Not that other countries have a position paper ready to dish out, but most of them have their stances clear. Between November 15 when the Washington Declaration was signed and today with the London Summit just 48 hours away, the positions — and the divides — are fairly clear.
The US and the UK stand together on two issues: keeping stimulus high and avoiding over-regulation. It’s a relief that they’ve reversed their insistence on coercing other countries to follow their 2 per cent spending tip, which their very obedient and loyal mouthpiece, the International Monetary Fund, yelped with full gusto.
Continental Europe, led by Germany and France, while rejecting all calls to spend, seek stronger regulation, nationalisation and more control over financial entities.
China, worried about its dollar investments that add up to $1 trillion at last count, is seeking an alternative global currency — an interesting proposal, possibly useful too.
Other emerging countries like Argentina, South Africa and Russia, but not excluding Australia that technically doesn’t fall in the “emerging” club, are largely silent, with the sole exception of the crude (and comic?) comments of Brazilian President Luiz Inacio “Lula” da Silva, who said ““This crisis was fostered and boosted by irrational behaviour of some people that are white, blue-eyed.”
India has not yet opened its cards. “We were very involved in the preparatory process, that’s why you have this impression,” Foreign Secretary Shivshankar Menon told reporters at a press briefing.
Unofficially, India’s overarching stance is to fight protectionism. ““We are against protectionism,” Menon said. “We would like to see a very strong statement coming out of G20 against protectionism.”
Earlier, I had spoken to the heads of some of India’s leading industry opinion makers and protectionism was indeed the theme of greatest concern, particularly US President Barack Obama’s comments on outsourcing, buy American and so on.
Blog post on Cutting the Edge
Monday, March 30, 2009
Sunday, March 29, 2009
3 days to G20: the US-UK-IMF “Spend!” proposal is destined to die
I hate to say ‘I told you so’, but I told you so — I really did.
Coming to a global congregation of the world’s largest economies and hoping 18 members to blindly follow what the US dictates and the UK furthers was nothing short of a foolish expectation. High on intent, reason and morals but low on humility, persuasion and mutual respect, the audacious spend-your-way-out-of-the-crisis proposal, born in the USA, grown in the UK and parroted by IMF, was destined to die.
True, the G20 economies add up to 85 per cent of the world’s GDP. But what perhaps escapes US President Barack Obama and his chorus comprising UK Prime Minister Gordon Brown and the IMF is a simple fact: smaller they may be when measured by output, but all, repeat all, other 18 countries still carry their economic uniqueness and sovereign dignity — the credit crisis has not been able to scratch that.
Here’s what some of the leaders said, according to the Sunday Times story:
“I will not let anyone tell me that we must spend more money,” said German Chancellor Angela Merkel.
“In these conditions I and the rest of my colleagues from the eurozone believe there is no room for new fiscal stimulus plans,” said Spanish Finance Minister Pedro Solbes.
French President Nicolas Sarkozy added his two bits about reforming capitalism being more important than cutting taxes.
Talks of such a package have begun in India, but I see neither much fiscal room nor administrative force (until the next government comes into power) for it to fructify.
Blog post on Cutting the Edge
Coming to a global congregation of the world’s largest economies and hoping 18 members to blindly follow what the US dictates and the UK furthers was nothing short of a foolish expectation. High on intent, reason and morals but low on humility, persuasion and mutual respect, the audacious spend-your-way-out-of-the-crisis proposal, born in the USA, grown in the UK and parroted by IMF, was destined to die.
True, the G20 economies add up to 85 per cent of the world’s GDP. But what perhaps escapes US President Barack Obama and his chorus comprising UK Prime Minister Gordon Brown and the IMF is a simple fact: smaller they may be when measured by output, but all, repeat all, other 18 countries still carry their economic uniqueness and sovereign dignity — the credit crisis has not been able to scratch that.
Here’s what some of the leaders said, according to the Sunday Times story:
“I will not let anyone tell me that we must spend more money,” said German Chancellor Angela Merkel.
“In these conditions I and the rest of my colleagues from the eurozone believe there is no room for new fiscal stimulus plans,” said Spanish Finance Minister Pedro Solbes.
French President Nicolas Sarkozy added his two bits about reforming capitalism being more important than cutting taxes.
Talks of such a package have begun in India, but I see neither much fiscal room nor administrative force (until the next government comes into power) for it to fructify.
Blog post on Cutting the Edge
12 days to G20: IMF’s spend-your-way-out-of-the-crisis recommendations are best ignored
In its predictable conclusion-first-analysis-later approach when it comes to ensuring that the interests of its key stakeholder, the US, are protected, the International Monetary Fund has cobbled together a recommendation that resonates, reiterates and reeks of the US line: spend, spend, spend.
I had pointed out yesterday how the US is pressuring the world in general, and G20 that meets in London on April 2 in particular, to mimic its policies, ostensibly to get an even response globally to a situation that’s global. This, I said, won’t work because each country is structurally different.
