The Great Debate

– Stephany Griffith-Jones is executive director of the Initiative for Policy Dialogue at Columbia University. The views expressed are her own. –

There are many important challenges facing G20 leaders when they meet in London in early April.

The first is to coordinate sufficiently large fiscal and other measures to ensure that world aggregate demand recovers, and a major recession is avoided.

It is also crucial that concrete measures are taken that will allow developing countries, especially those that may become foreign-exchange constrained, to sustain growth. This will not only be key for avoiding a large slowdown in growth and increase in poverty in those countries, but also to guarantee important demand for developed country exports. It is estimated that around 200 million people could be pushed into poverty, mainly in developing countries, if rapid action is not taken to soften the impact of the crisis on those countries.

QUICKLY REFORM THE IMF’s COMPENSATORY FINANCING

The calls for significantly expanding the resources of the International Monetary Fund (IMF) by several G20 leaders are welcome. One effective way of doing this would be through a counter-cyclical expansion of official liquidity, by a one-off, large issue of IMF Special Drawing Rights (SDRs). This would compensate for the large contraction of private liquidity, which has resulted in a sharp fall in private capital flows to developing countries. Once the situation normalizes, the SDRs could be reabsorbed by the IMF. The major objection to SDR issues in the past has been the threat of inflation. It has no validity at present. The dominant threat is of deflation and recession.

– Alexander Smith is a Reuters columnist. The opinions expressed are his own –

New regulations may be cooked up to curb the excesses of its bankers but London will always attract those who believe its streets are paved with gold.

Some predict that the financial crisis spells the end for London as a major global financial centre, arguing it has thrived on lax regulation and a quasi-tax haven status and that the regulatory backlash which inevitably follows such a catastrophic economic debacle will suffocate the innovation and the financial incentives which have driven the growth of services in the British capital.

– John Kemp is a Reuters columnist. The views expressed are his own –

The international system of bank regulation, epitomised by the Basle II process and the light-touch principles-based regulation of Britain’s Financial Services Authority (FSA) has comprehensively failed.

In too many instances, light-touch principles-based regulation with an emphasis on banks’ internal risk controls turned out to be no effective regulation at all.

– John Kemp is a Reuters columnist.  The views expressed are his own –

UK Prime Minister Gordon Brown’s call today for a new G20 charter of principles on financial regulation  reflects an emerging consensus among policymakers that, once the immediate crisis has passed, the regulatory framework must be fundamentally redesigned.

In particular, policymakers are concerned with how to correct the basic moral hazard problem in which bankers have an incentive to extend too much credit, while private firms and households have an incentive to take on too much debt.