The G-20 party is over and the fun has just started.
Disagreements aside, the mood had turned into hope, even euphoria, as the closing summit communiqué was proclaimed by the British prime minister, Gordon Brown. Indeed, an encouraging vision of solidarity to tackle the prevalent economic despair and create a new order for the international financial system.
Overcoming the stubborn downtrends in global economies was a prerequisite to prevent the dreadful and persistent meltdown of the developed world’s financial system. The leaders had realized that the trillions of currencies injected so far to resuscitate the system had no tangible effect. It was in their national interest to work together to render unity in their resolve and ability to coordinate an action plan to stabilize the current global financial system.
No doubt the world today is in profound economic crisis and, if we don’t get on the right track soon, the result will be crisis within nations which could potentially lead to crises between nations! Consequently, it was Brown’s own efforts to orchestrate the gathering of the G-20 in order to secure pledges by all to participate in the restoration of confidence in order to save the world from an impending economic meltdown. His endeavors were remarkable and the summit concluded on a positive note. As I indicated earlier: Now the fun starts!
There were several carefully worded recommendations made, including the regulation of hedge funds, extra rigorous standards for banks, and a curb on secrecy in tax haven centers. An announcement was also made expanding the role of the International Monetary Fund by adding in excess of a trillion US dollars mainly to support countries with deteriorating economies that were hard hit by the global slowdown, including their currency reserves and banking systems.
Worldwide reaction was one of surprise and positive response. Most global markets closed on the upside as they received the verdict with excitement and enthusiasm. They were simply impressed by the world leaders’ solidarity and determination to tackle the crisis and meet the goals of the summit.
Let’s closely examine the communiqué and attempt to fine-tune the details. The key question remains: How would each government pursue its own internal specific fiscal stimulus while, at the same time, attend to the economic troubles of other countries!
We definitely want each one to succeed but will the new G-20 directives offer better chances for recovery with the allocated resources to better regulate the financial markets? Will the public really regain confidence and trust in the collective leadership’s courses of action? That is why it becomes crucial to succeed at this most complicated juncture in the economy since the depression, 80 years ago.
The cost of this current crisis grows by the day if not by the hour and, regrettably, the politicians took far too long to realize the size and the extent of this crisis. Now, the problem is global and the road to recovery is going to be an arduous one. A quick economic recovery is rather wishful thinking but, unless the bailout pledged by the G-20 is put into use rapidly and effectively, a deep and prolonged recession will be an agonizing reality to live with.
There is an expressed need to adapt the essential reforms as presented at the summit if we are to prevent a recession, or perhaps a true depression. The world is running out of time and cannot afford further delays in implementing these reforms.
The process, no doubt, will be painful and costly in both human and economic impact and here where the G-20 must direct and focus their resources.
(Habib F. Faris [[email protected]] is CEO & managing director of FinaVestment Ltd., London.)
