regulator with crossborder authority. European leaders 'in sharp contrast to US stand', meeting in Brussels ahead of the summit have set a100-day deadline to draw reforms to the financial system. European countries are united on how to reform the global financial system. According to them, the IMF and other international institutions need to be rethought. The IMF Chief is of the view that the summit is unlikely to change the way the global economy is governed. Expectations should not be oversold.
European leaders of France, Britain and Germany are backing up measures to replenish IMF's resources seeking help from Saudi Arabia and other Middle-East countries. Nicholas Sarkozy is planning to convene the next meeting in February in which president-elect Obama will participate. President-elect or anyone of his close aides have refrained from commenting anything about the summit. President-elect Obama will not attend the summit.
The Group of 20 summit is only the beginning of the reform of the financial markets. The meeting comes against a backdrop of continued turmoil and increasing signs that the global economy is tumbling. The German economy has declined by 0.5 per cent of GDP during the last quarter. The Chinese economy has also come down by about three per centre points. The Organisation for Economic Cooperation & Development (OECD) has just announced that US, Europe and Japan are in recession. Massive govt intervention costing trillions of dollars to support and bail out banks or boost the economy have so far failed to stop the rot. The free market financial system has gone global while regulation and oversight remain largely under national control. This mismatch needs to be fixed.
The free market model is now discredited. The politicians, economists and analysts are proposing a long wish list of remedies. Some of these are discussed here. Speculative hedge funds should be brought into the regulatory framework so that complex investment and capital flows become more transparent. There should be no uncontrolled risk-taking that saw US banks load down home buyers with more debt than they could ever hope to repay.
Credit rating agencies which were supposed to judge and rate corporate risk levels failed to raise a warning flag. These agencies need to be brought to book. Regulation has consistently lagged behind. But too much regulation will encourage the financial resources to move to off-shore havens. Some countries will be reluctant to come down too hard on their finance sectors.
The summit hosted by outgoing US President Bush who is unlikely to make any commitment which will tie the hands of his successor Barack Obama who is not attending the meeting. Obama's election promise of change seems to be more in keeping with the current trend as Bush's Republican legacy collapsed along with the markets. Complimentary of the market and the state has gained strength.
IMF and the World Bank need to be overhauled.. The G 20 participants (Argentina, Australia, Brazil, Britain, Canada, China, France, Germany ,India ,Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey, United States and European Union) will try to coordinate actions. A fiscal stimulus in one country has to be repeated in other countries otherwise it will be less effective.
G20 leaders agree to address the current crisis and lay the foundation for reforms that will help prevent a similar crisis in the future. They also agree that this undertaking is too large to be accomplished in one meeting. The news that recession is now sweeping into advanced economies overtook preparations by leading policy makers for talks in Washington on halting the damage and tightening the global economy. Most global stocks were lower, the euro retreated against the dollar and oil prices fell to three and half year low. However, the world is waiting for a positive outcome of the summit.
Meanwhile, the IMF has advised Bangladesh to closely monitor any impact arising from current global financial crisis on the country's exports, particularly ready made garments and inflow of remittances. But the central bank maintained that exports are unlikely to fall abruptly and inflow of remittances had maintained a satisfactory trend during the past four months of the current fiscal. Our foreign exchange reserve is hovering around $5.0 billion which is sufficient to meet the cost of imports for about three months.
The country's inflation would not go up because the commodity prices were maintaining a falling trend.
But stock prices continued to fall. The frozen food exporters are feeling the squeeze as major American and European buyers are demanding price-cuts and delaying fresh orders. In any case, Bangladesh will have to remain alert about the fall out from the global financial crisis and prepare for meeting the eventuality.
The writer is an economist and columnist
THE world's leading economies (G20) agreed at SAO PAULO on November 9 on the need to take measures to stimulate growth and fight the threat of a global recession. Central bankers and other top govt officials hammered out proposals for their leaders to take to an emergency summit on the financial crisis this weekend in Washington. Brazil pressed for emerging economic powers to have a bigger say in global finance. The 'BRIC' nations of Brazil, Russia, India and China forged a joint position calling for reform of institutions like the International Monetary Fund (IMF) to give more clout to the developing economies now driving global growth.
