Economic Climate - Make Or Break Summit
A Message From Jim McConoughey
Last week (April 2, 2009) leaders from the world's 20 richest nations held talks in London hoping to reach a unified position on how to jump start our ailing global economy. We are in the midst of the worst recession in 80 years and this meeting was properly dubbed as a make-or-break summit. Jim McConoughey weighs in on why this international meeting has relevance to the Central Illinois region and how this meeting can impact the globe. (Click play below to see more!)
It was held behind closed doors in Britain’s capital and included leaders from the United States, China, Russia, Britain, Saudi Arabia, and many others. Many around the world are applauding the global collaboration. I believe it shows that world leaders are committed to doing whatever it takes to get us out of this recession.
This summit made world headlines because of the dissension between attendees. There were differing opinions on how the global recession should be handled and what it is going to take to pull us out of it. As you well know, the US is in favor of infusing money into the financial system to encourage banks to lend to consumers and in turn get consumers to spend money. Britain is also following this model. However, France and Germany are staunchly opposed to fiscal stimulus packages, and instead are pushing to increase regulation of the international financial system.
This is very important to Central Illinois because nearly 40% of what we make here at home is exported around the world. If other countries continue to deal with dire economic condition they won’t be able to purchase our goods and services. Something else to keep in mind is even if we do everything right and we do everything we are supposed to do to get out of a recession, but the rest of the world doesn’t make the right choices, it will have a negative impact on us.
British Prime Minister Gordon Brown said to reporters, "This is the day that the world came together, to fight back against the global recession. Not with words but a plan for global recovery and for reform and with a clear timetable." That is exactly what we need. People need to see that there is a plan in place and that our leaders are trying to help dig us out of this situation.
There were many topics discussed at this summit but perhaps the main priority was the global financial system. Leaders agreed to a $1.1 trillion program to restore global growth and rebuild the world’s financial system.
Here are some of the key points to the agreement from the G20 final communiqué:
• -- "To treble resources available to the International Monetary Fund to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs (multilateral development banks), to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries." This constitutes an additional $1.1 trillion program of support to restore credit, growth and jobs in the world economy.
• -- The measures taken will "by the end of next year, amount to $5 trillion, raise output by 4 percent, and accelerate the transition to a green economy."
• -- "Central banks have pledged to maintain expansionary policies for as long as needed and to use the full range of monetary policy instruments, including unconventional instruments, consistent with price stability."
• -- To put in place "credible exit strategies from the measures that need to be taken now to support the financial sector and restore global demand ... thereby reducing the scale of the fiscal consolidation necessary over the longer term."
• -- "To establish a new Financial Stability Board (FSB) with a strengthened mandate, as a successor to the Financial Stability Forum (FSF), including all G20 countries, FSF members, Spain, and the European Commission.
One of the more interesting pieces I found was a discussion on forming a black list of tax havens. Most delegates seemed to concur that drawing up a blacklist of tax havens to force changes in banking secrecy was a good idea. They agreed to publish a blacklist of tax havens that could lead to sanctions, and for the first time impose oversight on large hedge funds and credit rating agencies. This is the first time there has been a world-wide effort to create a comprehensive program to reform global banking. It is much needed but it is not an easy fix. This is just one step in the right direction.
It has been said many times that this recession is fueled by fear. Many world leaders said this summit must be seen as a success in order to begin re-instilling confidence in people. When asked what it would take for this summit to be considered a success and prevent a market collapse, Brown said "For you to report it as a success." That’s so true.
We have worked diligently to get our local media to tell the positive stories of what’s happening around the world and right here at home. We are doing that, but we are constantly battling the national media for positive press. Mr. Brown’s statement is right on. We need the media to report this summit as a success to bolster confidence.
April 6, 2009