My warning as a result: “Some of the tensions in G20 — between emerging economies and the emerged, between US-UK and Continental Europe led by France, between US and China and among fringe groups — are because of differences like these between countries. And while domestic political pressure on leaders of all G20 countries is the same (get the economy back on track, now), expecting all economies to behave the same way under the broadsword of the same solutions through a magnified geopolitical pressure on the same leaders is going to prove counterproductive.”
We saw the first murmurs of this discontent, muffled as it was, today as EU leaders resisted calls for new spending.
Blog post on Cutting the Edge
I had pointed out yesterday how the US is pressuring the world in general, and G20 that meets in London on April 2 in particular, to mimic its policies, ostensibly to get an even response globally to a situation that’s global. This, I said, won’t work because each country is structurally different.
My warning as a result: “Some of the tensions in G20 — between emerging economies and the emerged, between US-UK and Continental Europe led by France, between US and China and among fringe groups — are because of differences like these between countries. And while domestic political pressure on leaders of all G20 countries is the same (get the economy back on track, now), expecting all economies to behave the same way under the broadsword of the same solutions through a magnified geopolitical pressure on the same leaders is going to prove counterproductive.”
We saw the first murmurs of this discontent, muffled as it was, today as EU leaders resisted calls for new spending.
Blog post on Cutting the Edge
Saturday, March 28, 2009
4 days to G20: children have some advice for leaders
Finally, the single most important reason why G20 must solve the ongoing credit crisis: children.
BBC has an excellent story on how the crisis is affecting children in three schools in Glasgow, Islamabad and Mbabane.
“In future we think there will be fewer scholarships,” say students of Waterford Kamhlaba United World College in Mbabane, Swaziland.
“We have given up hobbies such as dance classes and sports as we simply can’t afford them anymore,” say students of St Ninian’s High School in Glasgow, UK.
“We would show the G20 leaders beggars in search of food in garbage disposals, filthy canals and along pedestrian tracks,” say students of Islamabad Convent School in Islamabad, Pakistan.
Mallika, 16, a student of Springdales School in New Delhi says: “The people who have had to bear the brunt are those who do not have steady jobs or income. Many of those below the poverty line are not receiving even a minimum wage. These are the people I would introduce to the G20 leaders because they reflect the true effects of the economic crisis. People who can barely afford a meal for their families on a daily basis.”
Blog post on Cutting the Edge
BBC has an excellent story on how the crisis is affecting children in three schools in Glasgow, Islamabad and Mbabane.
“In future we think there will be fewer scholarships,” say students of Waterford Kamhlaba United World College in Mbabane, Swaziland.
“We have given up hobbies such as dance classes and sports as we simply can’t afford them anymore,” say students of St Ninian’s High School in Glasgow, UK.
“We would show the G20 leaders beggars in search of food in garbage disposals, filthy canals and along pedestrian tracks,” say students of Islamabad Convent School in Islamabad, Pakistan.
Mallika, 16, a student of Springdales School in New Delhi says: “The people who have had to bear the brunt are those who do not have steady jobs or income. Many of those below the poverty line are not receiving even a minimum wage. These are the people I would introduce to the G20 leaders because they reflect the true effects of the economic crisis. People who can barely afford a meal for their families on a daily basis.”
Blog post on Cutting the Edge
Friday, March 27, 2009
5 days to G20: the debate gets dirty
The undercurrents at G20 just got public and the London Summit just got racist. Standing next to UK Prime Minister Gordon Brown, the Brazilian President Luiz Inacio “Lula” da Silva brought the black-brown-white frustrations on the global finance table.
“This crisis was caused by no black man or woman or by no indigenous person or by no poor person,” Lula said after talks with the prime minister in Brasilia to discuss next week’s G20 summit in London, Guardian reported.
“This crisis was fostered and boosted by irrational behaviour of some people that are white, blue-eyed. Before the crisis they looked like they knew everything about economics, and they have demonstrated they know nothing about economics.”
Lula’s irritation with bankers is understandable and justified. What’s not acceptable is for the leader of the world’s 10th largest economy, someone who seeks to drive the global finance agenda through greater vote share in institutions like the IMF to turn the London Summit into something so small, so trite, so disgusting.
Lula said he did not know a single black banker. Well, I know several who are brown — and all of them are their by the sheer power of merit (you can condemn the direction of that merit, the use it’s been put to and so on). Using probability theory, I am confident that there will be several black. Some of them may even be part of the bonus-maximising herd that ignored risk and brought global finance and through it the real economies of many economies, including Lula’s Brazil, to its knees.
Whatever else Lula maybe, I would fear to put something as sensitive and as powerful as global finance into his hands. I’m glad he’s not driving the agenda and a black man is.
Blog post on Cutting the Edge
“This crisis was caused by no black man or woman or by no indigenous person or by no poor person,” Lula said after talks with the prime minister in Brasilia to discuss next week’s G20 summit in London, Guardian reported.
“This crisis was fostered and boosted by irrational behaviour of some people that are white, blue-eyed. Before the crisis they looked like they knew everything about economics, and they have demonstrated they know nothing about economics.”
