As the World Economic Forum opens in the Swiss resort town of Davos, leading economic pundits are discussing what steps to take to help pull the world economy out of a state of crisis.
On the forum's opening day, January 28, economic experts said there is plenty of talk, but not enough real action on internationally coordinated economic initiatives. They say world leaders need to work together to create a stronger mechanism for international coordination.
Justin Yifu Lin, the chief economist and a senior vice president of the World Bank, said it is not enough for individual governments to inject money into their own financial systems in order to kick-start lending and economic growth. He said there must be more international cooperation so that increases in the world's money supply match the capacity for the growth of real productivity.
"We need to have coordinated fiscal responses -- stimulus -- and large enough inner coordinating. But how to do that?" Yifu Lin asked. "We need to have a new monetarism [in which fiscally] disciplined countries, risk countries, and the developing countries can come together to get into some kind of consensus for action. Under this kind of situation, we also need to have a mechanism to transfer some resources...from the developed countries to the developing countries. If we can do that, after the crisis we are going to have a much better coordinated and sustainable, inclusive growth throughout the world."
Stephen Roach, chairman of Morgan Stanley Asia in Hong Kong, says the world needs a more activist multilateral approach on international economic issues. He says the International Monetary Fund currently does not have the enforcement powers needed to ensure that all governments -- both in the developed world and in developing economies -- follow through with their promises.
"The IMF, with great fanfare three years ago, launched this multilateral surveillance and consultation mechanism. And it just disappeared. Nothing happened," Roach said. "The problem, as I see this multilateral approach, is that there is no enforcement mechanism. There is no penalty for bad behavior. There is no reward for good behavior. No [government] wants to abdicate national sovereignty to multilateral authorities to deal with multilateral issues. And until we get over the idea of having this multilateral watchdog that can talk and bark but has no bite, we're not going to get anywhere."
Beginning Of An Era?
Trevor Manuel, South Africa's finance minister, told the World Economic Forum that he thinks the global financial crisis has created a new economic era.
Manuel says world leaders now need to explore possibilities for new multilateral arrangements -- including a system of monetary management that differs from the Bretton Woods system, which established rules for commercial and financial relations among the world's major industrial states at the end of World War II.
The finance minister says world leaders need somebody outside of themselves who is capable of pointing out what is wrong with the global economy without focusing narrowly on their own national interests. He adds that any new multilateral arrangement also needs to be capable of supporting policies that are more equitable on a global basis and which lead to more balanced global economic growth. Otherwise, Manuel says, the present opportunity will be lost and the global economy will muddle through for the next decade.
But Manuel admits it will be difficult to persuade the heads of state of countries within the G20 group of major economies to change the way they interrelate.
"What do you do when countries continually ignore the advice of their peers and the advice of multilaterals?" Manuel asked. "Because if we don't do that -- if we don't start this discussion at that point -- the idea that we can coordinate responses is, unfortunately, rather failed."
Panelists from Japan and Turkey offered perspectives from their own recent economic crises, saying the lessons they learned could help guide others.
Ferit Sahenk. the chairman of the Dogus Group business conglomerate in Turkey, said Turkey has had similar experiences to those of the United States today.
"But one thing was different. It was forced upon us. It was beyond the political strength of the country," he said. "If you wanted the IMF's support, you were going to do such things. The shareholders were asked to recapitalize their banks. If they couldn't, the banks were nationalized. If they couldn't have good activity and continue, they merged. They sold the banks. Now it is a different banking environment."
Heizo Takenaka, the director of the Global Security Research Institute at Keio University in Japan, said that his country injected large amounts of capital into commercial banks in the 1990s, but that move did not ward off financial crisis.
"What we need now is an accurate measurement of assets. Otherwise, we cannot get the concrete amount of capital injection that is needed," Takenaka said. "However, what [Japan] experienced in the 1990s was a banking crisis. We are now facing a money-market crisis. The extension is much more complicated and asset assessment is much more difficult. We cannot continue [capital injections] for a long time -- maybe two or three years. During that period, quick action is needed to stabilize the situation. Political leadership is very important."
Indeed, it took the shared experiences of the Great Depression and World War II to create a global political basis for the Bretton Woods system to become operational in 1945. The big question today is whether the current financial crisis will create enough political will among government leaders to revise and strengthen institutions like the IMF, or to move beyond the current system -- a system which most governments have learned to either deal with or ignore.
