New financial order needed for world economy – President
February 25, 2011 12:41 pm
The global economic crisis taught us many lessons that varied across nations. All countries learnt both common and individual lessons, from this crisis, which left behind a trail of serious damage across nations and shook the very foundations of the financial structure of the world. It is therefore, clear that if we are to safeguard the world economy in the future, we would need to build a new financial order and a model that will better equip us to face crises of this nature, said President Mahinda Rajapaksa in his inaugural address to the 49th South East Asian Central Bank Governors’ (SEACEN) Conference, in Colombo today (25).
Commenting on the theme of the conference - “Post-Global Financial Crisis:
Issues and Challenges for Central Banks of Emerging Markets” - he said that in
seeking to build a new financial order much attention has been paid to regulate
and supervise financial institutions which are considered to be “too big to
fail”. This is indeed commendable, since the fall of major global financial
institutions damages the international financial structure in a permanent
manner.
“By the same token, it is also necessary for the worldwide financial community
to focus upon the management of economies that have a global impact, and
therefore have become “too big to fail”, he added.
Among the distinct causes that aggravated the Global Economic Crisis identified
by President Rajapaksa in his address at the Central Bank of Sri Lanka were: “The
blatant application of double standards; the obvious policy contradictions and
inconsistencies; the stubbornness of large economies to face realities; the
unfortunate attempts to politicize multi-lateral financial organizations; and
the lethargy in handling urgently needed financial bail-outs”.
Referring to the search for ways to manage the current turmoil in the world
economic environment in a sustainable manner, he said that “in order to be
truly successful, we have to solve the economic problems of our people, who are
our ultimate stakeholders. The people of our respective nations have entrusted
their Governments with authority and resources to provide them with a safe
economic environment where they can achieve their economic hopes and
aspirations. When a country establishes a Central Bank, the people transfer a
significant part of that duty and responsibility to you as well. Accordingly,
as Governors, you are also responsible to the people of your respective
countries”.
President Rajapaksa also said the “recent crises also taught us that existing
global currencies in the SDR basket such as the US Dollar, Euro, Sterling and
Yen were probably insufficient to play the role of reserve currency in
turbulent times. The search for alternatives led to the price of gold and other
commodities rising, creating a new set of challenges. In that scenario, we
welcome the suggestion by the IMF to include market currencies such as the
Chinese Renminbi in the SDR basket. However, given the distinctive nature of
emerging markets, which are still to reach near optimum levels of development,
it may be wise to approach this issue without pre-conditions, so as to fast
track these necessary reforms in the global financial architecture”.
Referring to the regional contribution towards building a new financial order,
he said: “Our region offers a wealth of experience and knowledge to the world.
Let us get together and deliver upon the expectations placed upon us. Let us
pledge to do all in our power to ensure that this world, with all its
knowledge, technology and understanding, will never have to experience another
economic crisis of this magnitude or nature again”.
Here is the text of the Address by President Mahinda Rajapaksa:
At the outset, let me thank the Board of Governors of SEACEN for inviting me to
inaugurate the 46th SEACEN Governors’ Conference and High Level Seminar. It is
indeed a pleasure and privilege for me to do so, and I must thank all of you
for selecting Sri Lanka as your host country for this most important event. I
see your presence here today as a celebration of the 60th Anniversary of the
Central Bank of Sri Lanka, and as an acknowledgement of the elimination of
terrorism from our midst. In this background, we do hope you have an excellent
conference and fruitful meetings so that you may carry wonderful memories of
our people’s progress, ability and friendship.
It is clear that the SEACEN group has become a highly influential group in the
world economy today. With the very recent entry of the People’s Bank of China
to this group, it has further strengthened its reach and impact across the
world, and I believe SEACEN’s voice would now be even stronger.
My dear Governors, you have selected “Post-Global Financial Crisis: Issues and
Challenges for Central Banks of Emerging Markets” as the theme for your
deliberation at this year’s Board of Governors’ Conference. As we all know, the
serious studies that have taken place on this broad topic among many central
bankers, economic stakeholders, analysts and others have been extensive and
wide. I believe the main reason for such in-depth attention on the subject has
been that, almost all nations have suffered immensely through the crisis. Many
would also carry the scars of this massive financial disaster, for many years
to come.
At the same time, historians would record that Asian economies came out of this
painful era in better shape than their western counterparts. Perhaps the Asian
crisis in the late 90s and the subsequent counter measures implemented by the
Asian economies enabled them to develop the resilience, strength and wisdom to
face the new crisis in an appropriate manner. This ground reality then suggests
that a better prepared country with sound macro-economic fundamentals and a
strong financial system would be able to face shocks in a more successful
manner, than those who may be less prepared.
My dear friends, the global economic crisis taught us many lessons. The lessons
varied across nations. But all countries learnt common as well as individual
lessons, from this crisis. In general, the crisis left behind, a trail of
serious damage across nations and shook the very foundations of the financial
structure of the world. It is therefore, clear that if we are to safeguard the
world economy in the future, we would need to build a new financial order and a
model that will better equip us to face crises of this nature.
