Economies need global monitoring agency: Manmohan Singh

October 24th, 2008 - 10:40 pm ICT by IANS  

Manmohan SinghBeijing, Oct 24 (IANS) Underscoring the immediate task before countries hit by the financial tsunami, Prime Minister Manmohan Singh Friday said economies the world over should de-clog their credit markets and also suggested that it was time to actively deliberate on a global regulatory body.”Massive failure of regulatory and supervisory mechanism has really been the reason for the present turmoil and if there had been a good regulatory mechanism, this would not have happened,” said Manmohan Singh, who was the concluding speaker at the opening ceremony of the Asia-Europe Meeting (ASEM) that kicked off here.

“The reform or reconstruction of financial system has to be a collective international effort since borders no longer confine financial institutions or can keep out financial turmoil,” he said as Asian stock markets continued to take a beating for another day.

This is the first summit of Asian leaders since bank failures, plunging stock markets and weakening currencies amplified fears that the world is headed for a protracted economic decline.

“Given the growth in cross-border investment, trade and banking in the last three decades, the world must ponder over the need for a global monitoring authority to promote global supervision and cooperation in the increasingly integrated world we live in,” Manmohan Singh maintained.

Identifying three reasons for the global financial crisis, the prime minister said it was primarily because of a regulatory and supervisory failure in developed countries, a failure of the risk management mechanism in private financial institutions and a failure of the market discipline mechanism.

Quoting economist John Keynes for the second time on this trip, Manmohan Singh said: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done.”

From the standpoint of developing countries, international financial institutions, particularly the IMF and the International Bank for Reconstruction and Development (IBRD), Manmohan Singh said there was an immediate need to put in place exogenous facilities to provide additional assistance more quickly and in large amounts, with “less service conditionality and greater flexibility”.

“Globalization without a global financial governance structure can lead to severe problems as has been seen in the recent turmoil,” the prime minister contended.

Many leaders here want China to play a major role in this unprecedented crisis as it is seen as a key to this global response because it has the world’s fastest-growing major economy and $1.9 trillion of currency reserves.

The prime minister said as a counter cyclical device, increased infrastructure investments in developing countries, if backed by increased resource flows from multinational financial institutions such as the IBRD and the Regional Development Banks, could act as a powerful stabilizer.

“The IMF should revisit the potentially powerful instrument of creating liquidity through fresh allocation of Special Drawing Rights in favour of multilateral development financial institutions,” Manmohan Singh added.

The two-day Asia-Europe Meeting also saw Chinese President Hu Jintao and French President Nicolas Sarkozy making forceful presentations.

According to Indian foreign ministry officials, Sarkozy was critical of the credit rating agencies and wanted both Asian and European countries to come out with specific steps so that there could be action points for the G-20 summit in Washington next month.

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