On the forum's opening day, January 28, economic experts said there is plenty of talk, but not enough real action on internationally coordinated economic initiatives. They say world leaders need to work together to create a stronger mechanism for international coordination.
Justin Yifu Lin, the chief economist and a senior vice president of the World Bank, said it is not enough for individual governments to inject money into their own financial systems in order to kick-start lending and economic growth. He said there must be more international cooperation so that increases in the world's money supply match the capacity for the growth of real productivity.
"We need to have coordinated fiscal responses -- stimulus -- and large enough inner coordinating. But how to do that?" Yifu Lin asked. "We need to have a new monetarism [in which fiscally] disciplined countries, risk countries, and the developing countries can come together to get into some kind of consensus for action. Under this kind of situation, we also need to have a mechanism to transfer some resources...from the developed countries to the developing countries. If we can do that, after the crisis we are going to have a much better coordinated and sustainable, inclusive growth throughout the world."
Stephen Roach, chairman of Morgan Stanley Asia in Hong Kong, says the world needs a more activist multilateral approach on international economic issues. He says the International Monetary Fund currently does not have the enforcement powers needed to ensure that all governments -- both in the developed world and in developing economies -- follow through with their promises.
"The IMF, with great fanfare three years ago, launched this multilateral surveillance and consultation mechanism. And it just disappeared. Nothing happened," Roach said. "The problem, as I see this multilateral approach, is that there is no enforcement mechanism. There is no penalty for bad behavior. There is no reward for good behavior. No [government] wants to abdicate national sovereignty to multilateral authorities to deal with multilateral issues. And until we get over the idea of having this multilateral watchdog that can talk and bark but has no bite, we're not going to get anywhere."
Beginning Of An Era?
Trevor Manuel, South Africa's finance minister, told the World Economic Forum that he thinks the global financial crisis has created a new economic era.
Manuel says world leaders now need to explore possibilities for new multilateral arrangements -- including a system of monetary management that differs from the Bretton Woods system, which established rules for commercial and financial relations among the world's major industrial states at the end of World War II.
The finance minister says world leaders need somebody outside of themselves who is capable of pointing out what is wrong with the global economy without focusing narrowly on their own national interests. He adds that any new multilateral arrangement also needs to be capable of supporting policies that are more equitable on a global basis and which lead to more balanced global economic growth. Otherwise, Manuel says, the present opportunity will be lost and the global economy will muddle through for the next decade.
But Manuel admits it will be difficult to persuade the heads of state of countries within the G20 group of major economies to change the way they interrelate.
"What do you do when countries continually ignore the advice of their peers and the advice of multilaterals?" Manuel asked. "Because if we don't do that -- if we don't start this discussion at that point -- the idea that we can coordinate responses is, unfortunately, rather failed."
Panelists from Japan and Turkey offered perspectives from their own recent economic crises, saying the lessons they learned could help guide others.
Ferit Sahenk. the chairman of the Dogus Group business conglomerate in Turkey, said Turkey has had similar experiences to those of the United States today.
"But one thing was different. It was forced upon us. It was beyond the political strength of the country," he said. "If you wanted the IMF's support, you were going to do such things. The shareholders were asked to recapitalize their banks. If they couldn't, the banks were nationalized. If they couldn't have good activity and continue, they merged. They sold the banks. Now it is a different banking environment."
Heizo Takenaka, the director of the Global Security Research Institute at Keio University in Japan, said that his country injected large amounts of capital into commercial banks in the 1990s, but that move did not ward off financial crisis.
"What we need now is an accurate measurement of assets. Otherwise, we cannot get the concrete amount of capital injection that is needed," Takenaka said. "However, what [Japan] experienced in the 1990s was a banking crisis. We are now facing a money-market crisis. The extension is much more complicated and asset assessment is much more difficult. We cannot continue [capital injections] for a long time -- maybe two or three years. During that period, quick action is needed to stabilize the situation. Political leadership is very important."
Indeed, it took the shared experiences of the Great Depression and World War II to create a global political basis for the Bretton Woods system to become operational in 1945. The big question today is whether the current financial crisis will create enough political will among government leaders to revise and strengthen institutions like the IMF, or to move beyond the current system -- a system which most governments have learned to either deal with or ignore.