Lula’s irritation with bankers is understandable and justified. What’s not acceptable is for the leader of the world’s 10th largest economy, someone who seeks to drive the global finance agenda through greater vote share in institutions like the IMF to turn the London Summit into something so small, so trite, so disgusting.
Lula said he did not know a single black banker. Well, I know several who are brown — and all of them are their by the sheer power of merit (you can condemn the direction of that merit, the use it’s been put to and so on). Using probability theory, I am confident that there will be several black. Some of them may even be part of the bonus-maximising herd that ignored risk and brought global finance and through it the real economies of many economies, including Lula’s Brazil, to its knees.
Whatever else Lula maybe, I would fear to put something as sensitive and as powerful as global finance into his hands. I’m glad he’s not driving the agenda and a black man is.
Blog post on Cutting the Edge
Thursday, March 26, 2009
6 days to G20: a new paper tells Obama what to do
A March 20, 2009 paper from Yale has tips for Obama to negotiate this crisis. Written by Michael S. Solender, a senior research scholar and visiting lecturer at Yale Law School, How the Obama Administration Should Regulate the Financial Sector puts forth five key attributes that US regulators should have. These are:
1. The right people, which could be those with industry experience — this is something Indian regulators desperately need. In India, the only financial regulator with industry experience is C.B. Bhave, chairman, Securities and Exchange Board of India; the others are bureaucrats.
2. Enough access to the companies and their employees. “No matter how capable or experienced the personnel employed by the regulatory agency, a regulator is unlikely to be able to obtain information and avert problems and crises without sustained and meaningful access to the regulated companies and their personnel.”
3. Enough information that regulators should maximise. “This will require achieving the proper balance between robust enforcement of the law and creating the proper incentives for those they regulate.”
4. Creation of an internal brain trust “to accumulate information acquired from individual companies and industries and make comparisons between companies and across industries, looking for trends and warning signs.”
5. Creation of a rapid action team empowered to act quickly in a financial emergency. “The team should draw upon different skill sets — attorneys, economists, examiners, and policymakers — and from personnel from the different financial regulatory agencies.”
I like what I read.
Blog post on Cutting the Edge
1. The right people, which could be those with industry experience — this is something Indian regulators desperately need. In India, the only financial regulator with industry experience is C.B. Bhave, chairman, Securities and Exchange Board of India; the others are bureaucrats.
2. Enough access to the companies and their employees. “No matter how capable or experienced the personnel employed by the regulatory agency, a regulator is unlikely to be able to obtain information and avert problems and crises without sustained and meaningful access to the regulated companies and their personnel.”
3. Enough information that regulators should maximise. “This will require achieving the proper balance between robust enforcement of the law and creating the proper incentives for those they regulate.”
4. Creation of an internal brain trust “to accumulate information acquired from individual companies and industries and make comparisons between companies and across industries, looking for trends and warning signs.”
5. Creation of a rapid action team empowered to act quickly in a financial emergency. “The team should draw upon different skill sets — attorneys, economists, examiners, and policymakers — and from personnel from the different financial regulatory agencies.”
I like what I read.
Blog post on Cutting the Edge
Wednesday, March 25, 2009
7 days to G20: Obama writes an agenda strengthening op-ed
Surprising for a superpower that still believes it leads a unipolar world, US President Barack Obama’s March 24, 2009 op-ed published in 31 newspapers was free of arrogance. Whether that’s a recognition of the emergence of a multi-polar world a quarter of a century down the road or whether that’s a true spirit of cooperation that Obama hopes to usher in following the country’s Bush-led isolation, we will know some day.
His prime focus, as he has spoken about earlier, remains the same: “Our efforts must begin with swift action to stimulate growth.” That to him means fiscal stimulus, which not all G20 members would be able to afford. Obama urged the G20 to “embrace” open trade and investment and resist protectionism.
Protectionism is something that Prime Minister Manmohan Singh too had laid out strongly, and India was probably the first to flag the issue, during the Washington meet on November 15, 2008. Subsequently, it became part of the Washington Declaration — under Point No 13 and as part of G20’s commitment to an open global economy, the G20 leaders put out this rather brave statement, which subsequently, as we all know, was thrown in bin on the way out.
“We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome.”
Blog post on Cutting the Edge
His prime focus, as he has spoken about earlier, remains the same: “Our efforts must begin with swift action to stimulate growth.” That to him means fiscal stimulus, which not all G20 members would be able to afford. Obama urged the G20 to “embrace” open trade and investment and resist protectionism.
Protectionism is something that Prime Minister Manmohan Singh too had laid out strongly, and India was probably the first to flag the issue, during the Washington meet on November 15, 2008. Subsequently, it became part of the Washington Declaration — under Point No 13 and as part of G20’s commitment to an open global economy, the G20 leaders put out this rather brave statement, which subsequently, as we all know, was thrown in bin on the way out.
“We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome.”