Countries such as China and the oil-rich Gulf states have amassed trillions of dollars in reserves that could help the IMF assist smaller countries withstand the turmoil. Brazilian President Lula said that the elite Group of Seven(G7) countries were no longer capable of working alone. According to him; it is time for a pact between governments to build a new financial architecture for the world.
The Bush administration is suggesting that the summit would reinforce existing authorities rather than create new ones. It has resisted suggestions that the gathering would create a new single international market regulator with crossborder authority. European leaders 'in sharp contrast to US stand', meeting in Brussels ahead of the summit have set a100-day deadline to draw reforms to the financial system. European countries are united on how to reform the global financial system. According to them, the IMF and other international institutions need to be rethought. The IMF Chief is of the view that the summit is unlikely to change the way the global economy is governed. Expectations should not be oversold.
European leaders of France, Britain and Germany are backing up measures to replenish IMF's resources seeking help from Saudi Arabia and other Middle-East countries. Nicholas Sarkozy is planning to convene the next meeting in February in which president-elect Obama will participate. President-elect or anyone of his close aides have refrained from commenting anything about the summit. President-elect Obama will not attend the summit.
The Group of 20 summit is only the beginning of the reform of the financial markets. The meeting comes against a backdrop of continued turmoil and increasing signs that the global economy is tumbling. The German economy has declined by 0.5 per cent of GDP during the last quarter. The Chinese economy has also come down by about three per centre points. The Organisation for Economic Cooperation & Development (OECD) has just announced that US, Europe and Japan are in recession. Massive govt intervention costing trillions of dollars to support and bail out banks or boost the economy have so far failed to stop the rot. The free market financial system has gone global while regulation and oversight remain largely under national control. This mismatch needs to be fixed.
The free market model is now discredited. The politicians, economists and analysts are proposing a long wish list of remedies. Some of these are discussed here. Speculative hedge funds should be brought into the regulatory framework so that complex investment and capital flows become more transparent. There should be no uncontrolled risk-taking that saw US banks load down home buyers with more debt than they could ever hope to repay.
Credit rating agencies which were supposed to judge and rate corporate risk levels failed to raise a warning flag. These agencies need to be brought to book. Regulation has consistently lagged behind. But too much regulation will encourage the financial resources to move to off-shore havens. Some countries will be reluctant to come down too hard on their finance sectors.
The summit hosted by outgoing US President Bush who is unlikely to make any commitment which will tie the hands of his successor Barack Obama who is not attending the meeting. Obama's election promise of change seems to be more in keeping with the current trend as Bush's Republican legacy collapsed along with the markets. Complimentary of the market and the state has gained strength.
IMF and the World Bank need to be overhauled.. The G 20 participants (Argentina, Australia, Brazil, Britain, Canada, China, France, Germany ,India ,Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey, United States and European Union) will try to coordinate actions. A fiscal stimulus in one country has to be repeated in other countries otherwise it will be less effective.
G20 leaders agree to address the current crisis and lay the foundation for reforms that will help prevent a similar crisis in the future. They also agree that this undertaking is too large to be accomplished in one meeting. The news that recession is now sweeping into advanced economies overtook preparations by leading policy makers for talks in Washington on halting the damage and tightening the global economy. Most global stocks were lower, the euro retreated against the dollar and oil prices fell to three and half year low. However, the world is waiting for a positive outcome of the summit.
Meanwhile, the IMF has advised Bangladesh to closely monitor any impact arising from current global financial crisis on the country's exports, particularly ready made garments and inflow of remittances. But the central bank maintained that exports are unlikely to fall abruptly and inflow of remittances had maintained a satisfactory trend during the past four months of the current fiscal. Our foreign exchange reserve is hovering around $5.0 billion which is sufficient to meet the cost of imports for about three months.
The country's inflation would not go up because the commodity prices were maintaining a falling trend.
But stock prices continued to fall. The frozen food exporters are feeling the squeeze as major American and European buyers are demanding price-cuts and delaying fresh orders. In any case, Bangladesh will have to remain alert about the fall out from the global financial crisis and prepare for meeting the eventuality.
The writer is an economist and columnist