Perhaps the shape of the emerging new global economic measures is beginning to emerge in odd hints and phrases here and there.

According to news reports in relation to British Prime Minister Gordon Brown’s visit to President Obama, Prime Minister Brown favours:

(a) coordinated measures to stabilise the world economy,
(b) reform and new regulation of the banking system and
(c) increase of the International Monetary Fund's firepower to help countries hard hit by the crisis.

Let’s take these one by one. Clearly (c) is not possible without enhanced contributions from one or more countries, unless the entire system for financing the IMF is going to be revamped – not impossible but, as there is no public news of what a new system for financing the IMF might be, no comment on that is possible. So let us stick to “enhanced contributions by one or more countries”. It is not clear, at this point in history, why countries would allocate their (relatively limited) financial resources to a multilateral agency rather than use those resources themselves in direct diplomacy to support their own direct interests in neighbouring or distant countries.

However, let us be optimistic and assume that at least some countries are willing to put some more of their money into the IMF system. The question is: if all the money that could possibly be provided by all the countries in the world were actually put into the IMF, would that be enough to help the number of countries that already need help – let alone the increasing number of countries that will need more and more help as the crisis worsens and before we emerge from the crisis? In other words, unless steps are taken to counter the crisis itself, providing money to the IMF itself is simply more of an effort to muddle through which will be unsuccessful.

Or let’s take item (a). It is fairly clear that countries are already “co-ordinating” as much as possible, so “co-ordination” itself doesn’t hold out much hope, unless there are new FORMS of co-ordination that are being proposed – and we have no hints at present about what such new forms of “co-ordination” might be. Some forms of co-ordination could be dangerous to human freedoms and should be rejected, as I have argued in my "Open Letter to President Obama"

That leaves item (b), which has two elements: REFORM of the banking system, and REGULATION of the banking system. Again, as we don’t know the details, it is not really possible to comment on these. So we await the details with interest. Meanwhile, suffice to say the following:

1. Reform of the Banking systems alone will not do the trick, without REFORM OF FINANCIAL AND MONETRY SYSTEMS WHICH IS NEEDED AS WELL.

2. Insofar as the banking system itself is concerned, the danger today is what we might call “over-reform” and “over-regulation”. Better to go for the “minimum necessary regulation” – and I have already proposed that that might focus on creating complete transparency in all forms of leverage (not merely in terms of supposed Value At Risk), and on creating a counter-cyclical system of leverage for banks – the requirement to loan more at crisis times, but less at times when the economy booms, in order to discourage loans and encourage investments.

3. The tax system, internationally, also needs to be reformed to encourage investments and discourage loans. Again, I have commented on this elsewhere.

Prabhu Guptara