Blog post on Cutting the Edge
Tuesday, March 24, 2009
8 days to G20: it’s raining recommendations — 101 and counting
Speaking only of official recommendations — that is, suggestions made by governments or regulators of G20 and not think tanks or economists — I have with me a master list that has crossed a century. Taking the 126 page The Turner Review, published by UK’s Financial Services Authority on March 18, 2009, which adds 32 of its own (listed at the bottom of this post), the total number of sovereign suggestions stands at 101 — and counting. Here’s the timeline.
First came the November 15, 2008 Washington Declaration that listed out six broad policy responses, five common principles of reform and request to the G20 finance ministers to formulate six additional recommendations. The rather overstated “action plan to implement principles for reform” had 47 — repeat forty-seven — recommendations.
Then came the communiqué that the finance ministers put together on March 14, 2009. “We agreed further action to restore global growth and support lending, and reforms to strengthen the global financial system,” the communiqué stated. All told, eight new “further actions” were suggested across two themes — restoring global growth and strengthening the financial system.
The March 19, 2009 leak of Macroeconomic Stability and Financial Regulation: Key Issues for the G20 — the final report of the first of the three working groups set up before the G20 meet — to breakingviews.com followed next. This contains 24 recommendations, which while put together the various issues that leaders of G20 will be confronting in the April 2, 2009 meeting, have accountability missing.
And now, The Turner Review — a product of FSA chairman Lord Turner who was asked by the UK’s Chancellor of the Exchequer to review the events that led to the financial crisis and to recommend reforms — which has been critiqued by some economists who call it “flawed”.
Blog post on Cutting the Edge
First came the November 15, 2008 Washington Declaration that listed out six broad policy responses, five common principles of reform and request to the G20 finance ministers to formulate six additional recommendations. The rather overstated “action plan to implement principles for reform” had 47 — repeat forty-seven — recommendations.
Then came the communiqué that the finance ministers put together on March 14, 2009. “We agreed further action to restore global growth and support lending, and reforms to strengthen the global financial system,” the communiqué stated. All told, eight new “further actions” were suggested across two themes — restoring global growth and strengthening the financial system.
The March 19, 2009 leak of Macroeconomic Stability and Financial Regulation: Key Issues for the G20 — the final report of the first of the three working groups set up before the G20 meet — to breakingviews.com followed next. This contains 24 recommendations, which while put together the various issues that leaders of G20 will be confronting in the April 2, 2009 meeting, have accountability missing.
And now, The Turner Review — a product of FSA chairman Lord Turner who was asked by the UK’s Chancellor of the Exchequer to review the events that led to the financial crisis and to recommend reforms — which has been critiqued by some economists who call it “flawed”.
Blog post on Cutting the Edge
Monday, March 23, 2009
9 days to G20: China likely to get influence support from Down Under…and other stories
Today, Australian Prime Minister Kevin Rudd pressed for a greater role of China in International Monetary Fund (IMF) as a prelude to the G20 meeting on April 2. With this, the first step in reforming this multilateral institution has been taken. That step is to give a greater voice to borrower countries that are poorer than the wealthy nations that lend to the bank.
On its part, China is ready to take the reins. According to a Reuters report filed today, the country’s vice foreign minister He Yafei “told reporters that Beijing would press for reform of international financial institutions with a view to giving a bigger voice for developing countries.”
A November 2006 paper by Brock Blomberg of Claremont McKenna College and J. Lawrence Broz of University of California, San Diego, explores this conflict. Titled, The Political Economy of IMF Voting Power, this short paper is insightful as much as it is mathematical.
“The IMF’s membership is now divided into two blocs: rich country “creditors” that provide the lion’s share of IMF resources, and poor country “borrowers” that draw upon the Fund for financial assistance and are subject to its policy conditionality,” the paper says. “This division creates tensions around governance issues and voting power because rich country creditors have different interests regarding the terms and conditions of IMF lending, and are sceptical about ceding greater control to developing country borrowers. To oversimplify, developing countries favour quota increases and less conditionality since they are more dependent on the IMF for payments financing and more vulnerable to financial crises. Industrial countries resist quota increases and favour increased conditionality and surveillance since they have access to private credit markets to finance deficits and do not rely on the IMF for support (as it was the case in the 1960s and 1970s).”
Blog post on Cutting the Edge
On its part, China is ready to take the reins. According to a Reuters report filed today, the country’s vice foreign minister He Yafei “told reporters that Beijing would press for reform of international financial institutions with a view to giving a bigger voice for developing countries.”
A November 2006 paper by Brock Blomberg of Claremont McKenna College and J. Lawrence Broz of University of California, San Diego, explores this conflict. Titled, The Political Economy of IMF Voting Power, this short paper is insightful as much as it is mathematical.
“The IMF’s membership is now divided into two blocs: rich country “creditors” that provide the lion’s share of IMF resources, and poor country “borrowers” that draw upon the Fund for financial assistance and are subject to its policy conditionality,” the paper says. “This division creates tensions around governance issues and voting power because rich country creditors have different interests regarding the terms and conditions of IMF lending, and are sceptical about ceding greater control to developing country borrowers. To oversimplify, developing countries favour quota increases and less conditionality since they are more dependent on the IMF for payments financing and more vulnerable to financial crises. Industrial countries resist quota increases and favour increased conditionality and surveillance since they have access to private credit markets to finance deficits and do not rely on the IMF for support (as it was the case in the 1960s and 1970s).”
