The Group of 20, comprising the world’s most powerful countries and representing 85 percent of the world economy, is scheduled to meet for a one-day summit in London tomorrow to help revive the world economy.
The G20 was formed following the Asian financial crisis in 1999 to discuss concerns tied to the then financial crisis. It sought international cooperation among finance ministers and central bankers to take their downbeat financial systems out of the crisis.
In the backdrop of the global financial crisis, the gathering of the G20 leaders is meant to boost confidence of global leaders and ensure that they stand united in tackling the economic crisis.
So what are the issues and concerns dominating the agenda for the G20 meeting? Many multidimensional issues are likely to be discussed. Five key issues need immediate attention and a prescription for revival. Firstly, it is imperative, just like in any aftermath of financial crises to revive the nearly stagnated world economy (some may even say that the world economy is at stagnation, but I do not have sufficient evidence to support such a claim).
Though there are ‘automatic fiscal stabilisers’ in European countries — in other words whenever there is an economic slowdown some European countries get a programmed boost form of government’s cash injections — the IMF has predicted despite such mechanisms in place, by 2010 there will only be a weak global stimulus.
A huge amount of money has already been committed in financial support for bailing out banks and the governments of the US and the UK have pledged to provide about $11 trillion in this regard. With regard to fiscal packages, governments around the globe are spending billions of dollars to encourage economic growth and till date, nearly $2 trillion have been spent to stimulate economic activities.
Secondly, the summit will seek to restore confidence in lending. In spite of the huge amounts of cash flows in many developed and developing countries, banks are still holding many ‘toxic’ assets and the G20 meeting is likely to stress the importance of solving this situation by the respective members’ governments. Thirdly, the G20 summit will dig in the root causes of this economic tornado and it can be safely assumed that it will recommend regulating all financial institutions that pose a risk to the macroeconomic system.
There will also be plans for global oversight of the various risks that the financial system is surfacing as a whole, so-called ‘macro-prudential regulation’.
The IMF has already bailed out seven countries (to the tune of $46 billion) between September 2008 and February 2009. It will be strategically vital to enhance its role in monitoring risks within national banking systems.
The IMF still has about $150 billion left that it could lend this year to countries facing a choked financial system. The World Bank has already forecasted that an extra 50 million people will fall into poverty because of the enduring global recession. The ODI has estimated that at least $50 billion will be required to help sub-Saharan African countries battle the effects of the crisis.
Taking this background, one is compelled to inquire how far Bangladesh has been able to cope with the financial crisis. Has the crisis had an impact on the country’s economic performance? Will the G20 summit shed some rays of hope that would really help a developing country like ours which is treading on the development path and, whose economic growth in recent times has been attributed to the amiable nature of the global market, to survive the economic tornado?
Professor Mustafizur Rahman, the executive director of Centre for Policy Dialogue (CPD), has categorised the impacts of global financial crisis in three forms — starting with the financial predicament in the US mortgage market, which turned into a credit crisis and the latter’s impacts subsequently transmitted through the consumer economy. This latter wave of the financial crisis may be starting taking its toll on the Bangladesh economy. While the overall export of Bangladesh during the first half of fiscal 2008-09 was still maintaining the recently achieved levels, some slowdown can be discerned when export performance in recent months is taken into account. In December 2008, overall exports declined by 10.1 percent when compared to the same month of the previous year though it started gaining momentum once again by January, on the account of export growth in apparels.
The October-December data of FY2008-09 reveals that while exports of primary products declined on the one hand (excluding raw jute and tobacco), manufactured exports posted a positive growth, though slower when compared to recent years (woven 6.4 per cent, and knit 4.7 per cent).
The leather sector was particularly hit by the crisis which saw a negative growth decrease of more than 50.0 percent in the quarter under review.
Although Bangladeshi exports (of goods) are not yet fully feeling the pinch of the global economic tornado (perhaps due to the inelastic nature of demand for the country’s products), services exports may come under severe pressure in the immediate outlook. Even though Bangladesh ranked one of the top ten countries, which the highest amount remitted in 2008, evidence suggests a daunting year ahead. Bangladeshi workers in affected countries are experiencing retrenchment.
For example, 55 Bangladeshi workers employed in the Tunnel & Shaft construction company in Singapore have returned home after working there for only seven months. Some Middle East employers are becoming reluctant to issue new job permits. Malaysia has announced retrenchment of about 45,000 workers. According to the figures from the Bureau of Manpower Export and Training, 13,530 workers have returned home in the last three months.
The G20 summit represents a symbol of hope for the developing countries in general. It will probably provide the impetus for reviving the world economy and making financial systems more transparent and the authorities more accountable. It can also be hoped that the Doha Round of trade negotiations, which was launched in 2001 under auspices of the WTO, may be revitalised which has been stalled as a result of this group of countries’ concerns with the agriculture text.
If the G20 is not able to tackle the problem and rushes in the opposite direction, many authors have apprehended a reincarnation of protectionism and even, the Great Depression. For now, it is hoped that our country’s policymakers make an attempt to craft policies that aspire to accommodate the rapidly changing economic landscape in which the advancement of technology, establishment of effective infrastructure, and in general galvanising the economic status quo of the country, ought to be given due priority.
To carry out such a task especially in the backdrop of Bangladesh’s increasingly globally integrated economy, internalising the external concerns (worldwide increase of fiscal stimulus packages and plausible protectionist policies) will be the first step forward.
Written By: Hasanuzzaman is a researcher at the Centre for Policy Dialogue (CPD). Published in The Daily Star, 31 March 2009