Update 2009: The New Economic Era
Wednesday 28th January 2009 - 9:00am - 10:15am
Update 2009: The New Economic Era
• Justin Yifu Lin • Trevor Manuel • Stephen S. Roach • Ferit F. Sahenk • Heizo Takenaka
• Michael J. Elliott
Wednesday 28 January
Better and tighter international coordination of economic policy through a strengthened multilateral system and a firm rejection of protectionism offer the best routes to overcoming the most serious global economic crisis since World War II, the 39th World Economic Forum Annual Meeting heard.
Developing countries will not be spared the impact of the crisis; all are going to experience sharp slowdowns or even recessions similar to those being felt in the more economically rich countries, the panel agreed. Fiscal stimulus packages being adopted by many countries, including the United States, are important, but they may not be enough to end the economic gloom. In fact, there is a risk that all this fiscal intervention “will lead to naught,” warned
Trevor Manuel, Minister of Finance of South Africa.
“We cannot underestimate the challenges and the dangers that we face in 2009,” said
Stephen S. Roach, Chairman, Asia, Morgan Stanley, Hong Kong SAR. “We are in a global recession the likes of which we have never seen. But there is no quick fix.”
Contraction in US consumer demand, a key driver of global growth, may be far from touching bottom, while China’s economic expansion is slowing. The global economy will grow only about 2.5% over the next three years, which amounts to a “near recession”, he added. Next year may see some anaemic growth, but it will not become a building block for further growth “without fixing the financial system and dealing with unsustainable global imbalances,” Roach warned.
But even Roach’s outlook is too rosy for
Heizo Takenaka, Director, Global Security Research Institute, Keio University, Japan. “He is more optimistic than I am,” said Takenaka, a Member of the Foundation Board of the World Economic Forum and Co-Chair, Global Agenda Council on the Future of Japan.
Justin Yifu Lin, Senior Vice-President, Development Economics and Chief Economist, World Bank, Washington DC, called for better coordination of fiscal measures. “The whole world is a closed economy. Fiscal stimuli will not work if they are not coordinated,” he said. But developing countries face resource restraints and there must be some transfer of resources from the richer to the poorer countries if this coordination is going to be effective.
To be effective, a multilateral financial entity needs teeth, said Roach. “The problem is that there is no enforcement mechanism, no penalties for bad behaviour. Nobody wants to relinquish national authority.” Without a multilateral entity “that can bark and bite, we will get nowhere,” he said.
Such a multilateral entity also needs to be able to point out to countries where they are going wrong, noted Manuel. Developing countries, particularly in Africa, are already facing a sharp slowdown in foreign direct investment, the minister added. In Democratic Republic of Congo (DRC) alone, 48 mining projects have been abandoned as investors are withdrawing. “The short-term projection for Africa is very difficult,” he said.
For Roach, it is vital to find a mechanism for putting a value on “toxic” bank assets because only then will it be possible to assess balance sheet risk. Takenaka opposed nationalization and preferred capital injections.
Several panellists expressed concern that fiscal incentive measures being adopted by various countries may develop into protectionism. They questioned US plans to aid its struggling automotive industry. A rescue may amount to protectionism, Takenaka said, adding that the Japanese system of managed bankruptcy could offer an acceptable alternative.
“It is easy to point fingers at the United States . . . but we all enjoyed the benefits of globalization. Let us stop blaming people. What is important is collective action,” said
Ferit F. Sahenk, Chairman, Dogus Group, Turkey and a Young Global Leader. “Transparency is what is needed for confidence to come back.”
Michael J. Elliott, Editor, Time International, Time Magazine, USA, said that the panel had called for reform of the international financial system, without expressing great confidence that it would happen. Similarly, panellists were doubtful that fiscal measures will be enough to restore global economic growth.
• The world is facing unprecedented economic challenges.
• Fiscal packages may not be enough to restore economic growth, but in any case they must be coordinated at an international level.
• The multilateral financial system needs strengthening; it needs real teeth.
Michael J. Elliott
President and Chief Executive Officer, ONE, USA
1972, BA and 1974, BCL, Oxford. Editor, writer and film-maker. Former Faculty: Northwestern Univ.; U...
Member, National Executive Committee, African National Congress (ANC), South Africa
Training in Civil Engineering. Formerly: Community Organizer; 1983-90, Regional Secretary and Nation...
Director, Global Security Research Institute, Keio University, Japan
BA in Economics, Hitotsubashi Univ.; PhD in Economics, Osaka Univ. 1973, with Japan Development Bank...
Stephen S. Roach
Senior Research Fellow, The Jackson Institute for Global Affairs, Yale University, USA
1968, BA, University of Wisconsin, Madison; 1973, PhD in Economics, New York University. 1972-79, St...
Ferit F. Sahenk
Chairman, Dogus Group, Turkey
Bachelor's in Marketing and HR, Boston College; Graduate, Owner-President Mgmt Programme, Harvard. F...
Professor, National School of Development, Peking University
1978, MBA, National Chengchi University; 1982, MA in Political Economy, Peking University; 1986, PhD...