It took months for the prime minister to admit (four days ago) that the global slow-motion meltdown has had negative effects on the Turkish economy, while the opposition has not yet displayed any skill in building campaigns around that issue.
However, İstanbul is different from Ankara. As is the rest of Anatolia. “You would be surprised how many small companies have declared bankruptcy in the past month or so,” a prominent banker told me. “Those are the ones that got hit big time in the first wave of the crisis.”
So, sensitivity makes İstanbul a symbol for sending alarm signals. Therefore, on Saturday, a group of some 50 experts, economists, financial analysts, bankers and businessmen gathered in the gigantic hall of the British Consulate General to brainstorm about paths and patterns to get out of the downward spiral that is dragging the entire world into an unprecedented depression. In an all-day meeting organized by the Global Political Trends Center (GPoT), (www.gpotcenter.org), ideas were aired with the hope of aiding the most important meeting of the year (perhaps, of the decade) about the world economy: the G-20 summit due to take place on April 2 in London.
Since a businessman from a young businessmen’s organization surprised us at the meeting with the finding that “lots of our members, a majority, had no idea at all what the G-20 was about,” there is good reason to recapitulate what it is and does.
Established in 1999, the G-20 is the Group of Twenty Finance Ministers and Central Bank Governors, which brings together developing and major economies to discuss key issues regarding the global economy. The aim is to support growth and development worldwide by strengthening the international financial architecture. The realization that the G-7 and G-8 formations were insufficient and exclusive of the key emerging market countries is now crystal clear.
That is the reason why the meeting of Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, the UK, the US and the EU in London is given so much importance. The outcome of the summit can set the tone for an efficient road map out of the crisis, by at least shortening its length and at best leading to global structures to avert anything similar from threatening the world economy in the future.
The London summit has three pillars: a) Restore confidence in markets; b) Seek ways to avoid protectionism; and c) Develop mechanisms in favor of employment and prosperity.
In that context, some highlights of the İstanbul meeting were the following:
We see the dawn of a new global economic order. But before that we must be prepared to expect two more tremors, one in Eastern Europe and the other in China. When we rise to the occasion, both innovation and action are needed. Medium-term financial discipline is needed until we are ready to discuss the new order. Financial incentive packages for emerging economies will be necessary. In order to boost demand in domestic markets, the links between banks and companies must be strongly established.
The main problem was an inability to evaluate risk. In the US, the mathematical formulas and models have gone beyond rational to irrational. Exchanges in the finance sector will have to be regulated and fully transparent.
Without dealing with the financial/banking sector, dealing with the problems of the non-financial economy will be very difficult and simply wrong. Much time has been wasted in finding ways to get rid of toxic assets: a lot of words, but no action, further delaying crucial steps. Toxic assets must be taken out of the balance sheets. Turkey’s Savings Deposit Insurance Fund (TMSF) model could be a solution. A key issue will be whether or not the US and Europe will reach a common understanding on the nationalization of “zombie banks.”
Protectionism is a dangerous alternative. Particular responsibility will fall on countries such as France and Germany, which must take the lead in avoiding protectionism, a potentially contagious phenomenon.
A financial UN must be established sooner rather than later. For this, the G-20 could be a platform for shaping a “global view” on the crisis.
My conclusion is that at the critical juncture the world faces, the success of the London summit will be dependent on progress on these key issues: consensus, control, transparency and preparedness.