Gross failure of multilateral controls caused meltdown: Manmohan (Lead)

October 25th, 2008 - 12:03 am ICT by IANS  

Manmohan SinghBeijing, Oct 24 (IANS) Not mincing words before the 45-country Asia-Europe Meeting (ASEM) here, Indian Prime Minister Manmohan Singh Friday forcefully asserted that a “massive failure” of regulatory and supervisory powers had led to the global economic turndown.”Clearly, there had been a massive failure of regulatory and supervisory powers. Speculators have had a free run for too long a period. International institutions like the International Monetary Fund (IMF) have also not covered themselves with glory,” he powerfully argued.

Manmohan Singh, who was specifically listed as the last speaker on the opening day of the conclave because he is seen as having mentored India’s economic reforms and many heads of state wanted to hear the Oxford educated economist on how he perceived the situation and if he could suggest a course correction, was at his eloquent best.

“There has been an unacceptable failure of effective multilateral supervision of major developed economies and in particular, of what has been going on in their financial markets,” the prime minister maintained.

Many of those who heard Manmohan Singh said he made powerful presentation that was listened to with rapt attention.

While pointing out that India’s banking system was sound and capitalized, the prime minister said India could not remain totally unaffected by the economic tsunami.

“Our stock markets and the exchange rate of the rupee are under pressure due to capital outflow of foreign institutional investors. Sooner or later, the economy is bound to experience the pain,” he said.

Pointing out that pragmatic solutions were the order of the day to bail out the world economy, Manmohan Singh 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.

“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 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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