G20 plunks down one trillion dollar to brave recession
Sunday, 5 April 2009
Maswood Alam Khan
IT is for sure that the global output will shrink at a high rate in the next few months or, maybe, the next few years, no matter how many more billions of dollars are injected to stimulate the moribund economies made already bereft by the excesses of freewheeling ventures that are not blasphemous under capitalism. After enjoying triumphs for decades the concept of capitalism now needs to be reexamined to see whether the world will remain safe under capitalistic governance.
At a time when people in general are frustrated with the fallout of their faltering economies, world leaders gathered in London to attend the G20 summit. Prime Minister Gordon Brown of Britain, the host, announced at the conclusion of the summit that the leaders had committed US$ 1.1 trillion in new funds to buttress the capital available to the International Monetary Fund (IMF) that will help revive the world trade which is expected to contract. Among the major donors Japan and the European Union will put $100 billion each, America will provide $500 billion and IMF will probably print $250 billion of its own currency, known as special drawing rights (SDR).
Like players stunned by a sudden defeat the summiteers during their debates and deliberations were at a loss for words on how to sort out the economic mess; they were not sure of what really could bring relief to their fellow citizens back home. They were rather verbose in expressing their concerns in vague terms and phrases like "too little is being done to respond to the worst economic slump" or "too big packages are being dumped to douse the flames gagging the economies". The summiteers were at their lowest spirits as they know not what awaits their countries in the wake of the present recession.
Pundits in economics must have advised most of the world leaders to adopt measures, that were not experimented with during the 30s economic depression, to fight the present recession. One such measure, among many, is 'to recapitalise the banks and get credits flowing'. Such a bail-out, some assert, seems to have been working well.
Likewise, world leaders are assuming that IMF, muscled by the new trillion dollar fund, would be able to salvage the sinking economy of the world, though President Obama conceded that there were "no guarantees" that the measures would reverse the biggest global downturn in six decades. How efficacious or foolproof such recession-fighting measures are will be proven and certified by the pragmatists not before the ebbing economies regain the strength of the pre-recession period when economies had been flowing in full throttle.
But commoners, unlike the scholarly economists, are doubtful about the role the IMF will play, given its notoriety in tying strings while handing a cheque to a poor recipient. They rather blame myopic policies of the world bodies like World Bank and IMF for the present pandemic economic ailments and suggest their governments to adopt measures that are prescribed in the books on disaster management, not those printed in the books on socialism, capitalism or economics. Pragmatists and commoners alike seem to have lost confidence even in theories of economics that have so long espoused the laissez-faire behaviour of capitalism.
Instead of aiding the failing vehicles the governments should aid only those which are not yet attacked by the economic virus. Aiding sinking banks with more money in the name of recapitalisation is like extinguishing fire with milk, not water. Milk should be poured onto healthy banks to prosper and water should be sprayed on the banks which are engulfed by fire. In a massive and uncontrollable epidemic of small pox vaccinating the unaffected is much wiser than wasting resources in treating the affected. Many observers have jumped on the bandwagon to decry the so-called non-judgmental approach of the industrialised economies in dousing the firestorm of the economic world with milk.
In the G20 summit leaders from the rich countries, like America and Japan, which are worst affected by the recession, in an exercise in socialism (a superficial show of learning) put emphasis on more borrowing and spending to boost their respective economies. They have urged the summiteers to set aside 4.0 per cent of their respective GDP to commit as stimulus packages, 2.0 per cent for 2009 and another 2.0 per cent for 2010. Not all the members could be made convinced.
Germany and France didn't seem to have been captivated by the socialism shown by members from rich countries in favour of dousing fires of recession by milk; they argue that their economies rely much more on what are known as "automatic stabilisers" -- tools such as unemployment insurance payments, which increase automatically in a recession -- thus they do not need as much discretionary stimulus spending as countries, such as America, where welfare payments are much less generous. If there is a lesson President Obama should have learnt from this summit is the mechanism of 'automatic stabilisers' that he can introduce back home as a new element of 'change' in America, a mechanism that has been working efficiently well in Europe for a long time.
