Friday, January 30, 2009
In my previous post I said that citizens should not feel powerless vis-à-vis the current economic crisis and leave its resolution to the policymakers. However, I’m afraid Western policymakers themselves are increasingly feeling powerless too. They do not seem to be able to stop the crisis.
Initially the focus was on irresponsible behaviour of the banks, but now Western governments are getting under fire. In France, where Sarkozy as chair of the EU was internationally praised for his energetic approach to the crisis, a large majority of the population (70% according to a poll) supported a wide-ranging strike against the government held yesterday. The strikers blame Sarkozy that he is responding inadequately to the crisis, and helping the banks but not the ordinary people. The BBC reported: “So where, the French people are now asking, did the 360bn euro shore-up fund to guarantee banks come from? This, at a time when the government was busy slashing thousands of public sector jobs, trimming pension benefits and planning massive cuts to the education budget.”
Yesterday, at the annual meeting in Davos, China’s premier Wen Jiabao blamed the US (and the EU) for the current economic breakdown. “Inappropriate macroeconomic policies,” an “unsustainable model of development characterized by prolonged low savings and high consumption,” and “the failure of financial supervision” all contributed, said the Chinese leader. He also attacked Western financial institutions’ “blind pursuit of profit” and their “lack of self-discipline”.
Premier Wen also blamed the Western-designed global financial system for the world's current economic problems. He said: “The current crisis has fully exposed the deficiencies in the existing international financial system and its governance structure. We should expand the regulation of the international financial system, with particular emphasis on strengthening the supervision on major reserve currency countries.” Pointing to “major reserve currency countries”, Mr. Wen clearly thought of the United States in the first place, as the system is still based on the US dollar.
I share premier Wen’s critique of the dollar-based global financial system. More than twenty-five years ago, in a long article, I blamed the same system for the outbreak of the debt crisis in Latin America and warned that it would create future international crises. In the following years, as director of FONDAD, I organised international meetings where, time and again, high-level experts discussed the flaws of the global financial system and suggested ways to remedy them. Policymakers participated in these meetings and welcomed the constructive ideas presented. But they did not have the willingness, energy or power to put them into practice.
Now we are in the midst of a mess that policymakers find difficult to address. We should not leave it to them to come up with a better system and better policies.