| Sheela Bhatt in Beijing October 24, 2008 22:19 IST Last Updated: October 24, 2008 22:59 IST Cometh the hour, cometh the man. It was the word-class economist Manmohan Singh who hogged the limelight at the Asia-Europe Summit in Beijing on Friday. Such was the effect of the speech -- the prime minister spoke last at the 45-country session-- that a normally reticent Chinese premier Wen Jiabao complimented Dr Singh in his concluding remarks. The prime minister essentially listed out three failures behind the economic turbulence: 1. Regulatory and supervisory failure in developed countries Dr Singh then went on to say, 'These are not my views, but those of the distinguished managing director of IMF (Dominique Strauss-Kahn) with which I agree. We must analyse objectively how and why these failures have occurred with such ferocity." He said, "The sad truth is that in this age of globalisation we have a global economy of sorts, but it is not supported by a global polity to provide effective governance." The prime minister then elaborated that the global financial structure needs a supervisor and regulator. While top leaders listened, he said, "The resulting crisis of liquidity, accumulation of bad assets, shortage of capital and collapse of confidence threaten to spill over into the real economy by way of reduced demand for exports, reduced access to trade and suppliers' credits superimposed on other crises. "The crisis of food shortages and fuel price hike have strained budgets and balance of payment leading to rising inflation and living costs in many developing countries." In his speech, he said, 'The President of the World Bank has identified at least 30 countries whose balance of payments will experience a severe deterioration in the wake of financial crisis." While speaking on a solution to the crisis, he said, "The immediate task is to de-clog the credit markets the world over. Coordinated global action is essential to restore a measure of confidence in the credit market." He added, "From the stand point of developing countries, international financial institutions, particularly the International Monetary Fund and the International Bank for Reconstruction and Development need to put in place exogenous facilities to provide additional assistance more quickly and in large amounts, with less service conditionality and greater flexibility." Dr Singh must have struck a chord with many Asian leaders when he said that globalisation without global financial governance structure can lead to severe problems as has been seen in the recent turmoil. While advising solid steps for stability of the global economy, the prime minister told the august gathering that as a counter cyclical device, increased infrastructure investments in developing countries, if backed by increased resource flows from multinational financial institutions such as the IBRD and the Regional Development Banks, can act as a powerful stabilizer. The IMF should revisit the potentially powerful instrument of creating liquidity through fresh allocation of Special Drawing Rights in favour of multilateral development financial institutions. While giving a clear direction for the action, Singh said the reform of reconstruction of financial system has to be a collective international effort since borders no longer confine financial institutions or can keep out financial turmoil. Given the growth in cross-border investment, trade and banking in the last three decades, the world must ponder over the need for a global monitoring authority to promote global supervision and cooperation in the increasingly integrated world we live in. While putting his fingers on the problem that created this economic mess, he said, "Massive failure of regulatory and supervisory mechanism has really been the reason for the present turmoil and if there had been a good regulatory mechanism, this would not have happened." Dr Singh said the IMF should revisit the potentially powerful instrument of creating liquidity through fresh allocation of Special Drawing Rights in favour of multilateral development finance institutions. Read the rest here on Rediff News. |
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