Session Two: Is The Global Crisis Really Over?
9:30AM-11:00AM, November 13, 2009
A dialogue on the state of the global economy led by:
- HE Prime Minister Dato’ Sri Najib Razak of Malaysia
- Dr Victor Fung, Chairman, International Chamber of Commerce and Group Chairman, Li and Fung
- Mr Madhu Koneru, Group CEO, MEC Holdings
- Dr Luis Alberto Moreno, President, Inter-American Development Bank
- Mr Dennis M. Nally, Global Chairman, PricewaterhouseCoopers International Ltd
- Mr Robert Zoellick, President, World Bank Group
Moderated by Dato Timothy Ong, Chairman, Brunei Economic Development Board
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Although macroeconomic indicators have begun to improve and there are signs that the global economic downturn has reached an “inflection point,” there is still much debate over the true significance of the recent mini-recovery. Some analysts now predict a “square-root” shaped recovery, with slow to moderate growth in the medium-term. The more pessimistic expect a “W” shaped or “double-dip” recession, with a renewed slowdown to occur in 2010.
The APEC CEO Summit 2009’s first panel discussion took note of these issues, and explored the challenges and opportunities for the global economy in 2010. With the economy in a fragile state of recovery, the panel discussed ways and means to manage the recovery process, particularly exit strategies governing stimulus packages and new oversight and regulatory designs. Although significant challenges remain ahead, the panelists argued, governments and businesses should capitalize on growth opportunities, especially those in developing countries.
This dialogue was moderated by Dato Timothy Ong, Chairman, Brunei Economic Development Board. On the panel were six leaders, representing different geographies and backgrounds. They included: HE Prime Minister Dato’ Sri Najib Razak of Malaysia, Dr Victor Fung, Chairman, International Chamber of Commerce and Group Chairman, Li and Fung, Mr Madhu Koneru, Group CEO, MEC Holdings, Dr Luis Alberto Moreno, President, Inter-American Development Bank, Mr Dennis M. Nally, Global Chairman, PricewaterhouseCoopers International Ltd, and Mr Robert Zoellick, President, World Bank Group.
Four main themes surfaced as the panelists made their presentations: the worst of the crisis was over, exit strategies for stimulus packages must be managed carefully, challenges such as financial sector reform and completion of the Doha round still remain, and that the crisis has unearthed new opportunities for investment.
The first theme that panelists conveyed was that the worst of the global economic crisis was likely over, but it is important to recognize that the recovery is not universal. The rate at which the economy recovers from the shock of the financial crisis is uneven in different parts of the world and in different types of economies. Dr Victor Fung and Mr Dennis Nally emphasized the need to look beyond the surface of the financial recovery, to the “real economy”, where job losses and other impacts from the economic crisis are just starting to affect the man on the street. “Fixing the financial system stops the bleeding, but the body is still hurt – we need to fix demand in the world,” Dr Fung said.
The next theme to emerge was that the sustainability of the recovery must not be taken for granted. Panelists argued that although national stimulus packages have carried economies through the most difficult period of the financial crisis, but questions remain if the improvements seen are a just a false dawn. PM Najib cautioned that the world cannot afford a premature withdrawal of fiscal packages; there must first be real recovery led by the private sector. He also warned that countries must avoid the knee-jerk reaction of implementing protectionist measures. Mr Fung agreed with this assessment, and cautioned that this reaction could result in a quid pro quo trade war.
The third theme addressed the sense that the global economy still faces significant challenges. Mr Madhu Koneru articulated that businesses need to remember to keep their fundamentals strong, and to resist the impulse to favor short-term gains over long-term planning. He asserted that companies today need to build business models which are sustainable for the next generation.
All panelists agreed that the financial services sector is still weak, and much more needs to be done to improve regulations and oversight. Mr Dennis Nally noted that fissures in the financial system remain to be fixed. PM Najib emphasized that the world needs a new financial architecture. Reforms to the system must be implemented, he said, such as better regulatory mechanisms, and increased supervision, especially over “fancy derivative products”.
PM Najib also emphasized that, in order for countries to capitalize on new opportunities, there was an urgent need for countries to look at reforms to make their economies more competitive and better connected to other economies. These domestic reforms should proceed in tandem with international measures.
All also agreed that a rebalancing of the global economy was in order – consumption patterns are being redefined, although hopes that East Asia will lead the recovery are very much dependent on whether consumption in the East can increase to match or surpass the West’s growing tendency to save today. In Asia, Mr Robert Zoellick cautioned that social safety nets must be improved if this is to happen. In the West, Mr Zoellick pointed out that consumer confidence is still fragile, and consumption patterns would react strongly to any future shock.
Panelists also agreed that the global trading system will be an integral part of the recovery. There is no substitute for the recovery of trade if the global economy’s recovery is to be cemented. Multilateral systems must be improved and strengthened, while the flow of goods and services in the global economy must be further facilitated.
Panelists, especially Dr Fung and PM Najib, emphasized the challenge of accumulating political will, especially in the Asia Pacific, in order to complete the Doha Round of WTO negotiations. Panelists identified this as an area where APEC to could contribute, by spurring Asia-Pacific economies to push forward with the Doha Round, thereby sending a message to the rest of the world.
Another challenge to cementing the global recovery is whether economic growth can be balanced with initiatives to create sustainable development and mitigate climate change. Mr Nally felt that although the private sector is willing to address the climate change issue, there is currently no framework for companies to play by. The consequence is reluctance by businesses to adopt new policies. He believes that the governments and businesses must be proactive, and bring needed clarity to goals surrounding the sustainable development issue.
After laying out the challenges, the fourth theme of the panel discussion centered on identifying the opportunities for investment unearthed by the crisis, especially in less-developed economies. Both Mr Zoellick and Mr Luis Moreno concurred that developing countries, especially Latin America, presented many more investment prospects than did developed ones. Some developing countries were not only the last to be hit by the crisis, but also some of the first to recover. This is thanks to the fact that these economies had few toxic assets, good solvency rates, low loan ratios. Moving forward, Latin America along with many other developing economies will have increasing account surpluses and low debt to GDP ratios. This makes emerging economies, despite their inherent risks, a potential prime destination for foreign capital and trade, especially in the Asia-Pacific. So although many challenges remain, the potential for growth in developing regions is but one of many opportunities that the crisis has presented.