In this endeavour, a lot of attention has been paid to regulate and supervise
financial institutions which are considered to be “too big to fail”. This is
indeed commendable, since the fall of major global financial institutions
damages the international financial structure in a permanent manner. By the
same token, it is also necessary for the worldwide financial community to focus
upon the management of economies that have a global impact, and therefore have
become “too big to fail”. We all know that certain national economies are so
large and wide, their financial well-being is vital for the global economic
health. In that context, it is essential that such globally influential
economies should act in globally responsible manner, so as to not place
themselves and indeed others, with whom they have dealings, in danger.
We may perhaps reflect on a recent case study which illustrates this position
clearly.
Of late, many economic analysts have pointed out as to how the world has been
anxiously watching while massive quantities of new money were injected by
certain advanced nations into their economy, and through such infusion, into
the entire world. It is widely expected that such infusion, while possibly
stimulating growth and employment within the issuing nation, would have a
massive negative impact on the rest of the world in time to come. Hence, they
argue that it may have been more appropriate, if such intervention was done in
consultation with multi-lateral institutions and other key players. It would
have ensured that a coordinated approach could have been agreed upon, rather
than being a unilateral intervention on the part of a single nation. A similar
approach in relation to currency values, trade practices, country bail-outs and
other structural interventions are also being advocated for the greater health
of the world economy.
Your Excellencies, my dear Governors, a deep study of the crisis would reveal
many defects and inconsistencies in the world economic system. The blatant
application of double standards; the obvious policy contradictions and
inconsistencies; the stubbornness of large economies to face realities; the
unfortunate attempts to politicize multi-lateral financial organizations; and
the lethargy in handling urgently needed financial bail-outs, will probably
surface as distinct causes that aggravated the crisis.
We must also not be fooled into thinking that the crisis is now over. What we
see at the moment is perhaps a relative calm in the world’s financial
landscape, as a result of the interventions of multi-lateral organizations such
as the IMF, many Governments and Central Banks. It is vital that this “calm” be
made use of to implement sustainable and carefully thought-out policies to
avoid a repeat of a similar or any other crisis. In my view, the highly eminent
group of very senior leaders of multi-lateral institutions and influential
Governors such as yourselves, would be the proper forum to deliberate such
matters. The economic world therefore looks to you to propose a satisfactory
way forward in the future, and we are very confident you will deliver.
My dear friends, at the end of World War 2, the IMF and the World Bank were
created to safeguard the world economy and the economies of member countries in
the event of an economic crisis, and to stimulate development. At the same
time, nations created Central Banks in their respective countries as key
financial and economic policy institutions to guide the respective countries
towards stability and growth while dealing with shocks that may affect the
economy. In that context, we welcome the recent efforts of the IMF to enhance
the role of Special Drawing Rights (SDR) as a major reserve asset, in order to
enhance worldwide currency stability.
The recent crises also taught us that existing global currencies in the SDR
basket such as the US Dollar, Euro, Sterling and Yen were probably insufficient
to play the role of reserve currency in turbulent times. The search for
alternatives led to the price of gold and other commodities rising, creating a
new set of challenges. In that scenario, we welcome the suggestion by the IMF
of including emerging market currencies such as the Chinese Renminbi in the SDR
basket. However, given the distinctive nature of emerging markets, which are
still to reach near optimum levels of development, it may be wise to approach
this issue without pre-conditions, so as to fast track these necessary reforms
in the global financial architecture.
Your Excellencies, my dear Governors, it is very refreshing that we are all
here in Colombo to search for ways to manage the current turmoil in the world
economic environment in a sustainable manner. In order to be truly successful,
we have to solve the economic problems of our people, who are our ultimate
stakeholders. The people of our respective nations have entrusted their
Governments with authority and resources to provide them with a safe economic
environment where they can achieve their economic hopes and aspirations. When a
country establishes a Central Bank, the people transfer a significant part of
that duty and responsibility to you as well. Accordingly, as Governors, you are
also responsible to the people of your respective countries.
At the same time, when sovereign nations subscribe to the collective objectives
of a multi-lateral financial institution that pledges to maintain global
economic and financial stability, a part of the sacred trust of billions of
human beings, pass onto those multi-lateral institutions as well. Hence, such
organizations too, shoulder a great responsibility towards the billions of
people who indirectly rely upon them to make the right decisions to improve
their lives. We all know that within these multi-lateral organizations whose
decisions affect the entire world, those with a larger investment wield greater
authority and power. Accordingly, in an indirect manner, the entire world
places great trust in large powerful economies. Hence, it is perhaps time for
the world economic community to remind such powerful economies that with such
authority and rights, onerous duties and responsibilities also arise.
My dear friends, as the SEACEN group, it is our wish that you will be at the
forefront to rebuild the world economy and proactively reform the international
monetary system. Our region offers a wealth of experience and knowledge to the
world. Let us get together and deliver upon the expectations placed upon us.
Let us pledge to do all in our power to ensure that this world, with all its
knowledge, technology and understanding, will never have to experience another
economic crisis of this magnitude or nature again.
May the Blessings of the Noble Triple Gem, be with you always.
Thank you.
Source: the Govt. Information Department