Blog post on Cutting the Edge
Sunday, March 22, 2009
10 days to G20: a reading list that hopes to change the world
If you’ve been visiting my blog over the past week, when it turned daily, you would broadly know the issues confronting the heads of the 20 most powerful nations on earth today — how to get their economies going. That is, how to get banks to lend, industry to invest and households to buy, well, houses. So complex has the debate around resolving this global financial crisis (the first for this generation), so vested the interests (of countries, of bankers, of companies) and so wide and deep the consequences (from the US and Europe through Asia to Africa), that it has moved from global boardrooms to our bedrooms.
Nobody knows for sure how to resolve this crisis. Not economists, not policymakers, not politicians — and certainly not the bankers. But all are trying. Here’s what they are saying. More will follow over the next week.
1. The Washington Declaration. The story of the London Summit began with the Washington meet in November 2008. This November 15 statement from the heads of the G20 nations explored the causes of the financial crisis and listed out the “actions taken” and “to be taken”. They put together the common principles for reform of financial markets that included regulation, international regulatory cooperation, strengthening of international standards and their consistent implementation. They listed out five common principles for reform — strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international cooperation and reforming international financial institutions.
Blog post on Cutting the Edge
Nobody knows for sure how to resolve this crisis. Not economists, not policymakers, not politicians — and certainly not the bankers. But all are trying. Here’s what they are saying. More will follow over the next week.
1. The Washington Declaration. The story of the London Summit began with the Washington meet in November 2008. This November 15 statement from the heads of the G20 nations explored the causes of the financial crisis and listed out the “actions taken” and “to be taken”. They put together the common principles for reform of financial markets that included regulation, international regulatory cooperation, strengthening of international standards and their consistent implementation. They listed out five common principles for reform — strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international cooperation and reforming international financial institutions.
Blog post on Cutting the Edge
Saturday, March 21, 2009
11 days to G20: 24 recommendations but no breakthrough
For those looking at a sneak preview of what’s to come in the London Summit of G20 on April 2, breakingviews.com has a leak.
“The G20 blueprint programme, a copy of which has been obtained by breakingviews.com, is largely a statement of principles,” said Hugo Dixon, the website’s editor in chief and chairman. “The scheme will have to be blessed when the leaders meet in April. Detailed numbers and regulatory mechanisms will then need to be worked out in the coming months.”
I waded through the “scheme” and tried to figure out just what’s in store. My conclusion: more of what we already know, much of what we already expect, lots of holy-sounding noises but nothing revolutionary, and maybe, just maybe, the first step in the creation of a new global financial order. Here’s a quick analysis of what the report’s 24 recommendations mean.
“Recommendation 1: As a supplement to their core mandate, the mandates of all national financial regulators, central banks, and oversight authorities, and of all international financial bodies and standard setters, should take account of financial system stability.”
My view: Of course! Stability, after all, is the new keyword, the overarching word of global finance today.
Blog post on Cutting the Edge
“The G20 blueprint programme, a copy of which has been obtained by breakingviews.com, is largely a statement of principles,” said Hugo Dixon, the website’s editor in chief and chairman. “The scheme will have to be blessed when the leaders meet in April. Detailed numbers and regulatory mechanisms will then need to be worked out in the coming months.”
I waded through the “scheme” and tried to figure out just what’s in store. My conclusion: more of what we already know, much of what we already expect, lots of holy-sounding noises but nothing revolutionary, and maybe, just maybe, the first step in the creation of a new global financial order. Here’s a quick analysis of what the report’s 24 recommendations mean.
“Recommendation 1: As a supplement to their core mandate, the mandates of all national financial regulators, central banks, and oversight authorities, and of all international financial bodies and standard setters, should take account of financial system stability.”
My view: Of course! Stability, after all, is the new keyword, the overarching word of global finance today.
Blog post on Cutting the Edge
Friday, March 20, 2009
12 days to G20: IMF’s spend-your-way-out-of-the-crisis recommendations are best ignored
In its predictable conclusion-first-analysis-later approach when it comes to ensuring that the interests of its key stakeholder, the US, are protected, the International Monetary Fund has cobbled together a recommendation that resonates, reiterates and reeks of the US line: spend, spend, spend.
I had pointed out yesterday how the US is pressuring the world in general, and G20 that meets in London on April 2 in particular, to mimic its policies, ostensibly to get an even response globally to a situation that’s global. This, I said, won’t work because each country is structurally different.
My warning as a result: “Some of the tensions in G20 — between emerging economies and the emerged, between US-UK and Continental Europe led by France, between US and China and among fringe groups — are because of differences like these between countries. And while domestic political pressure on leaders of all G20 countries is the same (get the economy back on track, now), expecting all economies to behave the same way under the broadsword of the same solutions through a magnified geopolitical pressure on the same leaders is going to prove counterproductive.”
