Finance Minister’s Speech in G-20 Finance Ministers Meeting in Busan, South Korea today
The Framework is a signature effort of the G20 and a principal tool by which we aim to deliver in the post crisis scenario. We should recall that after St. Andrews, there was some delay in kick-starting the framework exercise. But, with the cooperation of all member countries and international organizations, we have been able to make good progress. The IMF and the World Bank have given their reports with inputs from other organizations as mandated by Leaders at Pittsburgh. The Working Group and finance deputies have considered these and we have to take some important decisions today, so that we can submit a set of policy options to the Leaders who will shortly meet in Toronto.
However, even as we were deliberating the Framework and the global economic recovery was getting a foothold, we now seem to see the beginnings of another crisis. This underscores the importance of urgently addressing various imbalances that exist in our economies, both external and internal.
The market is sending strong signals that the fiscal situation is a matter of concern. While we should all not rush to fiscal exit at the same time so as not to undermine the recovery, especially since the monetary policy instrument is not very effective on account of continuing instability in financial markets, those countries that have market compulsions may need start the consolidation now. Others can “stagger in” fiscal consolidation. It is critical, however, to clearly lay down credible and transparent fiscal consolidation paths.
And, we need to act before the market forces us to do so. I may point out that fiscal deterioration is a natural corollary of deep and protracted recessions and downturns as governments try to stimulate the economy back to their true potential. This entails ceding some control to markets that have to fund the high deficits. Fiscal consolidation is a natural corollary of the recovery process, as countries can only grow their way out of high levels of public debt.
The Framework exercise highlights the importance of structural reforms as the single most effective policy tool for addressing imbalances and raising growth. Such reforms however entail building domestic political consensus in our countries as there can be short term pain. I fear that they cannot be sold unless they are seen to be creating jobs on a vast scale, as much of the recovery has been jobless in several parts of the world. I suggest that while we need to be ambitious, we need to calibrate the steps for greater acceptability.
We now need to agree on a set of policy actions from the options that have been brought before us and recommend these to the Leaders. We broadly agree with the policy options. However, a very important area that does not seem to have been considered effectively in the Framework exercise is policy options for correcting development imbalances. While growth will be central to poverty alleviation, this will not be enough. We need investments in human resource development and infrastructure in developing countries so that they can become new nodes of sustainable high growth. We need to analyse how resources will be made available. While Official Development Assistance to developing countries alone cannot meet the financing needs of developing countries, we must re-assure the world is that this will not be sacrificed at the altar of fiscal consolidation. Perhaps the second stage of the Framework could focus more on the developmental dimension.
We broadly agree with the need for refining the Mutual Assessment Process in the second stage, but we need to build a consensus on the objectives, and on the process of how to carry these forward. Since policy actions have to be taken at the country level, we have to see how this important dimension can be rolled into the Framework. However, the second stage is best considered after the Toronto Summit, where Leaders are expected to agree on the policy parameters of the first stage. Only once these parameters are clearly known can we outline the scope of the second stage. The entire exercise must be non intrusive, mutually consultative, constructive and cooperative, so that the singular unity of purpose that the G 20 has shown so far is not compromised. As co-chair in the working group on the Framework it would be our endeavour to ensure that this unity of purpose is maintained.
The Framework is a signature effort of the G20 and a principal tool by which we aim to deliver in the post crisis scenario. We should recall that after St. Andrews, there was some delay in kick-starting the framework exercise. But, with the cooperation of all member countries and international organizations, we have been able to make good progress. The IMF and the World Bank have given their reports with inputs from other organizations as mandated by Leaders at Pittsburgh. The Working Group and finance deputies have considered these and we have to take some important decisions today, so that we can submit a set of policy options to the Leaders who will shortly meet in Toronto.
However, even as we were deliberating the Framework and the global economic recovery was getting a foothold, we now seem to see the beginnings of another crisis. This underscores the importance of urgently addressing various imbalances that exist in our economies, both external and internal.
The market is sending strong signals that the fiscal situation is a matter of concern. While we should all not rush to fiscal exit at the same time so as not to undermine the recovery, especially since the monetary policy instrument is not very effective on account of continuing instability in financial markets, those countries that have market compulsions may need start the consolidation now. Others can “stagger in” fiscal consolidation. It is critical, however, to clearly lay down credible and transparent fiscal consolidation paths.
And, we need to act before the market forces us to do so. I may point out that fiscal deterioration is a natural corollary of deep and protracted recessions and downturns as governments try to stimulate the economy back to their true potential. This entails ceding some control to markets that have to fund the high deficits. Fiscal consolidation is a natural corollary of the recovery process, as countries can only grow their way out of high levels of public debt.
The Framework exercise highlights the importance of structural reforms as the single most effective policy tool for addressing imbalances and raising growth. Such reforms however entail building domestic political consensus in our countries as there can be short term pain. I fear that they cannot be sold unless they are seen to be creating jobs on a vast scale, as much of the recovery has been jobless in several parts of the world. I suggest that while we need to be ambitious, we need to calibrate the steps for greater acceptability.
We now need to agree on a set of policy actions from the options that have been brought before us and recommend these to the Leaders. We broadly agree with the policy options. However, a very important area that does not seem to have been considered effectively in the Framework exercise is policy options for correcting development imbalances. While growth will be central to poverty alleviation, this will not be enough. We need investments in human resource development and infrastructure in developing countries so that they can become new nodes of sustainable high growth. We need to analyse how resources will be made available. While Official Development Assistance to developing countries alone cannot meet the financing needs of developing countries, we must re-assure the world is that this will not be sacrificed at the altar of fiscal consolidation. Perhaps the second stage of the Framework could focus more on the developmental dimension.
We broadly agree with the need for refining the Mutual Assessment Process in the second stage, but we need to build a consensus on the objectives, and on the process of how to carry these forward. Since policy actions have to be taken at the country level, we have to see how this important dimension can be rolled into the Framework. However, the second stage is best considered after the Toronto Summit, where Leaders are expected to agree on the policy parameters of the first stage. Only once these parameters are clearly known can we outline the scope of the second stage. The entire exercise must be non intrusive, mutually consultative, constructive and cooperative, so that the singular unity of purpose that the G 20 has shown so far is not compromised. As co-chair in the working group on the Framework it would be our endeavour to ensure that this unity of purpose is maintained.
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