The summiteers in their bickering over who should spend how much to keep their factories running and the shoppers consuming seem to have given not much credence to the fact that the financial calamity they are now facing is not endemic in nature. It is pandemic and quite different from the economic catastrophe that gripped the world in the 1930s.
This is a global recession and the leaders of G20 should deem the crisis as an inferno engulfing the whole world. Leaders of the world should decide which country should get how much aid and which sectors need more attention to keep the whole global economy afloat. Global interests must dominate over transatlantic or transpacific interests. The world's wealthy nations must come to a common understanding of the causes of this crisis and a common vision of the future role of the financial markets all over the world that will have to ensure invincibility of the future global economy. World leaders must stop pumping stimulants into countries or sectors or banks which have already bled too profusely to stand up and fight.
During a recession, consumers look for cheap garments and fuel-efficient vehicles, to cite two of many examples. So, attention should be given to the female worker of a readymade garments factory in Bangladesh whose insured job will ensure smooth supply of basic garments like T-shirts and shorts to the Wal-Mart's in USA.
Attention to the toy manufacturers in China is not as important at this hour of peril as is attention to manufacturers of hybrid and all-electric vehicles in China. China, it may be mentioned, is planning to raise its annual production capacity to 500,000 hybrid or all-electric cars and buses by the end of 2011, from 2,100 last year, making their country the leader of the world in the application of alternative energy.
International patronisation should be directed towards factories churning out essentials, which may be of high demands during the recession, like basic garments, basic medicines, organic food grains, shrimps, bicycles, or barbed wires for fences to meet hunger, ensure safety, and thwart crime in any part of the world -- in Minneapolis or in Bangkok.
Commitment to IMF with the new trillion dollar fund, though belated, is a welcome gesture of the leaders of the rich countries but too meagre to meet the demands of the affected countries. Now the questions are: Will the fund ultimately percolate to poor countries in Asia, Africa, and Eastern Europe? Will a major part of the disbursed fund be soaked back by the so-called consultants to be appointed by IMF?
The Third World countries could be immensely benefited if G20 did commit more trillions of dollars to other regional development bodies like Asian Development Bank. It is the regional development banks and bodies that can better help countries like Mexico, Poland, Ethiopia, Bangladesh, Cambodia, Bhutan and Vietnam to keep their economies floating and their factories running.
But, the mysterious puzzle is how the money will come and from which countries?
Among the members of G20 there are countries who at times take resort to "quantitative easing", that is, printing money, that would bring inflation, and as a result decimate the value of those countries' investment in western government debt.
Nevertheless, leaders of G20 have set up a milestone in their history by declaring a crackdown on tax havens, regulations of hedge funds and a new supervisory body to flag problems in the world financial system, no doubt a revolutionary declaration that will ultimately establish an early warning system to forecast the next financial tsunami well in advance.
The Group of 20, or G-20, with 19 member countries including some of the world's biggest industrial and emerging economies, plus the European Union, representing about 90 percent of the world's gross national product, 80 percent of world trade and two-thirds of the global population is capable to navigate the world economy in any fowl weather provided the members of this grand club reach a consensus on how to iron out their differences and empathise with the poorer countries who are outside their fold-and provided the IMF changes its attitude of tying knots and strings with loans and aids coughed up to the poor.
However, a note of warning and a glimmer of recognition the whole world heard and watched at the end of the G20 summit in London were from the US President while he was talking to newsmen. President Obama has rightly warned the Europeans that they cannot count on American consumer spending alone to drive a global recovery. What more enamoured the world audience is his contrition for the failings of the Wall Street. "If there's just Roosevelt and Churchill sitting in a room with a brandy, that's an easier negotiation," Mr. Obama said, "But that's not the world we live in, and it shouldn't be the world that we live in." Gone are the days -- from Pax Britannica to Pax Americana -- when Britain and the United States made the rules that others followed.
Looking forward to the day when G20, if necessary, will expand into a bigger club as "United Economies" enrolling all the member countries of the United Nations with members of G20 forming a powerful wing titled "Economic Security Council".
United we survive, divided we perish!
