But their determination to enhance cooperation to restore global growth, achieve badly needed reforms in the financial systems and give more say to emerging economies in global economic policy making would be a confidence-building block in the effort to curb wild financial volatility.
This new mechanism of international economic cooperation has yet to be deliberated at their next gathering scheduled for April but this is already a good signal for similar reforms within the decision- and policy-making processes at the International Monetary Fund and World Bank.
Yet most promising is the leaders’ strong commitments to reform the governance of the financial system — including the banking industry — and to provide joint economic stimulus to mitigate the effects of the deepening global downturn as the recession has spread from the United States to Europe and Japan.
This and similar commitments by the central bankers around the world to ease credit strains and support faltering economic growth would be a boost to further global cooperation in coping with the financial crisis and economic slowdown.
However, Asia should support the promises by the G-20 leaders with its own coordinated policies in monetary, fiscal and exchange rate areas to ensure financial market stability for macroeconomic management. This is where Japan, China, South Korea and ASEAN should show leadership.
The leaders of these leading Asian economies should bring to the next G-20 meeting a coordinated Asian macroeconomic policy framework since economic expansion in Asia will not only help to sustain Asia’s own economic growth and employment levels but also will also help to put a floor on the coming global slowdown.
Trade-wise, higher growth in Asia will also mean more sales of U.S. goods in Asian markets, thereby helping to moderate the U.S. and European recessions as well. For this reason, coordinated macroeconomic expansion among China, Japan, and Korea will be highly appreciated in all other parts of the world.
A few days before the G-20 summit, the World Bank and IMF came up with a grimmer economic outlook for next year, projecting an economic contraction of 0.1 percent for the advanced economies and a growth of only 4.5 percent for developing countries. Global trade, which grew by 9.8 percent in 2006, is projected to fall in 2009 for the first time since 1982.
The strongest message from the G-20 summit which is most relevant to Indonesia is the need to provide strong fiscal stimulus and rescue packages. As the international financial condition has now become much tighter, with capital flight leading to sharp falls in equity markets and steep rises in government and corporate bond spreads, the government needs to provide most of the pump-priming force. Aggregate demand needs to be sustained by fiscal policy.
This is the momentum for both the public and private sector to better coordinate measures to facilitate basic infrastructure development which needs little foreign exchange financing.
However, fiscal stimulus alone is not enough. It should receive strong support from an easier monetary policy, especially since inflationary pressures have weakened due to the combination of lower import prices and falling demand.
But again an easier monetary policy without significant improvement in the business or overall investment environment could provide more ammunition for foreign exchange speculation against the rupiah.
We suspect that the estimated Rp 50-70 trillion (US$4.5-6.3 billion) in additional liquidity made available by the lowering of the minimum reserve requirement at commercial banks last month to 7.5 percent from 9.5 percent (of deposits) played a part in the latest wave of speculative attacks on the rupiah over the last two weeks.
Source : http://www.thejakartapost.com
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