Governments have been obliged to examine the policy options available to them. This has involved re-examining history, to see if previous crises offer any lessons, but in many ways the contours of the world economy have changed. There is therefore a need to align policy with future needs and to seek a more sustainable growth path.
Jacob Lew noted that the modest improvement in growth prospects evident in the latest OECD Economic Outlook stems in large part from the aggressive and well-coordinated action by national governments and multilateral bodies around the world. Having recognised the need for such co-operation to deal with the crisis, governments should not lose sight of the need to continue their co-ordination efforts going forward. The US stimulus package, which amounts to 5.6% of US GDP, has been complemented by stimulus measures averaging 4% of GDP across all OECD countries. While this policy stimulus needs to be maintained in order to ensure a strong recovery, in the longer term governments need to chart a path back to fiscal discipline.
But in the meantime, there are a number of areas where further international policy co-ordination would pay dividends. These include dealing with reforms to financial regulation, health care systems, particularly in the US, policies towards bribery and corruption, climate change, and improving food security in developing countries. All of these challenges demand international cooperation.
Looking at Asia's experience of this and earlier crises, Hur Kyung Wook noted a lesson from Japan: that restoring the health of the banking system is a key requirement if the recovery is to prove sustainable. Structural reforms will also be necessary to prevent similar problems from recurring. Fiscal stimulus has added considerably to costs and has been necessary to spur recovery, but in the longer term, re-establishing fiscal soundness is key. Asian experience also suggests that efforts to spur trade are important.
But unlike the earlier Asian economic crisis, the current downturn started in the US and Europe. Although Asian financial firms had limited exposure to the initial sub-prime crisis, global financial links meant that Asia was also hit hard. Closer economic integration has provided benefits but has also raised the risks for Asia. In order to mitigate these risks, the international community needs to work together to ensure the availability of liquidity. One approach might be a system to pool reserves between countries to provide a degree of insurance, he suggested.
Ron Blackwell noted that, although the standard analysis is that the financial crisis spilled over into an economic crisis, there were real macroeconomic imbalances even before the recession began. Asia's experience proves the need for insurance against adverse capital flows, which is part of the reason that many Asian economies have built up surpluses to protect themselves against such risks. The need to fix the global financial sector is clear, but there is also a need to deal with global economic imbalances. It will be difficult for China and the US to achieve this bilaterally, so a broader, co-operative approach is required.
Asked by Mr Dutta how US workers are reacting to the crisis, Mr Blackwell noted that they are very fearful, particularly over employment prospects. But workers are also angry about the fact that they appear to have borne the brunt of the cost. For Mr Blackwell, the short-term imperative is to create employment.
In questions from the floor, one delegate asked what was being done to increase transparency and to fight corruption. In response, Mr Gurría predicted that public anger will force governments and regulatory authorities to be more transparent in future. Anti-bribery measures have been stepped up, and progress in the areas of tax havens and anti-corruption measures has increased significantly, partly because tolerance on this issue has dropped to zero.
*This is a summary of a session on the OECD Economic Outlook No 85, held at OECD Forum, 24 June 2009. The moderator was Soumitra Dutta, Dean of External Relations, INSEAD, France. Speakers included Ron Blackwell, Chief Economist, American Federation of Labor-Congress of Industrial Organizations; Hur Kyung Wook, Vice Minister, Ministry of Strategy and Finance, Korea; Jacob Lew, Deputy Secretary of State, US Department of State, United States; and Angel Gurría, Secretary-General, OECD, who had presented the OECD Economic Outlook alongside Jorgen Elmeskov, Acting Chief Economist, OECD.
For summaries of all sessions and more information on OECD Forum 23-24 June 2009, go to www.oecd.org/forum2009
©OECD Observer No. 274, July 2009