The Hindu Business Line : Onus on Finance Ministers

Soon after the onset of what had been termed as ‘financial holocaust’ of last year, affected countries set about to stave off threatened economic collapse with massive stimulus packages totalling $5 trillion or more.

The irony here was that the crisis itself, mainly the result of financial thuggery and corporate skullduggery, in the very countries which bore the brunt, was preventable if only the regulators had shown the expected degree of vigilance and the pundits of economics, famed for their analytical prowess, had read the storm signals correctly and sounded the warning well ahead of the catastrophe.

The problem with any financial stimulus package is the difficulty in deciding on the right time to terminate it overcoming the dread of adverse consequences of discontinuance. The problem is aggravated by the fact that every scenario seems capable of being interpreted as a sign of hope or alarm, recovery or relapse.

When face to face with such an uncertain prospect, governments are apt to take the path of least resistance — which is to continue on the same course as before. At least, that way, if anything were to go wrong, it will not be attributed to their disturbing the status quo.

Trepidation

This is precisely what happened when the G-20 met at Pittsburg. The leaders assembled there, representing 90 per cent of the world’s GDP, 80 per cent of the world trade and two-thirds of humanity and a wealth of experience backed by the vast paraphernalia of professional expertise available to them, could not come to an indisputable conclusion on whether global economy has staged a recovery or not. All that they could say was that “The process of recovery and repair remains incomplete.”

No wonder they recoiled with trepidation at any suggestion of ending the stimulus regime.

Actually, the British Prime Minister, Mr Gordon Brown, was categorical in stating that “too early a withdrawal of vital support could undermine the tentative signs of recovery we are now seeing and lead to a further downward lurch in business and consumer confidence” and that “the stimulus that we have still got to give the world economy is greater than the stimulus we have already had”.

According to him, without a financial stimulus packages worth the same $5 trillion as in the first phase, it is futile to expect to beat the global recession.

India’s Prime Minister, Dr Manmohan Singh too, went on record expressing the same opinion, though not in the same words or in such assertive terms.

Meaningful basis

However, there is very little information available on the current status of the implementation of the earlier stimulus of around $5 trillion in the detailed and discursive statement issued by the G-20 at the end of the meeting or as part of the documentation on the subject.

The G-20 statement claims “substantial progress” in implementing sweeping reforms such as strengthening prudential oversight, improving risk management, ensuring transparency, promoting market integrity, establishing supervisory colleges, reinforcing international cooperation and enhancing and expanding the scope of regulation and oversight, with tougher regulation of over-the-counter derivatives, securitisation markets, credit rating agencies, and hedge funds.

If the Finance Ministers, as required by G-20, are “to help analyse whether patterns of demand and supply, credit, debt and reserves growth are supportive of strong, sustainable and balanced growth…(and) assess the implications and consistency of fiscal and monetary policies, credit growth and asset markets, foreign exchange developments, commodity and energy prices, and current account imbalances” the only meaningful basis will be provided by the specifics of the ‘substantial progress’ as claimed. As such, their first task is to get hold of them.

B. S. RAGHAVAN