Mumbai: Monetary policies should target productive investment instead of inflation, said Supachai Panitchpakdi, secretary general of United Nations Conference on Trade and Development, or Unctad. He also said banks should restrict markets from facilitating credit, and that markets could not be “left alone even as we believe in markets and capitalization.”
Supachai, who was speaking to the media ahead of delivering the annual commencement day lecture of Export Import Bank of India, said inflation targeting should be done through enhancing supply and not by restricting demand.
‘It’s not the time for India to do demand management but to keep up supply management,” said the former director general of the World Trade Organization.
Calling the post-crisis path “treacherous”, Supachai said a full-fledged recovery is not yet on, and called for global governance and cooperation.
To start with, governments should be wary that “elements of speculations at global commodity levels are going out of hand” with “tremendous liquidity getting pumped in commodities options and derivatives.” Financial asset prices, commodities and derivatives, which normally don’t move together, are increasingly being correlated, he said, because of “financialization of speculation.”
He also cautioned against pre-crisis financial tools, saying they “should not be brought back or maintained.”
“Markets are very efficient in allocating resources but they are not efficient when there is a crisis situation,” he said.
He also called for limiting banking practices. “It is not narrow banking, but banks should limit themselves in their traditional normal commercial banking practice,” he said.
“There should be room for innovations but there should be concomitant rules for regulations too,” he said, adding that over-the-counter derivative products lack the transparency and discipline of a clearing agency.
He predicted that globalization will be driven by Asia. India, he said, needs to cooperate more with other south Asian nations.
Supachai criticized the “lip services” offered by countries at international conferences to free trade, saying, “When they come back home, they do just the opposite (go for protectionism).”