G20 role crucial for global financial system
Lee Richardson, MP is pictured at the Jeddah Economic Forum where he spoke on the global economic recovery
Jeddah: Canada is the co-chair of the upcoming 4th G20 Sum-mit that will address recovery and new beginnings.
Lee Richardson, Member of Par-liament presented the Canadian perspective on the recovery of the global economy.
“Enlightened self-interest” is perhaps the key to a successful; and balanced solution but that solution will only be reached through shared responsibility.
The critical areas for the G20 are financial sector reform in-volving balance and transparent regulation: continuation of glob-ally coordinated stimulus meas-ures; and enhancement of global trade and growth through resistance to protectionism and the lowering of trade barriers.
Narrow sovereignty must be re-considered, and recovery must lift all countries together. This is possible only through coopera-tion, Richardson said.
United States Deputy Treasury Secretary Neal Wolin said the G20 has now become the pre-mier forum for more diverse and balanced coordination of the global economy and has re-sponded quickly to help restore the global financial system.
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The following speech was delivered by Lee Richardson, MP at the Jeddah International Economic Forum in Saudi Arabia where he presented Canada’s views on the recovery from the world-wide recession and the important role of the G-20
I welcome the opportunity today to offer a Canadian perspective on our discussions of the vital economic crisis confronting the world, in particular to discuss Canada’s roles and objectives as the co-chair of the Fourth G20 Summit and the President of the G8 Summit this summer.
We must now plan for the eventual return of the world economy to a place of stability and confidence while opposing trade protectionism.
The current economic crisis hit while the world was already engaged in considerable battles: large current account imbalances, ageing populations in advanced economies, violence, and terrorism and, of course, the eternal problems of poverty and underdevelopment such as the ever growing need for agriculture and food security.
In June Canada will welcome the world’s leaders to the G-20 and G-8 Summits where the world’s nations will work under the direction of this year’s Summit theme: Recovery and New Beginnings.
Let me first talk about the G-20, which at Pittsburgh, was officially designated as the world’s premier forum for economic recovery as Mr. Wolin (US Deputy Treasury Secretary) just noted.
The long road to recovery began in Washington in November 2008, where G-20 leaders effectively responded to the systemic financial collapse and the global recession with quick, decisive and coordinated action. At the London Summit in April 2009, these measures were expanded, with a particular emphasis on the most vulnerable states, so that in Pittsburgh, the seeds of a new era of balanced, sustainable growth were planted.
Canada’s Prime Minister, Stephen Harper, has recalled that what he saw at the Washington Summit made a huge impression upon him. “Nations whose interests have been often at odds, nations with different traditions of governance — rivals, even former enemies — found themselves addressing common problems with a common will. The global recession has brought otherwise distant nations together for a united cause, recovery. So, even though these twenty-some leaders all represented sovereign states, they agreed to common, synchronized actions to chart the same course toward calmer waters.”
In his speech in Davos, Prime Minister Harper said of the Washington meeting, “Ideological differences were set aside. Old enmities were not raised. Indeed, if you had arrived from another planet you never could have guessed which nations had spent decades mired in hostility. You might call it the fellowship of the lifeboat. The understanding forged in Washington has allowed us to avoid the cataclysm that otherwise would have come to pass.”
My panel colleague, Mr. Wolin, may have noted what Former U.S. treasury Chief Paulson said at a meeting similar to this in Omaha last week, “As bad as this is, when we look back it’s not as bad as it could have been…the United States is better off today than most countries.” Well we in Canada think we too are doing better than most countries coming out of the recession; I will now provide reasons for our optimism.
When the G-20 Summit begins in Toronto, the discussion should be less about new agreements than accountability for existing ones. Less about lofty premises than real results. Less about self-interest in sovereignty’s name, than an expanded view of mutual interest in which there is room for all of grow and prosper. Enlightened sovereignty, then, the natural extension of enlightened self-interest.
To be succinct, the real test of the G-20 going forward, is that it develops and sustains among its members a sense of shared responsibility towards the global economy.
For while the market’s awesome power to generate and widely distribute wealth is self-evident, we also know markets need governance. For the global economy, the G-20 is what we have.
Now, as we work through the final stages of recession and embrace recovery, there are three critical areas where G-20 actions have been and will remain vital: financial sector reform, stimulus programs, and global trade and growth strategies.
The starting point for reformation must be the regulation of the financial sector. This has been a focus since Washington because, after all, that sector’s failures and the transmission of its contagion globally are widely acknowledged to have triggered the crisis.
Canada was not a contributor to the problem. Canadian banks had maintained healthy leverage ratios and largely avoided exposure to toxic assets. No major Canadian financial institutions failed and none required bailouts from the government. As a consequence, Canada now has one of the largest banking sectors in the world and it remains entirely in the private sector.
