Setting the standards and building confidence

Angel Gurría, Secretary-General of the OECD

When leaders of government, international organisations and civil society from around the world gather for critical discussions at the OECD summit meetings in Paris this June, one question will dominate the agenda: Is enough being done to restore confidence and long-term growth, and break the grip of the worst global crisis of our times?

Chairing the Ministerial Council Meeting on 24-25 June will be Prime Minister Han Seung-soo of Korea, who is well-placed to share Korea's own experience in overcoming the Asian crisis a decade ago and whose efforts may lead Korea to be one of the first OECD countries to emerge from the current downturn.

The OECD Economic Outlook, due for release on 24 June, will point to a protracted recession. However, our economies no longer appear to be in freefall, which, after a year of ever dimmer forecasts, is good news.

Still, governments must remain vigorous in their policy actions and not be distracted by "green shoots" of recovery, whether in the form of confidence surveys, or firmer energy and share prices. Encouraging as these signs are, they may reflect the stimulus from the massive government fiscal packages of recent months, and in the case of oil prices, perhaps some speculation as well. Evidence of a real recovery has yet to come through.

Let's be clear, the crisis has dealt a serious blow to our economic systems, undermining confidence, wealth and the productive potential of entire countries. We face a future of higher unemployment and probably lower investment, which will affect performance everywhere, including in emerging markets.            The social crisis presents a costly challenge and is putting severe upward pressure on taxation. Over 11 million people in the OECD area lost their jobs in the year to April 2009, and the total could exceed 25 million by end-2010. Public resources will be stretched in cushioning the impact, assisting the unemployed, safeguarding existing jobs and creating new ones.

Little wonder governments want those green shoots to grow quickly, so they can begin unwinding their emergency interventions and relieve the debt burden. But getting those "exit strategies" right is vital. As the OECD's Strategic Response warns, a hasty withdrawal could be counterproductive for markets and confidence.

Consumers and investors must feel that enough is being done to make the world economy stronger, cleaner and fairer than before. They must be reassured that financial markets will not collapse again, that the risk of a catastrophic "double dip" recession is avoided and that their future is relatively secure.

We can avoid that risk, but the onus is on political leaders to honour their commitments and correct the governance, regulatory and competition failures that gave rise to the crisis in the first place. This means pushing through reforms to improve accountability and risk management, and generally bring private incentives more into line with wider public interests. It means working hard to forge a more balanced, smarter and greener global economy based on well-governed, well-regulated open markets.

The mindsets of OECD policymakers must also evolve. Take development, for instance. Aid budgets are under pressure and donor support is needed to get the Millennium Development Goals on track. But efforts must go beyond that. In 2007 developing countries accounted for about a third of world trade, up from a fifth in the early 1990s. What is at stake for development and trade policy today, particularly where the Doha trade talks and efforts to resist protectionism are concerned, is the systemic health of the global economy.

Nor must governments neglect the fight against climate change. With a "green recovery", governments can hit several targets, including reducing greenhouse gas emissions and spurring innovative long-term growth for all countries.

If there is one way governments really can win back public confidence, it is by making the world economy cleaner. That means improving governance.

The OECD is a global leader in setting the standards for the public and private sectors, thanks to its work on taxation, corporate governance principles, multinational enterprise guidelines, procurement, the antibribery convention, and more. Our international standards unblocked an impasse in the fight against tax havens at the G20 summit in London in April. It is surely time for such international standards to be developed more widely. This would not only help restore public faith, but make it easier to navigate the road to recovery too.

It is proving to be a long and testing crisis, and though there is work to do, we should feel encouraged by the international efforts made so far. We must all maintain this level of co-operation and determination as business, labour and civil society leaders gather with ministers at OECD Week and build momentum for the next major international meeting at the G8 in Italy in July. Only by working together will the grip of the crisis be broken and the outlook brighten in the months ahead.

©OECD Observer No 273, june 2009

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

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