We saw the first murmurs of this discontent, muffled as it was, today as EU leaders resisted calls for new spending.
Blog post on Cutting the Edge
I had pointed out yesterday how the US is pressuring the world in general, and G20 that meets in London on April 2 in particular, to mimic its policies, ostensibly to get an even response globally to a situation that’s global. This, I said, won’t work because each country is structurally different.
My warning as a result: “Some of the tensions in G20 — between emerging economies and the emerged, between US-UK and Continental Europe led by France, between US and China and among fringe groups — are because of differences like these between countries. And while domestic political pressure on leaders of all G20 countries is the same (get the economy back on track, now), expecting all economies to behave the same way under the broadsword of the same solutions through a magnified geopolitical pressure on the same leaders is going to prove counterproductive.”
We saw the first murmurs of this discontent, muffled as it was, today as EU leaders resisted calls for new spending.
Blog post on Cutting the Edge
Thursday, March 19, 2009
13 days to G20: set broad principles, leave detailing to sovereigns
When a herd runs, it doesn’t differentiate whether it’s plains or plateaus, trees or shrubs, calves or bulls. In a frenzied panic, it tramples just about anything and anyone. The herd in financial markets is no different. And if the ongoing credit crisis is to be seen from a distance, when the participants are the mightiest of the mighty (the world’s largest banks, the world’s largest investment banks, the world’s largest governments, the world’s largest dealmakers), the herd is the very face of destruction.
Countries, companies and individuals that had absolutely nothing to do with the crisis are suffering the aftermath of loose regulation and looser morals of executives who helped lobby and create the deregulated financial atmosphere even as they collected — and continue to collect — their million-dollar bonuses.
The US Congress’ proposal to tax the bonuses of Wall Street at the rate of 90 per cent yesterday is the one sane act in a sea of chaos where even now executives are playing the profiteering game by getting taxpayers to sign their seven-digit bonuses — well done, Obama.
The herd is blind and will remain so. It was blind on the way up, as the high tide of excess liquidity lifted markets across the world, altogether, irrespective of the underlying. Then, everyone thought Russia’s oil, Pakistan’s low economic base, Chile’s commodities, South Korea’s diversified manufacturing, Brazil’s mines, China’s Olympics and India’s infrastructure potential, were opportunities that wouldn’t come again, at least for the next few millenniums.
Now, with liquidity almost dry, a reversal is underway — harsh, sweeping, bloody.
Blog post on Cutting the Edge
Countries, companies and individuals that had absolutely nothing to do with the crisis are suffering the aftermath of loose regulation and looser morals of executives who helped lobby and create the deregulated financial atmosphere even as they collected — and continue to collect — their million-dollar bonuses.
The US Congress’ proposal to tax the bonuses of Wall Street at the rate of 90 per cent yesterday is the one sane act in a sea of chaos where even now executives are playing the profiteering game by getting taxpayers to sign their seven-digit bonuses — well done, Obama.
The herd is blind and will remain so. It was blind on the way up, as the high tide of excess liquidity lifted markets across the world, altogether, irrespective of the underlying. Then, everyone thought Russia’s oil, Pakistan’s low economic base, Chile’s commodities, South Korea’s diversified manufacturing, Brazil’s mines, China’s Olympics and India’s infrastructure potential, were opportunities that wouldn’t come again, at least for the next few millenniums.
Now, with liquidity almost dry, a reversal is underway — harsh, sweeping, bloody.
Blog post on Cutting the Edge
Wednesday, March 18, 2009
14 days to G20: no space for a common global financial regulator
As the world — well about 85 per cent of it, if you add up the collective GDPs of the 20 countries that comprise G20, which meets on April 2 in London to take coordinated action against the ongoing credit crisis — gives regulation of financial products a new global rethink, Dani Rodrik of Harvard throws in a warning: a common global regulator won’t work.
In a well argued piece in The Economist, Rodrik says that the logic of global financial regulation is flawed. “The world economy will be far more stable and prosperous with a thin veneer of international cooperation superimposed on strong national regulations than with attempts to construct a bold regulatory and supervisory framework.”
The issue is tricky and views are strongly divided. On the one hand is the sovereign right of countries to make rules and implement them within their domains. Accepting a global regulator will be seen to be a needless meddling in domestic affairs.
Howsoever democratic the global regulator be in terms of representation, staffing or execution, and howsoever equal that representation (I presume it won’t create the mess like the UN has through the formation of false institutions like the Security Council), a compromised sovereignty will constantly loom in the background, providing political fodder to opposition parties in all G20 countries, except China that doesn’t have one.
All countries enjoy the benefits of global finance — as long as the money flows into the countries (though not too far back, some like India were scared of those inflows) — as the money comes in and sets the wheels of industry and households in motion through their holy intercourse with markets. And that’s the way it should be.
Blog post on Cutting the Edge
In a well argued piece in The Economist, Rodrik says that the logic of global financial regulation is flawed. “The world economy will be far more stable and prosperous with a thin veneer of international cooperation superimposed on strong national regulations than with attempts to construct a bold regulatory and supervisory framework.”
