The Hindu Business Line : G-20 and crisis

In the context of the global meltdown triggered by the sub-prime crisis and aggravated by the contraction of liquidity, the world is looking to the meeting of the heads of G-20 countries for solutions.

The absence of regulation in the financial market fuelled by the dominance of the services sector, the rising trade deficit of the US, which was in excess of $800 billion last year, and the world’s waning confidence in the dollar as a universal currency led to the sub-prime crisis, which triggered the economic recession in the US.

When the wealthiest nation with a $13-trillion GDP, started contracting, the nations with economic, financial and trade linkages with the US were hit too. However, the world’s agricultural and manufacturing prowess has not contracted. Only the services sector has been hit. The fallout in terms of trade contraction and commodity price volatility was mainly on account of the shrinkage of liquidity that fuels world trade.

However cash-rich countries, such as China, Saudi Arabia and Germany, are capable of contributing their might in increasing the flow of funds to the needy nations. This can be by either importing their goods or exporting their produce to the weaker countries where there is no dearth of population growth fuelled demand for goods and services.

In the circumstances, creation of a commercial bank with the capital provided by the neo-rich nations such as China, Japan, Saudi Arabia and Germany, with provision to provide credit at affordable rates of interest to the needy countries or their central or commercial banks, backed by sovereign guarantees, can help in restoring the trade flow, which alone can accelerate economic growth.

If the G-20 countries take a step in this direction, they will not only help themselves, but also boost global economic growth, which is a sine qua non for creating wider employment and further growth.

P. Esakki Muthu Mumbai

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