Shishir Bhate on Board the PM's Aircraft
Prime Minister Manmohan Singh said on November 15 that he saw seven big messages emerging from the just concluded Summit on Financial Markets and World Economy held in Washington. Cautioning that the G20 leaders were meeting at a time of exceptional difficulty for the world economy, with the financial crisis exploding into a systemic crisis, the prime minister said that the crisis has demonstrated that "we are in a globally integrated world and globally coordinated action is essential."
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"I therefore welcome the initiative taken by the United States to convene this summit," he added. He said that developing countries were not the cause of this crisis, but they are amongst the worst affected. Contraction of exports, a credit crunch and lower flows of capital and foreign direct investment will slow down their economic growth, he added.
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This will push millions of people back into poverty, with adverse effects on nutrition, health and education. It will also reduce growth impulses in the world economy. "Our immediate priority must be to bring the present crisis under control as quickly as possible," he said.
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He said that he saw seven big messages emerging from the summit:
We all recognise that this is a global crisis and therefore calls for a global response. I hope the process started by this summit will help us to evolve a global response.
The continuing weakness in the real economy suggests that the steps we have taken to increase liquidity must be supplemented by a coordinated fiscal stimulus.
We need to take special steps to provide resources to the developing countries. They were not the cause of the crisis but are the worst hit. I compliment the President of the World Bank (Robert B. Zoellick) and the managing director (Dominique Strauss-Kahn) of the Fund (International Monetary Fund) for what they have done. We need to do more. Both institutions must be provided with adequate resources to shoulder these new responsibilities to cope with the crisis.
We need to introduce regulatory reforms in the financial system improving existing standards and aligning them internationally. The Action Plan attached to the communique is a very good start. I welcome the timelines indicated which will allow us to review progress by the end of April.
We need much better multilateral surveillance of both macro economic and financial developments. The communique tasks the IMF together with FSF to perform this role. We welcome the signal in the communique to expand the FSF and other forums of supervisors. We must also work for a reform of the global financial architecture which must include a strengthened IMF and one which is more broadly reflective of changing economic realities.
We must avoid a retreat into protectionism. To this end we must work sincerely to the early conclusion of the Doha round achieving a balanced outcome.
There is one more message and that relates to the harm that excessive speculation can do. As Lord Keynes said, "Speculators are harmless as bubbles on a steady stream of enterprise. But the position is serious if enterprise becomes a bubble on the whirlpool of speculation. When the capital development of a country becomes the by-product of the activities of a casino, the job is likely to be ill-done." (Courtesy: Rediff News)