The issue is tricky and views are strongly divided. On the one hand is the sovereign right of countries to make rules and implement them within their domains. Accepting a global regulator will be seen to be a needless meddling in domestic affairs.
Howsoever democratic the global regulator be in terms of representation, staffing or execution, and howsoever equal that representation (I presume it won’t create the mess like the UN has through the formation of false institutions like the Security Council), a compromised sovereignty will constantly loom in the background, providing political fodder to opposition parties in all G20 countries, except China that doesn’t have one.
All countries enjoy the benefits of global finance — as long as the money flows into the countries (though not too far back, some like India were scared of those inflows) — as the money comes in and sets the wheels of industry and households in motion through their holy intercourse with markets. And that’s the way it should be.
Blog post on Cutting the Edge
Tuesday, March 17, 2009
15 days to G20: can India grab its geopolitical moment?
If experts are to be believed, China is the emerging global strategic power. But India has a strategic opportunity starting it in the face. The question is: can it grab it?
As geopolitics has evolved from the “age of sails” through the “age of space” to “the age of wealth” and conquest is now for the mind of the global consumer — a large chunk of which lies outside any national border — the severe meltdown of the developed economies has lightened their strategic weight.
In a brilliant article in Foreign Affairs (a must-read journal for anyone with more than a casual interest in strategic issues), Roger C. Altman, US deputy treasury secretary in 1993-94 argues that the crash of 2008 is “a geopolitical setback for the West”. You can read part of that piece here, the rest is unfortunately paid.
“This movement,” he argues “also reflects the rapid rise of other economies, especially China and India. The US share of world GDP has been declining for seven years before the financial crisis hit. And it looks increasingly likely that China’s GDP will surpass the US’ at some point during the next 25-30 years.”
Blog post on Cutting the Edge
As geopolitics has evolved from the “age of sails” through the “age of space” to “the age of wealth” and conquest is now for the mind of the global consumer — a large chunk of which lies outside any national border — the severe meltdown of the developed economies has lightened their strategic weight.
In a brilliant article in Foreign Affairs (a must-read journal for anyone with more than a casual interest in strategic issues), Roger C. Altman, US deputy treasury secretary in 1993-94 argues that the crash of 2008 is “a geopolitical setback for the West”. You can read part of that piece here, the rest is unfortunately paid.
“This movement,” he argues “also reflects the rapid rise of other economies, especially China and India. The US share of world GDP has been declining for seven years before the financial crisis hit. And it looks increasingly likely that China’s GDP will surpass the US’ at some point during the next 25-30 years.”
Blog post on Cutting the Edge
Monday, March 16, 2009
17 days to G20: look who’s driving the G20 agenda
With anti-protectionist policies on top of G20 finance ministers’ March 14 communiqué, Prime Minister Manmohan Singh and the Congress trouble-shooter and finance minister Pranab Mukherjee can safely claim to have set one line on the global finance agenda.
By keeping pressure on the expansion of Financial Stability Forum (FSF) to include voices from the East and ensuring it happened, once again, the UPA government scored a small brownie: on March 12, a hallowed institution with a hallowed mandate, finally expanded its membership to include “Argentina, Brazil, China, India, Indonesia, Korea, Mexico, Russia, Saudi Arabia, South Africa and Turkey. In addition, Spain and the European Commission will also become FSF members.”
Blog post on Cutting the Edge
By keeping pressure on the expansion of Financial Stability Forum (FSF) to include voices from the East and ensuring it happened, once again, the UPA government scored a small brownie: on March 12, a hallowed institution with a hallowed mandate, finally expanded its membership to include “Argentina, Brazil, China, India, Indonesia, Korea, Mexico, Russia, Saudi Arabia, South Africa and Turkey. In addition, Spain and the European Commission will also become FSF members.”
Blog post on Cutting the Edge
Sunday, March 15, 2009
16 days to G20: will G20 bring solutions?
The new financial high-rise — the foundations of which were laid in Washington DC on November 15 — in which G20 will lay the ground floor in London on April 2, is going to be the world’s biggest economic-diplomacy build up, ever. And already, the builders of what is increasingly being referred to as Bretton Woods II, are divided.
On Saturday, finance minister Pranab Mukherjee scored a small victory for India, when he said India will fight against “protectionist policies” gaining ground globally, particularly in the US, a fight that has taken the issue to the No 1 global revival agenda slot. “We commit to fight all forms of protectionism and maintain open trade and investment,” the G20 finance ministers’ and central bank governors’ March 14 communiqué said.
BRIC nations (Brazil, Russia, India and China) are seeking greater control of International Monetary Fund from developed economies. And among the latter, opinion on how to resolve the crisis is sharply divided between the conservative continental Europe and the apparently adventurous US.
Beyond all that lies a huge constituency comprising six billion households who know very little about what’s going on but are the most affected by the global meltdown. The issue seems to be out of the public consciousness in India — all events of extreme importance from religion to finance seem to end up that way. But nothing is going to be as important for all of us as the conclusions that come out of, or get buried in, the London Summit of G20 that begins 18 days from now, on April 2.
