G20 - helpful or unhelpful?

Comments on Uri Dadush “Four challenges in Pittsburgh for the G20”, 24/09/2009 http://www.eastasiaforum.org/2009/09/24/four-challenges-in-pittsburgh-for-the-g20/

Among the three important examples which go beyond the current crisis, the third one is likely to be the most difficult one. It is not a significant issue for quite a number of countries in the group that means there may not be enough incentive to have that on the agenda.

In a post crisis environment, it may be easier to achieve the second and the first ones.

There is enough momentum for the first one out of the UN summit meeting this week.

In terms of withdrawal of stimulus, the group is now more unhelpful than being helpful, because it should send a clear signal that while in many countries it is still too early to withdraw measures, the condition in some countries are such that their government should decide when and how to withdraw from stimulus, otherwise there will be a serious chance that they may do it too late that will accelerate inflation.

The group already has an adverse effect on some countries, say Australia. The Australian government is using the group to play domestic politics and delay withdrawal.

In terms of how to prevent future similar crisis, it is important not to over regulate the banking and finance industry to achieve financing efficiency and lower costs of capital. There may be some minimum international regulations / guidelines, and leave the rest to each country to make sure their banks are safe and efficient.

The worst thing is to have a group of unaccountable international bureaucrats to impose a set of excessive regulations in the wake of the crisis in the name of preventing another crisis that will significantly increase the costs of finance everywhere.

Banks in Australia have done through the crisis with little problems. In such a case, is there a need to tighten the regulations? The answer is definitely no. But the danger is that the Rudd government will do it nevertheless to fight the so called “neo-liberalism”, or “market fundamentalism”.

That will be a tragedy for Australia with higher interest rates than necessary.