Pointing out the failures caused by the global financial crisis as outlined by the International Monetary Fund Managing Director, Prime Minister Manmohan Singh said it was imperative to analyse the reasons of failure, but more importantly essential to apply a new set of rules to prevent reoccurrence of such failures.
He was speaking at the 45-nation grouping of the Asia-Europe meeting (ASEM) Summit being held in Beijing.
Singh said that while devising any international agenda to reform the international financial system, we should bear in mind the saying of John Maynard Keynes regarding the economically damaging role of excessive speculative activity.
Quoting Keyne’s dictum, he said: Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done.”
The international financial crisis also resulted into the escalating prices of food and fuel in many developing countries leading to rising inflation.
The immediate task before us is to declog the credit markets worldwide and restore a measure of confidence in the credit markets.
At this crisis, the international financial institutions, particularly the IMF and the World Bank need to provide immediate assistance in larger amounts to the affected countries. The increased infrastructure investments in developing countries, if backed by International Bank for Reconstruction and Development (IBRD) and Regional Development Banks, can act as a powerful stabilizer, Singh opined.
In hard-hitting remarks, Singh said the current crisis is due to the massive failure of regulatory and supervisory powers.
"Massive failure of regulatory and supervisory mechanism has really been the reason for the present turmoil and if there had been a good regulatory mechanism, this would not have happened," he added.
The veteran economist said the countries with strong foreign exchange positions could make additional resources available to the international financial institutions on appropriate terms to finance their operations.
Calling a collective global effort for the reform and reconstruction of the financial system regardless of boundaries, Singh stressed on the creation of a “global monitoring authority to promote global supervision” of cross-border investment, trade and banking.
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