Theses of the speech of the Doctor of Economic Science, Professor, Director of the Centre of Fundamental and Applied Research of the Institute of Financial Markets and Applied Economics of Federal State Educational Institution of Higher Professional Education Finance Academy under the Government of the Russian Federation, Lidia Krasavina at the SCO Business Council round table conference (25 December 2008).
In numerous discussions about the world financial crisis insufficient attention is given to its review in terms of systems methodology. In the meantime, to reveal causes and consequences of reproduction and peculiarities of current world financial crisis it is reasonable to use a systems approach. It is of importance for development of the SCO member states’ declaration of intentions to minimize economic and social consequences of the crisis by combined efforts.
Starting point for drafting similar declaration is definition of conception and causes of the present global financial crisis. It is required to prevent varied versions and improper use of terms, as well as often incomparable analogies with previous crises – world and national ones. In the meantime, an outstanding feature of the global financial crisis (often neglected) is rooted in cyclicity and disproportions of the globalizing world economy development, in faster growth of financial globalization. Under the circumstances, world and national financial markets became speculative and virtual for the benefit of their participants and to the prejudice of their primary function – money capital redistribution for the purpose of economy development. This is not by accident that the crisis had begun with dramatic events in different financial market segments.
In the round table programme, prepared by the SCO Business Council, a “financial-economical crisis” term is used and orients correctly towards analysis of financial crisis’s direct correlation with reproduction process. The real origin of the crisis was overheating of the economy, following by economic slowdown and impairment of value. All these factors caused dramatic destabilization of the world and national financial markets and, due to domino effect, crisis spreading to the primary segments of the market economy, integrated to the world one.
When developing a declaration of the appropriateness of joint anti-crisis measures to be taken by the SCO member states it is advisable to take into consideration a double role of the financial crisis. On the one hand, risks of negative consequences continue to deepen up to disastrous economic and social effects. On the other hand, the crisis gives a chance for an economic recovery through weak links liquidation.
However in estimating the role of the financial-economic crisis as a method of economy reorganization it is important to take into account its “cost” in a form of bankruptcy, loss of investors’ and people’s savings, economic and political instability.
Joint measures of the SCO regional organization have a chance to soften drastic consequences of the global financial-economic crisis. In this connection, motivational orientation of anti-crisis measures must be coordinated with advantages of consolidation of mutual cooperation of the Shanghai Six, on the basis of the SCO member states’ chief aim – to guarantee economic security.
In this regard, the actual problem consists in working out conceptual approaches to development of the SCO member states’ declaration of intentions to draft a joint anti-crisis programme. Interaction in trade and economic, political, humanitarian and other spheres, achieved in the framework of the SCO, forms the basis for further actions aimed at overcoming economic and social consequences of the world financial crisis. In this respect, guarantee of feasibility of the SCO’s intentions îf joint opposition to crisis must be implementation of the trade and economic cooperation programme, redefined on October 30, 2008 at the extended meeting of the Council of the Heads of Government of the SCO member states.
Real direction of measures for softening consequences of the world financial crisis is implementation of joint infrastructure investment projects. It is a crucial question because in conditions of crisis, funding and crediting sources were significantly reduced in the world and national financial markets.
To mobilize the SCO member states’ financial potential, with possible assistance of observer countries, in my opinion, it is reasonable to use a principle of state-private cooperation. Legal framework absence of such cooperation is usually compensated in world practice by stimulation of private capital participation in investment projects co-funding.
During preparation of the SCO declaration of intentions to minimize economic and social consequences of the world financial crisis it is necessary to take into account recommendations of the Organization’s member states. The question is about the Prime Minister of the State Council of China Ven Czyabao’s suggestion to make “four steps” toward the SCO social development and joint effective opposition to threats. They are coordination and consolidation of the countries’ investment-economic policy, special economic zones formation in border areas, regional information network development, mutual complementability in geopolitical, technological, investment and market areas, reformation of international financial and monetary systems.
It is reasonable to generalize and use other regional economic associations’ experience, such as ACEAN countries+3, concerning joint measures for national financial markets and currencies protection against speculative attacks by means of information exchange, negotiations etc.
Banks have a special place in minimization of negative effects of the world financial crisis. In Russia development banks are also assigned to implement the government anti-crisis programme. Since a SCO Interbank Association was founded at the head of Vladimir Dmitriev, Chairman of the Board of the Bank for Development and Foreign Economic Affairs of the Russian Federation, it is advisable to mark out an anti-crisis aspect of such an important regional structure’s activity. The question is about cooperation activation between the SCO Interbank Association and United Nations ESCAP for the Asia and the Pacific region countries, Asian Development Bank, Eurasian Development Bank, founded in EurAsEC, and other international organizations.
To coordinate anti-crisis measures, information exchange and the targeted cooperation programme implementation monitoring should be taken into consideration. For the real evaluation of crisis chocks risks in the world and national financial market and their consequences, information on market prices, quotations, interest rates and courses of exchange is required. New information impacts on current operations and forms reasonable expectations, as well as competitors’ adaptation to it.
The InfoSCO’s Information Portal favours the dissemination of information about the SCO Business Council’s and Business Club’s activity. However it is reasonable to use some additional information resources such as publications in major journals about the SCO's activity as a progressive, dynamic and promising regional organization. It is also important to activate scientific potential of the SCO member states’ higher education institutes for theoretical and practical investigation of its activities, in particular, for developing directions to overcome the financial-economic crisis.
The world financial crisis has revealed imperfection of the world economy and policy monopolism under the geopolitical situation changes and appearance of new centers of economic growth and political initiatives. In this connection it is of great importance to coordinate the SCO member states’ position toward polycentre world formation issues in the system of international financial-economic relations. Changes in alignment of forces in the world economy towards the East was shown at the Summit of the Heads of State and Government “G-20" in Washington (November 15, 2008). In answer to the G-20’s suggestion to solve questions of the world financial crisis overcoming through the “Financial Stability Forum”, rapidly developing BRIC countries offered to include developing countries in it.
The UK Prime Minister called upon China and other countries, having considerable international reserves, to finance the IMF and thus to enable it to expanse credits to countries, which had suffered the most from the world financial crisis; and got a counter-offer. In exchange for financial support these countries expect to extend their rights in the Fund management and to increase their role in intergovernmental monetary and economic regulation. As the President of Russia Dmitry Medvedev emphasized at the G20 summit, “while increasing the role of the existing structures, new collective ones must be created for global coordination and regulation.” It is of great importance for reducing risks of next world financial crisis.
It is also advisable to define the SCO’s joint position concerning primary areas of the international exchange system reformation taking into account this process duration, as is shown by history of reorganization of the three previous international exchange systems.
An important issue is also the SCO countries’ joint development of an approach of financial crisis risk forecasting based on accumulated world experience. Crises early warning system varies from information of negative tendencies of increase of crisis preconditions to a package of anti-crisis measures at every stage of its development. The IMF and the World Bank have developed a Financial Sector Assessment Programme to ensure early revelation of its vulnerability signs and analysis of financial crisis risks. However appraisals, based on figures and mathematical models of financial crisis forecasting in isolation from reproduction qualitative analysis, caused inefficiency of developed methods of financial crises early warning system. However, world experience in classification of principles of crises early warning system is of theoretical and practical interest in a series of directions: identification, valuation, analysis, organization, operation, information.
It is recommended to use the Bank of Russia's experience in banks activities problems early warning by using the world practice.
On the ground of the above said it is reasonable till April 2009, when the next Summit of the Heads of State and Government “G-20" will be held, to formulate the SCO member states’ position regarding the world financial crisis and its economic and social consequences overcoming.