After DC

We may have paid a lot of attention to ourselves, but at Washington not much attention was actually paid to our prosaic positions. To be fair, the meet itself was a bit damp, with the incumbent president not coming out to play. A tired media and a scared world took notice only of Montek’s statement that in unconventional times you have to think unconventionally. Maybe the follow-up to the meeting of finance ministers in Brazil will be more productive in details.

There are some interesting approaches which may be picked up by Obama’s team, which has let it be known sotto voce that the Washington meet was not of much consequence. The meeting of the G-20 FMs and central bank governors in November was of significance because Brazil took over the chair, at the group’s 10th anniversary. At the time, in John Kirton’s collection of position papers G-20 at Ten, Larry Summers underlined the process itself as important. Tracing its founding to the understanding a decade ago at the highest levels in the US that the IMF was incapable of solving a major crisis, he points out that the US might have managed to bail out Mexico, but what would happen if they did not share a 2000-mile border? He points out how the Canadian PM, Paul Martin, and his colleagues “worked very hard to establish an enduring grouping of finance ministers and central bank governors that could assure political level discussion of international problems with an agenda set by political leaders rather than any international organisation”.

Another “sherpa” at past G-20s, Bob Fauver, says in the same volume that the need to fight stagflation, Inflation with no growth, is the principal problem the new US administration will face. When the worst is over, after the bailout, growth will still be slower than this year and unemployment will follow, he says. We need urgently to recognise all this rather than be flamboyant about “We’re decoupling, we are still growing and will grow at nine per cent next year” cavalierism. Three months ago, I was confident that this year we would grow at six and a half to seven per cent, but the real problem would come next year. Earlier this month, speaking with an American official group, I could say that my forecast for this year was still the same; but now that the erosion of export and investment demand is in, we could expect growth next year of around five per cent. When I was speaking, the news of a six per cent forecast came in from the IMF and worse has come in since. As the diamond polishers post a loss of a lakh jobs, the textile industry half a million, and it goes on, we need the much announced immediate infrastructure programme and at least a framework to seriously talk of the next year. This is important at home, and to be taken seriously abroad. If every fortnight we reduce our growth forecast by half a per cent our word will carry little weight.

... contd.

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