The writer is a banker who may be reached at maswood@hotmail.com
IT is for sure that the global output will shrink at a high rate in the next few months or, maybe, the next few years, no matter how many more billions of dollars are injected to stimulate the moribund economies made already bereft by the excesses of freewheeling ventures that are not blasphemous under capitalism. After enjoying triumphs for decades the concept of capitalism now needs to be reexamined to see whether the world will remain safe under capitalistic governance.
At a time when people in general are frustrated with the fallout of their faltering economies, world leaders gathered in London to attend the G20 summit. Prime Minister Gordon Brown of Britain, the host, announced at the conclusion of the summit that the leaders had committed US$ 1.1 trillion in new funds to buttress the capital available to the International Monetary Fund (IMF) that will help revive the world trade which is expected to contract. Among the major donors Japan and the European Union will put $100 billion each, America will provide $500 billion and IMF will probably print $250 billion of its own currency, known as special drawing rights (SDR).
Like players stunned by a sudden defeat the summiteers during their debates and deliberations were at a loss for words on how to sort out the economic mess; they were not sure of what really could bring relief to their fellow citizens back home. They were rather verbose in expressing their concerns in vague terms and phrases like "too little is being done to respond to the worst economic slump" or "too big packages are being dumped to douse the flames gagging the economies". The summiteers were at their lowest spirits as they know not what awaits their countries in the wake of the present recession.
Pundits in economics must have advised most of the world leaders to adopt measures, that were not experimented with during the 30s economic depression, to fight the present recession. One such measure, among many, is 'to recapitalise the banks and get credits flowing'. Such a bail-out, some assert, seems to have been working well.
Likewise, world leaders are assuming that IMF, muscled by the new trillion dollar fund, would be able to salvage the sinking economy of the world, though President Obama conceded that there were "no guarantees" that the measures would reverse the biggest global downturn in six decades. How efficacious or foolproof such recession-fighting measures are will be proven and certified by the pragmatists not before the ebbing economies regain the strength of the pre-recession period when economies had been flowing in full throttle.
But commoners, unlike the scholarly economists, are doubtful about the role the IMF will play, given its notoriety in tying strings while handing a cheque to a poor recipient. They rather blame myopic policies of the world bodies like World Bank and IMF for the present pandemic economic ailments and suggest their governments to adopt measures that are prescribed in the books on disaster management, not those printed in the books on socialism, capitalism or economics. Pragmatists and commoners alike seem to have lost confidence even in theories of economics that have so long espoused the laissez-faire behaviour of capitalism.
Instead of aiding the failing vehicles the governments should aid only those which are not yet attacked by the economic virus. Aiding sinking banks with more money in the name of recapitalisation is like extinguishing fire with milk, not water. Milk should be poured onto healthy banks to prosper and water should be sprayed on the banks which are engulfed by fire. In a massive and uncontrollable epidemic of small pox vaccinating the unaffected is much wiser than wasting resources in treating the affected. Many observers have jumped on the bandwagon to decry the so-called non-judgmental approach of the industrialised economies in dousing the firestorm of the economic world with milk.
In the G20 summit leaders from the rich countries, like America and Japan, which are worst affected by the recession, in an exercise in socialism (a superficial show of learning) put emphasis on more borrowing and spending to boost their respective economies. They have urged the summiteers to set aside 4.0 per cent of their respective GDP to commit as stimulus packages, 2.0 per cent for 2009 and another 2.0 per cent for 2010. Not all the members could be made convinced.
Germany and France didn't seem to have been captivated by the socialism shown by members from rich countries in favour of dousing fires of recession by milk; they argue that their economies rely much more on what are known as "automatic stabilisers" -- tools such as unemployment insurance payments, which increase automatically in a recession -- thus they do not need as much discretionary stimulus spending as countries, such as America, where welfare payments are much less generous. If there is a lesson President Obama should have learnt from this summit is the mechanism of 'automatic stabilisers' that he can introduce back home as a new element of 'change' in America, a mechanism that has been working efficiently well in Europe for a long time.
