The Hindu Business Line : ‘G20 must help restore confidence of investors’

With an eye on the Prime Minister, Dr Manmohan Singh’s scheduled participation in the G-20 meeting of industrial and emerging economies in Washington on November 15, the Associated Chambers of Commerce and Industry (Assocham) has sent him a letter listing out ‘doable’ measures that could inject confidence in the global economy.

The Assocham President, Mr Sajjan Jindal, has laid out a raft of measures to put the global economy back on the rails, foremost among them being restoring the confidence of investors. He has said global savings should be channelised to infrastructure investment opportunities in emerging economies and such investment should be guaranteed against risk.

The note points out that the US dollar has gained more than 16 per cent against the euro and emerging economy currencies since July. Despite running a trade deficit of over $1-trillion and an economy in recession, the savings and trade surplus of various countries and banks were parked in US Treasury bonds due to their perceived risk aversion, it said.

Assocham said though liquidity has improved following the stimulus measures taken by countries and central banks including policy rate cuts and recapitalisation of banks, the banks were not lending due to risk aversion and the tepid demand for funds.

Tracing the roots of the recession in the global economy to robust global GDP growth and elevated commodity and oil prices, the Chamber said these had come on the back of strong demand which had spawned excess liquidity in the system. This was, in turn, channelised into the housing sector, infrastructure projects and speculative commodity futures markets.

The lack of regulation of non-banking investment companies such as Lehman Bros and Merrill Lynch had seen them take exposures in high-risk innovative financial products with higher leverage of the equity capital of the investment companies. This, in turn, had fostered speculation in the mortgaged market, debt instruments and the commodity future markets.

In the light of these developments, the G-20 meeting should endeavour to establish a new global financial regulatory body where voting rights would be based on the size of the economy, the country and its population, the chamber said.

It should set regulatory policies for non-banking investment companies, hedge funds and subsidiaries of insurance companies and use its good offices with national monetary authorities to take a call on trade imbalances flowing from a pegged currency. It must have a council of economic advisers who could sift the national monetary policies to pre-empt crises from flaring up.

The chamber also suggested a global regulatory mechanism to make natural resources available at fair market prices since natural resources are highly concentrated in a few countries. The chamber also moots an oil producer-consumer joint mechanism to set benchmark oil prices periodically.

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