Better global governance needed in 2009: WEF

January 13th, 2009 - 7:09 pm ICT by IANS  

London, Jan 13 (IANS) China will experience a hard landing, rich and poor nations will fight over climate change and gaps will open up in global governance in 2009, the World Economic Forum warned in a gloomy report released Tuesday.Global Risks 2009 also identifies deteriorating fiscal positions and issues relating to natural resources and climate as among pivotal risks facing the world this year.

“Global risks require a multistakeholder response and cannot be appropriately tackled in isolation,” said Sheana Tambourgi, Director and Head of the Global Risk Network at the WEF.

The report predicts that massive government spending to support financial institutions is threatening already precarious fiscal positions in countries such as the US, Britain, France, Italy, Spain and Australia.

“It is dangerous to address immediate concerns without remedying the root causes of the problem, or sowing the seeds of new ones whose impact will not be immediate but may be strongly felt at a later date. The US, for example, is currently running a deficit equivalent of 4.6 percent of its GDP,” it says.

Coupled with this, should China suffer a slowdown in growth to six percent or below this year, the effect would significantly damage the weakening global economy.

The report says there could be more pain to come from the vicious cycle of declining asset values, write-downs, pressure on the capital position of financial institutions and continued deleveraging.

“Selling equities on a massive scale means that markets are flooded with more assets than they can absorb, triggering further price falls which need to be marked to market, and in turn requiring further capital charges.”

John Drzik, CEO of Oliver Wyman, an MMC operating company, said: “There are many lessons we can all learn from the present financial crisis. High among them is the need to embed better risk governance. As the report makes clear, there are several measures both government and corporate leaders can take to ensure they ask the right questions, understand their risk exposures more fully and improve ways of mitigating them.”

The financial crisis has exposed the lack of coordination among policy-makers, regulators and supervisors. The report acknowledges the need for better governance globally but warns against “knee-jerk over-reaction which would increase transaction and compliance costs and ultimately prove ineffective in the face of the next crisis.”

In addition to the immediate risks stemming from the financial crisis, the report also cautions against ignoring interconnected risks related to natural resources, such as water.

It also warns of potential rising tensions between developed and developing countries with respect to climate change policy.

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