John Chipman
Montek Singh Ahluwalia thank you very much for touching on all the issues likely to be discussed at this forum with such grace and sharpness. Pascal Lamy. The director of the World Trade Organisation (WTO) will be addressing this forum at 11 o’clock on Sunday, and I shall tell him about your hopes for the Doha Round. In the meantime, we are happy to take three or four questions.
Dr Odeh Aburdene, Senior Advisor, CT Capital Trust Group
Sir, in an era of deficits and high borrowing, where is the capital going to come from? You cannot have capitalism without capital.
Montek Singh Ahluwalia
No, clearly capital is going to come from a lot of savings and, I can’t speak for many other countries, but many Asian countries at least have very high rates of saving. For example, India has had a very significant increase in domestic savings. We are still looking for foreign savings to top that up, perhaps something like an extra 2.5% of GDP.
It seems to me that the capital has to be coming to a significant extent from industrialised countries as a reallocation in favour of faster growing countries. You could argue that of the earlier allocation of capital, owing to the financial engineering that was taking place, too much was being reinvested in the industrialised world. As we now know this was in assets that didn’t really provide an economic return.
If you look at it a little differently you see some parts of the world with their aging populations and growth potential of 2% or maybe higher. If it is really true that our parts of the world have a growth potential of 8% or 9%, then at least for the capital needs of these countries, there is a significant possibility of reallocation. In the industrialised world the impetus for growth is really going to have to come from technology. After all, that is the comparative advantage of that part of the world.
Quite frankly, if you are going to handle the climate change problems that we all face, the role of technology in bringing about solutions is going to be enormous. Therefore, I see a logic in reallocating capital towards faster growing countries to support growth and also to earn higher returns for those investing the capital. Major contributions of the industrialised countries could come from the growth in technology which would in turn lead to an increase on productivity across the world. Both capital and productivity have to be important parts of the solution and I think this is how it would work out.
Lara Setrakian, Correspondent and Bureau Chief, ABC News
Thank you for your fascinating remarks. I wonder if you could lift the curtain on the G20 for us a little bit and tell us a little bit about the geo-economic dynamics there? How different is your perspective of agenda items going in? For example, do you feel your voice growing as a result of your growth rate? Also do you have a sense of what the challenges are going to be to make a consensus going forward and what are the flashpoints going to be between the developed economies and those who are now the engines of growth?
Montek Singh Ahluwalia
It is difficult. We are really recent entrants into the G20, and while we are known to express our views, how effectively they are heard is another matter. However, we are quite pleased to have the opportunity to express them. I believe that the big problem we have to recognise with the G20 is that we should not view it as a negotiating forum.
My personal view is that the great value of a grouping like the G20 is that it enables heads of government to interact with each other and not speak from preset briefs. Everybody has their preset briefs, but the need to take a different view is something that I presume can come from the top of governments and the opportunity to exchange views in an informal way. I am personally against overloading the agenda of the G20 and there is a very serious danger that it will get overloaded.
My view as a Sherpa was that the G20 will be measured by the brevity of its press notes that are issued at the end. If they start getting into ten or twelve pages then you know. I do not see any reason why the G20 should not have a press note saying that the G20 met, had a very useful discussion on the economic situation, will continue the discussion because no agreement was reached as the issues are very complex, and we hope to do better next time. That is not easy to do, but it would be a real test of the kind of things that they are supposed to be looking at. You should not automatically assume that a rabbit is going to be pulled out of a hat at every meeting.
Though I believe there is engagement and people are listening to each other, I do not believe that people see obvious answers which can be put on a table and resolved. However, what doesn’t look feasible today may look feasible a year later. I think you need to be able to work towards those possibilities if one can.
Dr Mansoor Al Arayedh, President, Gulf Council for Foreign Relations
You spoke about Greece and the IMF support and so on. I am just wondering about the new commission attempting to have a little bit more control on, for example, pre-budgetary sets for Greece and hopefully even for Spain. Do you see the measures that have been taken by the IMF as enough to stop this problem cascading to other EU countries?
Montek Singh Ahluwalia
I am not an expert on this and have not studied the papers particularly carefully, but my impression is that the real success has been putting out this very large potential liquidity war chest, which has calmed fears of contagions spreading beyond Greece to some extent. Everyone know the numbers, Greece has a very tough situation. They have bought time, but they have a very tough adjustment to go through.
The real problem is that even at the end of that adjustment, the numbers do not suggest that the debt situation will get any better. Therefore, the Greek problem is a very difficult one, and one can only wish the Greek government the best of luck. I believe it is good that the international community was able to step in and at least stem the panic.
Contagion is the biggest problem here. I believe that the worries that were triggered have reduced a bit, but even if time has been bought, the real issue is that it gives more time for everybody to get themselves in better shape. In this case, the next time there is a problem, countries that look a little bit vulnerable today will be less so then. The problem is that to get into better shape is tough.
The IMF has brought out an assessment that says that for the G20 countries as a group, a turnaround of eight percentage points of GDP is needed in order to stabilise the debt situation over the next ten years or so. That is a very big adjustment and it is easier to do if growth is booming along. It is very difficult to do if growth is actually low. In those countries where growth rates are low, if you are slapping on a fiscal contraction in order to bring about debt sustainability, you are putting quite a strain on the political fabric. I would not want to predict how that is going to work out, but it is not easy.
John Chipman
Montek Singh Ahluwalia, thank you very much. We have seven or eight other people who want to ask questions, but I think we will have to take advantage of your enthusiasm for informal discussions in order for those people’s questions to be satisfied. I want to thank you for your enormous contribution in coming here to the Kingdom of Bahrain to open this first Bahrain Global Forum and giving us the benefit of your enormous wisdom. Thank you very much, you have sung for your supper now please enjoy it.