The Canadian banking system is a good example of how future systems should be set up and regulated. Globally we must promote national regulation that is sufficiently strong enough to avoid the institutional collapses of last year.
As Canadian Prime Minister Stephen Harper said “Such national systems should be subject to international peer review in order to enhance transparency and reduce risks to the global economy. Anything less would expose every economy to needless risk. In fact, if inadequate regulation is not addressed, I believe the consequences could actually be worse than before this crisis.”
These measures will act as a safeguard, effectively preventing a future downturn like the one we experienced only a year ago.
Financial sector regulation must be tackled and it must be adequate. Secondly, Canada also believes that financial sector regulation must have an understood purpose and must not be excessive.
Its purpose is to ensure transparency in the marketplace, help link risk, performance and reward, and encourage a culture of prudent behaviour focussed on the long term.
Therefore at the G-20, Canada will be encouraging a strengthened financial sector through regulation and improved coordination between regulators. But Canada will not go down the path of excessive, arbitrary or punitive regulation of its financial sector.
The second major G-20 policy priority has been to drive globally-coordinated stimulus measures, both monetary and fiscal. We believe it is important to stay the course, but only for now. The Canadian government stands by its conviction that fiscal expansion, enhanced government spending, and increased fiscal deficits were necessary during the recession.
Domestically Canada has implemented the $62-billion ‘Economic Action Plan’ which has soared above and beyond our G20 commitment, estimated at 4 per cent of GDP over 2009 and 2010.
Canada’s Economic Action Plan was intended as an immediate jolt to the nation's economy while being ever mindful of our country's long-term future. It includes permanent tax reductions and help for the unemployed. The Plan provides for the creation and preservation of jobs through massive infrastructure spending across the country; investments in innovation through improved infrastructure at colleges and universities and support for research and technology; support for industries and communities most affected by the global downturn, including in the auto sector and the forestry sector; and improved access to affordable financing for Canadian households and businesses.
We must be careful not to prematurely declare recovery completed, it is too soon to abandon stimulus programs, but the time has come to start thinking about a strategy to exit them. The long term implication of too much state intervention is: renewed inflation, rising interest rates, crowding out of investment and prolonged sluggish economic performance. We must strike the right balance.
Canada will complete its two-year Economic Action Plan, its fiscal stimulus measures, in support of its economy and will meet all promises made at earlier G-20 meetings.
However, our soon to be delivered budget will outline a series of measures designed to reduce our deficit and return to balanced budgets in the medium term.
I would like to now briefly touch on global trade and growth strategies. Growth in global trade has been largely responsible for the creation of wealth worldwide. Enhancing trade and resisting protectionism are both essential to the new world economy. The G-20 has said this at every meeting.
Of course there have also have been national actions that detract from this goal. Even so, we have thus far avoided anything like the protectionism that turned the stock market crash of 1929 into a decade-long depression.
In Canada, we have tried to be leaders in promoting free trade and open markets. Our stimulus package did not raise tariffs, it lowered them unilaterally. Since 2006, we have concluded free trade agreements with 8 additional countries and we are engaged in 6 other negotiations, including with the European Union. We will continue to resist protectionism and work to reduce or eliminate tariff barriers.
However, at Pittsburgh last year, the G-20 went beyond merely advocating for free trade and against protectionism as a basis for promoting global growth. The G-20 established what was named the ‘Framework for Strong, Sustainable and Balanced growth’. Much of what that Framework prescribes takes us in the right direction.
It speaks especially of consensus at the macro level on the causes of the recession and the mutual commitment among G-20 members to coordinate their policies. However, this is where G-20 partners must embrace enlightened views of sovereign behaviour. Otherwise we will pursue strategies that do not produce mutual advantages or that cannot be sustained, like ‘Drop your tariffs, I’ll keep mine’ or ‘Let your currency trade at market rates, we’ll keep ours undervalued.’
We should know from the terrible experience of the 1930s that strategies that make it more difficult for somebody to do business inevitably make it more difficult for everyone to do business. Notions rooted in a narrow view of sovereignty must be reconsidered.
We cannot do business as though for one to have more, another must have less. It is not true. And therefore it cannot be the path we take.
Canada’s ambition – the necessary condition for success as the G-20 moves forward – must be a shared belief that the rising tide of recovery must lift all boats, not just some.
It doesn’t matter what global structures we decide for our mutual betterment, if we don’t have the right global attitudes, they will not work.
With global co-operation, co-ordination and good-will we will achieve financial sector reform, adequate stimulus programs and global trade and growth strategies to assure economic recovery and sustainable growth.
