The Challenge of the Financial Crisis and the Faith in Multilateralism

The Auditorium of the Finnish Institute of International Affairs · 19.01.2009 17:00 - 19:00

The architecture of international cooperation and interaction is under growing pressure. The emerging dynamics will change the playing field of established country groups, international organizations, business, etc. How will this play out? What will be the essential demands, prerequisites, challenges and possibilities for change? And what should be done to improve the efficiency, coherence and legitimacy of the international system in order to tackle the economic and financial crisis, climate change and other global issues?

Keynote Speaker:
Mr. Angel GURRÍA, Secretary-General of the OECD

Mr. Angel Gurría came to the OECD following a distinguished career in public service in Mexico, including two ministerial posts. He acted as Mexico’s Minister of Foreign Affairs from December 1994 to January 1998, and Minister of Finance and Public Credit from January 1998 to December 2000. As OECD Secretary-General, since June 2006, he has reinforced the OECD’s role as a ‘hub” for global dialogue and debate on economic policy issues. Mr. Gurría is also an active participant in various international not-for-profit bodies, including the Population Council, based in New York, and the Center for Global Development based in Washington.

Mr. Johnny ÅKERHOLM, President and CEO for the Nordic Investment Bank (NIB)

Johnny Åkerholm has held various leading positions with the Bank of Finland. He was Under-Secretary of State for Economic Affairs of the Ministry of Finance in Finland, as well as Secretary General of the EBRD in London. Among his other tasks Mr. Åkerholm has been President of the Economic and Financial Committee of the European Union and President of the Nordic-Baltic Monetary and Financial Committee.

Mr. Matti NOJONEN, Program Director, Finnish Institute of International Affairs


Mr Jose Angel Gurría

From the very outset, Mr Gurría made clear the magnitude of his concern over the financial crisis and its reverberations, calling it the most serious occurrence of its kind in our lifetime.

In addition to causing substantial direct fiscal costs, the impact of the crisis on employment rates and consumer confidence is considerable, and has far-reaching consequences. Money is not moving. Banks are not lending to each other, let alone other bodies. As long as the money stands still, the world’s economic engines won’t have the oil they need to keep running. Growth is expected to stagnate this year and global unemployment might jump by over twenty million people. Most economic indicators are dire, and very volatile.

Mr Gurría attributes the crisis to systemic failures: inconsistencies, failures and gaps in financial regulation and supervision. The OECD does recognise the necessity of certain regulation, as this crisis has demonstrated that the general house-buying populace of even advanced market economies like the US are not sufficiently aware of finances and the risks involved.

The present crisis underlines the importance of writing a set of rules for a sustainable future market economy. In that sense, the crisis can be seen as a blessing, serving as a catalyst for structural change and multilateral governance. It requires counter-measures at an international level, thereby facilitating the creation of an internationally compatible, hopefully universal set of rules. Mr Gurría quotes Henry Kissinger in saying that a global economy without global governance is vulnerable – it requires global organisations that govern and coordinate the finances. The leading economies’ interest in broader platforms for international cooperation is evident in the sudden emergence of G20 summits. Before the crisis, G-group summits used to be of a more exclusive nature.

On the other hand, the financial crisis has caused countries to turn a blind eye to other critical issues. Climate change is now yesterday’s news, and the Doha Development Rounds are facing a headwind in spite of the fact that progress in sustainable development and the liberalisation of trade, especially with poverty-stricken countries, would benefit the global economy immensely.

While looking for the right remedy to these hard times, the OECD is committed to nurturing a global economy that is stronger and structurally more robust than before. It wants to see an economy that is environmentally as well as ethically cleaner, void of impropriety and corruption. Finally, the OECD is worried about the widening income gap and social inequality proliferating even within the richest nations, and wants to create an economy that is fairer.

Commentator: Johnny Åkerholm

Mr Åkerholm concurred with Mr Gurría on most points. However, he questioned whether the financial crisis had actually been avoidable with the use of greater regulation or supervision, and expressed some reservations regarding the feasibility of finding international, multilateral solutions to the problems.

Even before the crisis, a set of accounting rules had been laid out in the form of International Financial Reporting Standards (IFRS), which nevertheless failed to prevent microeconomic disturbances that caused asset prices to balloon, thus destabilising the macroeconomic structure. Furthermore, money flooded the markets as a consequence of trade, as for instance China lubricated its export industry by printing surplus money to suppress the yuan’s exchange rate.

All countries struck by the financial crisis share the will and the determination to counter its ill effects. Nevertheless, countries are first and foremost concerned with their domestic circumstances: they promote consumption, but they promote especially consumption of the kind that benefits the national economy. Implementing plans to revitalise the global economy in a manner that actually benefits the entire global economy is by no means an easy task.

Questions from the audience

Answering a question of whether investment in the green sector could be solution to the financial crisis, Mr Gurría replied that the sizeable government incentive packages could be used towards the costly investments required in renewing entire energy industries.

Another question concerned the dangers of protectionism and deflation. Both Mr Gurría and Mr Åkerholm dismissed the merits of protectionism, emphasising that liberalised trade is a path to improved living standards for the poor and the very reason why the world saw such a long stretch of healthy growth before the crisis struck. Deflation may be necessary where prices no longer match real value. However, deflation caused by low consumption easily becomes chronic, taking a long time before bottoming out.

Mr Gurría was asked whether his experiences of the Mexican financial meltdown of 1994 had been a useful rehearsal for the present crisis, but he found limited merit in comparing a nationally confined crisis with one of a global scale. In 1994, Mexico solved its problems by borrowing money from abroad. This time, there is no such option.

OECD Strategic Response to the Financial and Economic Crisis:
Contributions to the Global Effort

(Note by the Secretary-General)