The summiteers in their bickering over who should spend how much to keep their factories running and the shoppers consuming seem to have given not much credence to the fact that the financial calamity they are now facing is not endemic in nature. It is pandemic and quite different from the economic catastrophe that gripped the world in the 1930s.
This is a global recession and the leaders of G20 should deem the crisis as an inferno engulfing the whole world. Leaders of the world should decide which country should get how much aid and which sectors need more attention to keep the whole global economy afloat. Global interests must dominate over transatlantic or transpacific interests. The world's wealthy nations must come to a common understanding of the causes of this crisis and a common vision of the future role of the financial markets all over the world that will have to ensure invincibility of the future global economy. World leaders must stop pumping stimulants into countries or sectors or banks which have already bled too profusely to stand up and fight.
During a recession, consumers look for cheap garments and fuel-efficient vehicles, to cite two of many examples. So, attention should be given to the female worker of a readymade garments factory in Bangladesh whose insured job will ensure smooth supply of basic garments like T-shirts and shorts to the Wal-Mart's in USA.
Attention to the toy manufacturers in China is not as important at this hour of peril as is attention to manufacturers of hybrid and all-electric vehicles in China. China, it may be mentioned, is planning to raise its annual production capacity to 500,000 hybrid or all-electric cars and buses by the end of 2011, from 2,100 last year, making their country the leader of the world in the application of alternative energy.
International patronisation should be directed towards factories churning out essentials, which may be of high demands during the recession, like basic garments, basic medicines, organic food grains, shrimps, bicycles, or barbed wires for fences to meet hunger, ensure safety, and thwart crime in any part of the world -- in Minneapolis or in Bangkok.
Commitment to IMF with the new trillion dollar fund, though belated, is a welcome gesture of the leaders of the rich countries but too meagre to meet the demands of the affected countries. Now the questions are: Will the fund ultimately percolate to poor countries in Asia, Africa, and Eastern Europe? Will a major part of the disbursed fund be soaked back by the so-called consultants to be appointed by IMF?
The Third World countries could be immensely benefited if G20 did commit more trillions of dollars to other regional development bodies like Asian Development Bank. It is the regional development banks and bodies that can better help countries like Mexico, Poland, Ethiopia, Bangladesh, Cambodia, Bhutan and Vietnam to keep their economies floating and their factories running.
But, the mysterious puzzle is how the money will come and from which countries?
Among the members of G20 there are countries who at times take resort to "quantitative easing", that is, printing money, that would bring inflation, and as a result decimate the value of those countries' investment in western government debt.
Nevertheless, leaders of G20 have set up a milestone in their history by declaring a crackdown on tax havens, regulations of hedge funds and a new supervisory body to flag problems in the world financial system, no doubt a revolutionary declaration that will ultimately establish an early warning system to forecast the next financial tsunami well in advance.
The Group of 20, or G-20, with 19 member countries including some of the world's biggest industrial and emerging economies, plus the European Union, representing about 90 percent of the world's gross national product, 80 percent of world trade and two-thirds of the global population is capable to navigate the world economy in any fowl weather provided the members of this grand club reach a consensus on how to iron out their differences and empathise with the poorer countries who are outside their fold-and provided the IMF changes its attitude of tying knots and strings with loans and aids coughed up to the poor.
However, a note of warning and a glimmer of recognition the whole world heard and watched at the end of the G20 summit in London were from the US President while he was talking to newsmen. President Obama has rightly warned the Europeans that they cannot count on American consumer spending alone to drive a global recovery. What more enamoured the world audience is his contrition for the failings of the Wall Street. "If there's just Roosevelt and Churchill sitting in a room with a brandy, that's an easier negotiation," Mr. Obama said, "But that's not the world we live in, and it shouldn't be the world that we live in." Gone are the days -- from Pax Britannica to Pax Americana -- when Britain and the United States made the rules that others followed.
Looking forward to the day when G20, if necessary, will expand into a bigger club as "United Economies" enrolling all the member countries of the United Nations with members of G20 forming a powerful wing titled "Economic Security Council".
United we survive, divided we perish!
The writer is a banker who may be reached at maswood@hotmail.com