What Now? On the Global Financial Crisis

Photo Caption: "TV taping of France 24 Debate TVprogram, discussing global perspective on the recovery stage of this globalfinancial crisis.  Main guest was WB President Robert Zoellick". 1:00PM, Oct. 2, 2009, Istanbul Convention Center, Istanbul Turkey

 What Now? On the Global Financial Crisis

FrenchTV Program  France 24 Debate hosted the public forum.  Guests included, WB President Robert Zoellick, Paul Courierfrom Oxford University, the Mexican Central Bank Governor, and the Minister ofInvestments and Trade from Egypt. 

            The90 minute program discussed the political social and economic developmentmodels that are unfolding during this recovery stage of the global financialcrisis.  Notable discussion pointscentered on the i) food crisis, ii) the emerging financial landscapes, iii)continuing state roles and interventions, iv) targeting  the “Bottom Billion” out of the crisisand poverty and v) changes in the WB-IMF roles in these landscapes.

            Generally,the panel felt that even while we recognize that recovery is on the way,self-congratulations are still early. The correct sentiment appears to be that while state interventions,particularly the Central Banks, have played key roles in managing the crisisand directing the path towards recovery, the direction can still be describedas “going into unchartered territories”. In fact, the panelists agree that not all of the interventions were goodor effective, and some have even created additional problems. 

      Interms of the food crisis, there was universal agreement that this seems to be aworse crisis impacting on the poor, particularly in developing countries, butmost notably in several African countries. One interesting comment from PaulCourier, is his assertion that the food crisis can look at two internationalpolicies that may have caused it – the anti-GMO policy in Europe and the shiftof agricultural crops to Bio-energy in the USA

      Aboutthe emerging financial landscapes, the answer appears to be uncertain.  The panelists said they are not totallysure, but we know that there are some proposed solutions that we need to betested - state interventions in regulating the markets is one of these.  Another is balancing the stimuluspackages with safety nets.  Theypointed out that one difference between the “emerging markets” crisis in late90s and this global financial crisis is that the emerging markets did not havedomestic financial crisis at that time, wherein now, we are seeing this.   One important lesson that shouldnot be overlooked is that domestic demand and domestic consumption must be keptin sustainable levels in the recovery stage and that the stimulus packages mustensure that these are realized. Relatedly, the panel also stated that the old paradigms, e.g. “too bigto fail” have created “financial zombies”, and thus have to be weeded out.  The reference seem to point to privatesector banking and financial institutions that have been bailed out by stateintervention.  Another factor beingincluded in the equation is China. Currently, it appears that the main indicator would be  “-is China growing fast enough?” and“is Chinese domestic consumption growing?”.

            Regarding the changing roles of WB and IMF, Zoellickagreed that the Bank needs to adjust its roles in the new emerging developmentlandscapes.  These adjustmentsinclude aspects of internal (improving or changing Bank policies) andexternal  (confronting governanceand transparency issues among governments and increasing the Bank’s investmentin global issues (e.g. climate change). Mr. Zoellick also pointed out that one innovation they have tried is tocreate investment platforms so that [Pension Funds/Sovereign Funds/Oil Rents]can be invested in “developing countries” and “emerging” markets.  The idea is the make these emergingmarkets solid potential markets, that will drive up demand andconsumption.  He lamented thatwhat’s missing are institutions that can facilitate investment flow and marketdevelopment, and so the WB has taken this as a central role. The specific caseof regional integration of Africa, came out as a particular example.

On targeting the “Bottom Billion”,there is urgent need to get the “Bottom Billion” into the developmentmainstream.  The “Bottom Billion”refers to the billion people who live below the poverty line, and areconsidered most at risk to the impacts of the three crises – food crisis,climate crisis and the global financial crisis.  One evidence of this vulnerability is reflected in thefinancial investments indicators, where this figure decreased domestically inthe “Bottom Billion” countries, and this exacerbated the impacts of thefinancial crisis.  A good exampleis the credit crunch in national economies that is negatively impacting on commoditiesand prices, and thus directly impacting small farmers and entrepreneurs.

            Inconclusion, the panel felt that i) “market forces” will not be solely adequateto sustain the recovery and bail out the Bottom Billion, ii) state roles andinterventions are critical, but especially in providing “safety nets” and iii)governance and corruption remain to be critical issues in the recovery stage