President Bharrat Jagdeo is calling for a world body to be set up to restructure global financial governance.
He said that it is absolutely necessary that there be a less doctrinaire approach to the market and another Bretton Woods-type conference to restructure global financial governance, speaking at the World Economic Forum in Davos, Switzerland last Friday on the Global Financial Crisis, the Government Information Agency (GINA) reported Saturday.
He was part of a panel discussing the global financial crisis and other panel members were Jacob Frenkel, Vice-Chairman, American International Group (AIG), USA, Nouriel Roubini, Chairman, Roubini Global Economics Monitor, USA, Laura Tyson, Professor of Business Administration and Economics, University of California, Berkeley, USA, and Sweden’s Finance Minister Anders Borg.
The discussion was moderated by Nik Gowing, main presenter, British Broadcasting Corporation (BBC) World News
Gowing had asked President Jagdeo that having sat on the International Monetary Fund Boards and World Bank meetings and having actually seen it from the highest level of international finance, why was it that he saw it as an accident waiting to happen.
And Jagdeo was quoted as responding that “We have been talking about the leaders of G20 meeting since maybe five years ago but it’s happening now only because of the crisis but this is not new. In 2007 when we met at the Commonwealth Heads of Government meeting this was a call that we broaden the G8 to the G20 because G20 controls 86% of the world’s economy but that was unheard of until recently because of the crisis. There were so many recommendations on the table long before this crisis happened and that’s why I said it was waiting to happen.”
Pointing to the way forward, Jagdeo said that, “What we need now is to forget the lectures. I think the developing world is saying thank God, for the first time we are not going to have lectures from the developed world about how to run our economies.” This comment drew loud applause from the audience at the discussion, GINA said.
Consequences
“The consequences of this crisis,” Jagdeo said further, “would be magnified in countries like ours, not just the shrinking of global demand and the drying up of capital for future investments but also the impact on poverty… millions upon millions of people will go into the ranks of the poor as a result of this crisis.”
The Guyanese leader argued that these countries have been practicing policies that are more considered good policies sanctioned by the international multilateral institutions.
”We are still focused on individual activities and those are still necessary packages in all the countries but what we need now is a global institution that is empowered to deal with global financial instability,” Jagdeo maintained.
Gowing highlighted the growing anger of the thousands of businesses that have lost money and individuals who have lost houses in this crisis and asked how confidence could be restored in the financial system. Jagdeo said while he can understand people’s anger, the key approach now is to look to the future.
“I think what we do now will re-establish that confidence. I am not sure that the actions of several governments around the world are contributing to the re-establishment of confidence even in the US. You had TARP then nothing happened, now we hear about an aggregate again to buy toxic debt. I think first of all we have to get down to the depth of this crisis. We have to have an assessment. Unless people know in the world how much further we can fall, there is not going to be a re-establishment of confidence. So you need a careful analysis of that including intrusive observation, examination of the accounts of some of these companies,” he contended.
Secondly, a clear plan that is properly communicated is required, Jagdeo added.
He noted too that there are a lot of regulations in place but because of a doctrinaire approach to the market these regulations have been overlooked.
Against the backdrop of President Jagdeo sitting at the table with very senior political leaders, Gowing asked him whether there is ground for optimism on the leadership issue or whether there is a political system which is literally swimming in uncertainty.
In that light Jagdeo pointed out that there is need for an institution outside of the political leadership in the world that will offer independent analyses of situation.
“I don’t think that power positions will take away the punch bowl. I don’t think now or in the future when especially they think short-term in the political cycle, even if they see problems growing in the longer term. And you need that independent analysis this is why I want just to mention the point that Laura raised earlier. I find myself in an uncomfortable position of having to defend the IMF because many times I have problems with their conditionalities because in this case I think there are hundreds of proposals.”
Multilateralism
Jagdeo continued: “The issue here is that the US has not been kind to multilateralism and that has to change. I think with President Obama we have a chance because multilateralism is good in some cases and this is why I will support multilateralism against political leadership in this case because politicians are going to look at the electoral cycle, they would do the things that would get them elected.”
Swedish Finance Minister Anders Borg said, “I think in the long run banking systems must pay for creating funds available for dealing with that kind of crisis in the future,” because this wouldn’t be the last one and tougher rules that deal with the ownership of the banks would be necessary.
Meanwhile, Laura Tyson noted that banks are not lending because they really feel the economy is plummeting around the world. The risk of lending to a business or to a household or a local government and having that borrower default is growing. She said the real economy is in serious trouble and by lending, a lender is taking on additional risk.
She opined that what is needed is much more focus on what is going to be done to stimulate and put a cushion on the real economy.
But other panelists said that the crisis was more of a systemic nature, GINA added.
