Beijing: At the end of a long day at the seventh Asia-Europe summit meeting, as stock markets around the world plunged, Prime Minister Manmohan Singh donned his economist hat and proposed that one solution to the increasingly grave global financial crisis was the need for multilateral financial institutions and lending agencies to pour money into infrastructure projects in developing countries.
Calling for the International Monetary Fund, or IMF, to revisit the issue of special drawing rights (SDRs), the Prime Minister said a fresh allocation of SDRs would reinject liquidity into the market and act as a “powerful stabilizer” in containing the crisis.
Although the US was conspicuous by its absence at the Asem (it is not even an invitee), officials present in the closed door sessions said later that the Beijing summit could well turn out to be one of those watersheds where the baton of economic leadership could pass from Europe to Asia.
“Without exception, every European leader today pointed out that Asia was really where we should look at,” a top official in the ministry of external affairs, N. Ravi, said here today. “They talked about the continuing demand in China as well as the emerging economies in Asia as centres of growth. They pointed out that Asia had not been as badly affected, at least for the time being, as Europe,” he added.
In the new Asia, the Western leaders conceded, Ravi said, it was imperative to “guard against protectionism and stay away from economic nationalism.” The leaders hoped that the Asem summit would send a strong signal to the meeting of developing and developed countries called by President George Bush on 15 November in the US that an action plan to fix the crisis be found.
Asked if the PM would attend the Bush financial summit, Ravi said the decision had not been made. However, Bush had called the PM on the phone and requested him to do so.
The PM, in fact, made concrete suggestions to contain the problem. The first, to declog credit markets around the world and coordinate global action to restore confidence in the stressed out market. Moreover, to ask international financial institutions like the IMF and the IBRD to put in place facilities more quickly and in large amounts, with less service conditionality and greater flexibility.
The PM, Ravi said, pointed out the present crisis was a result of the failure of regulatory mechanisms on financial institutions, a failure of risk management as well as a failure of market discipline mechanisms. He conceded that the world had benefited from globalization, but called for a global restructuring of financial markets and specifically, an accountability of the bad assets that had been accumulated.
French president Nicolas Sarkozy and German chancellor Angela Merkel said there was great need to look at the role of the credit rating agencies in a way that a crisis like this never occurred again.
The PM rounded off his intervention by quoting John Maynard Keynes, the economist who made his reputation during the Great Depression, to prove his point.
“In devising a reform agenda, one must bear in mind the wise saying of JM Keynes regarding the economically damaging role of excessive speculative or innovative activity. To quote Keynes…The position (becomes) serious when enterprise becomes the bubble on a whirlpool of speculation. When the development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done.”