Friday, February 06, 2009

Beyond Davos 2009:The rescue of Global economy

It has been an usual comment these days, about that Davos gathering, did not provided answers to the current global economy crisis. However, what it started as an academic forum ,can not all of the sudden become a platform for economic policy implementation. Taking a broader view , Davos probably helped to pave the way building consensus, for what it is the next meeting on April this year, which it should be really aimed at provide some responses from finance ministers working on solutions since last December the 20th.
What is it the point?.The current global economy crisis seems close to be out of control, as far as global economy policy respond is concern, Governments and monetary authority becomes frustrated with Banks behavior reluctant to lend when risk aversion is very high, no matter that some positive signals( although weak ones)of economic recovery, can develop toward the end of the fourth quarter, as long as all tools are focused in the right target at the right time. Besides, expectations, confidence and trust from markets and consumers, go hand in hand with economic policy implementation which imposes the need for strong leadership. However ,as others analysts have already emphasized, for this outcome to happen, it is key to have clear what the relevant variables are, and what the nature of this crisis is about .
1.-The scheme of ”do something approach”, does not mean to do randomly anything . Whether the goal is to get this economy recession shorter, before it becomes a more severe depression, policy action must be specifically focus on those target with the higher and faster impact on the economy prospect for recovery. -
2.-This time ,it is a matter of global economy recovery, which means coordination must be a plus, when it comes to implement policy responds. It is not just about the US economy, given the fact that there is stronger interconnection between economies, and there is reluctance from American consumers point of view, to be the ones to lead the recovery.-
3.- Most of the focus seems to be orientated toward the demand side of the equation. Well, policy makers can not leave the supply side on the second place. This means, that the focus should be on solving first the financial weakness of banks(the whole financial system) which still have in its balance sheets bad toxic assets, thus affecting their ability to go out to lend to those who can be ready to respond to new business opportunities , arising from demand variables. The nature and core of this crisis, is still a financial one.
4.- The faster the financial sector become the engine it is used to be, the better the chances to have a positive impact from the demand side stimulus package, therefore the higher the probability to have an economic recovery sooner . Right now the financial side of the equation , is at the least of its power, if not it is still off.