Global financial architecture needs overhaul
Updated
This week Japan revealed its economy is in a far worse state than previously thought with new figures showing growth contracted by 3.3 percent in the fourth quarter.
That's likely to play on the minds of delegates to a high-level forum on the global crisis in the Philippines. Senior UN and World Bank officials and their colleagues from regional Labour and Finance ministries, together with workers and employers representatives from more than 10 Asian countries are meeting in Manila. Top of the agenda is finding an effective response to the current economic crisis.
Presenter: Sen Lam
Speaker: Jomo Kwame Sundaram, the UN Assistant-Secretary General on Economic Development
- Listen:
- Windows Media
SUNDARAM: Well there's several problems and this compounds the difficulty of the situation. At one level of course there has been the problem with the financial system and this has spread from what was originally the US sub prime mortgage market segment to the rest of the financial system and of course across national boundaries. Secondly there the problems the financial system has caused serious problems of liquidity of the availability of credit and this has in turn exacerbated the problems of what is called the real economy.
LAM: So there obviously needs to be an overhaul of some sort. Who's going to take the lead do you think?
SUNDARAM: Well clearly right now there are several initiatives two of which are of some significance. You have the G20 initiative and that will meet on the 2nd of April in London and parallel with that is an initiative of the United Nations where a commission has been setup led by Professor Joseph Stiglitz, the nobel laureate, and that is expected to prepare an interim report by the end of next month. And that will feed not only into the G20 meeting but also into a number of other meetings that are scheduled for the United Nations, going right up to June.
LAM: And what about stimulus packages that seem to be so in vogue at the moment, an extreme example of course is US President Barak Obama's one-point-two trillion dollar package, what do you make of that?
SUNDARAM: Well that is very much welcomed in many parts of the world, but when you look at it in comparison to the size of the US GDP the size of the package is still relatively modest. What we also find is that there is tendency to confuse what may be called rescue or bail-out packages with the stimulus packages. The actual component which will contribute to stimulating the US economy in this particular instance is actually a fraction of the amount you cited.
LAM: Do you think the Asian financial crisis of 1997 that it might provide some lessons for the international community to learn from?
SUNDARAM: It's particularly interesting that quite a number of the measures which have been adopted by the US authorities, both by the Treasury Department as well as the US central bank, the Central Reserve have been policies which were sharply criticised when adopted by Asian governments such as the Malaysian government in '97, '98.
LAM: Indeed you're a Malaysian born economist, what might be learned from Malaysia's experience during that time?
SUNDARAM: Well the vunerability of economies, particularly smaller economies due to the fact that they've opened up on the capital account is one of the very major problems and I expect that there will be less of an appetite for encouraging countries to open up on the national account and it will be some reversal on that score. The need to regulate and the need to regulate and coordinate that regulation internationally is another major challenge on which there is now much more of an appetite for regulation compared to the situation let us say half a year ago.
LAM: And yet some free market economists are a little bit nervous about further strengthening capital controls, what do you say to that?
SUNDARAM: I think those people are certainly now in the minority. We have reached a sort of Keynesian moment right now where we are all Keynesians once again, as Nixon said in the early 1970s. And the whole debate really is on what kinds of Keynesian measures will be effective given the changed nature of the world economy today compared to when Keynes wrote about these issues in the 1930s.
LAM: And just very briefly you're a member of the Commission of Experts on Reforms of the International Monetary and Financial System. What's the task of this commission, tell us a bit more about it?
SUNDARAM: The commission's working basically on three sets of issues; firstly on trying to address the broadly speaking macro-financial issues and also trying to revive the world economy and ensure the basis for sustainable development. Secondly there is the whole challenge of financial regulation, not only in the national level but also at the international level. And thirdly the reform of what is called the international financial architecture. They're a whole range of institutions which badly need reforming because to even describe it as an architecture is sort of an insult to architects. These institutions have developed in a very ad hoc fashion since the 1970s.