Blog post on Cuting the Edge
On Saturday, finance minister Pranab Mukherjee scored a small victory for India, when he said India will fight against “protectionist policies” gaining ground globally, particularly in the US, a fight that has taken the issue to the No 1 global revival agenda slot. “We commit to fight all forms of protectionism and maintain open trade and investment,” the G20 finance ministers’ and central bank governors’ March 14 communiqué said.
BRIC nations (Brazil, Russia, India and China) are seeking greater control of International Monetary Fund from developed economies. And among the latter, opinion on how to resolve the crisis is sharply divided between the conservative continental Europe and the apparently adventurous US.
Beyond all that lies a huge constituency comprising six billion households who know very little about what’s going on but are the most affected by the global meltdown. The issue seems to be out of the public consciousness in India — all events of extreme importance from religion to finance seem to end up that way. But nothing is going to be as important for all of us as the conclusions that come out of, or get buried in, the London Summit of G20 that begins 18 days from now, on April 2.
Blog post on Cuting the Edge
16 days to G20: will G20 bring solutions?
The new financial high-rise — the foundations of which were laid in Washington DC on November 15 — in which G20 will lay the ground floor in London on April 2, is going to be the world’s biggest economic-diplomacy build up, ever. And already, the builders of what is increasingly being referred to as Bretton Woods II, are divided.
On Saturday, finance minister Pranab Mukherjee scored a small victory for India, when he said India will fight against “protectionist policies” gaining ground globally, particularly in the US, a fight that has taken the issue to the No 1 global revival agenda slot. “We commit to fight all forms of protectionism and maintain open trade and investment,” the G20 finance ministers’ and central bank governors’ March 14 communiqué said.
BRIC nations (Brazil, Russia, India and China) are seeking greater control of International Monetary Fund from developed economies. And among the latter, opinion on how to resolve the crisis is sharply divided between the conservative continental Europe and the apparently adventurous US.
Beyond all that lies a huge constituency comprising six billion households who know very little about what’s going on but are the most affected by the global meltdown. The issue seems to be out of the public consciousness in India — all events of extreme importance from religion to finance seem to end up that way. But nothing is going to be as important for all of us as the conclusions that come out of, or get buried in, the London Summit of G20 that begins 18 days from now, on April 2.
Blog post on Cuting the Edge
On Saturday, finance minister Pranab Mukherjee scored a small victory for India, when he said India will fight against “protectionist policies” gaining ground globally, particularly in the US, a fight that has taken the issue to the No 1 global revival agenda slot. “We commit to fight all forms of protectionism and maintain open trade and investment,” the G20 finance ministers’ and central bank governors’ March 14 communiqué said.
BRIC nations (Brazil, Russia, India and China) are seeking greater control of International Monetary Fund from developed economies. And among the latter, opinion on how to resolve the crisis is sharply divided between the conservative continental Europe and the apparently adventurous US.
Beyond all that lies a huge constituency comprising six billion households who know very little about what’s going on but are the most affected by the global meltdown. The issue seems to be out of the public consciousness in India — all events of extreme importance from religion to finance seem to end up that way. But nothing is going to be as important for all of us as the conclusions that come out of, or get buried in, the London Summit of G20 that begins 18 days from now, on April 2.
Blog post on Cuting the Edge
Sunday, March 1, 2009
Desperately seeking…thinkers
Killing neighbours who until yesterday shared curds and broke bread together. Allowing dogmatism to overrule reason by following fatwas of Islamic clerics or Hindu extremists. Allowing ourselves to be misled by people whose moral credentials are at best suspect. Taking a minor traffic brush as a religious attack and turning rage into a serial killer on roads.
Never before has this trait, this prime differentiator between men and all other species, been needed as much or in as many. Unfortunately, never before has this ability — to think, to arrive at conclusions and take decisions that help take individuals, groups, neighbourhoods, societies, civilisations forward — been so wanting.
In cities, behind the brittle safety of our EMIs, SUVs and digital wealth, we watch this insanity streaming through TV, that while ‘taking us to the event’ pushes us further away, as we transact a vacation on Blackberry during commercial breaks. Under the imagined protection of anomie, we “dissolve restraints on the passions of humans” and turn into a mass of bodies that work, buy and have sex with one another, but remain aloof.
Blog on Cutting the Edge
Never before has this trait, this prime differentiator between men and all other species, been needed as much or in as many. Unfortunately, never before has this ability — to think, to arrive at conclusions and take decisions that help take individuals, groups, neighbourhoods, societies, civilisations forward — been so wanting.
In cities, behind the brittle safety of our EMIs, SUVs and digital wealth, we watch this insanity streaming through TV, that while ‘taking us to the event’ pushes us further away, as we transact a vacation on Blackberry during commercial breaks. Under the imagined protection of anomie, we “dissolve restraints on the passions of humans” and turn into a mass of bodies that work, buy and have sex with one another, but remain aloof.
Blog on Cutting the Edge
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