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Jury's out on rescue plan -

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Reporter: Stephen Long

TANYA NOLAN: Joining me now in the studio to analyse the outcomes of the London summit is our
economics correspondent Stephen Long.

Well Stephen you heard the plan is being billed as historic. Is it?

STEPHEN LONG: Well I think the answer is it is historic, but I noted Tanya that it was also billed
as a turning point on the road to recovery and they are two separate issues. Yes, it's historic. Is
it a turning point on the road to recovery? Perhaps the answer to that is no.

It's historic in the sense that it's moving towards a less US-centric world and moving towards
tougher global oversight of financial institutions and the shadow banking system, as one might have

But what will that do for the current crisis? Basically that's a blueprint for building a new
house. It doesn't do anything about the fact that the house is burning down right now.

And the big thing that's left out of this communique is any firm plan about how to rescue the
global financial system and the insolvent banks, particularly in America.

And it's been noted by just about all and sundry that unless the US banking system and the global
financial system that flows from it is restored to health there can be no sustained recovery.

TANYA NOLAN: So you can't see anything to make any difference in the short term to the financial

STEPHEN LONG: No not really, not beyond what the communique notes that they've already done -
looking at $5-trillion in stimulus packages. And they are saying we'll do whatever it takes to
restore financial systems. But there's nothing new in terms of those initiatives.

The one thing that will make a difference, but it's essentially palliative, is this massive
increase in funding to the International Monetary Fund. And that isn't just a quantitative issue
Tanya; it's also a qualitative issue.

Previously under the IMF there were restrictive credit lines and company, countries rather had to
submit to onerous requirements to access them and they could only get certain money with certain
limits. They had to do all sorts of macroeconomic policy changes to get the money.

Now there's going to be a system of special drawing rights which will basically mean that the money
can flow without conditions to countries - up to $250-billion - plus there will be more flexible
credit lines.

The hatred of the IMF which imposed fiscal austerity on countries in return for money will be
mitigated by that and that's a real positive in terms of stemming the fallout of mass unemployment,
poverty, hunger in the developing world.

The other issue that really isn't addressed is basically how you keep the flow of funds going as
countries seek to raise all this new money. And there is already talk of a sovereign debt crisis;
the IMF stuff might help ameliorate that but it doesn't solve that problem.

TANYA NOLAN: Well markets have rallied in response to the outcome. Doesn't that suggest that it's
inspired some confidence of a turnaround in markets somewhere?

STEPHEN LONG: You could almost suggest, I don't think that this is the case but you could almost
suggest that some of the division before this meeting was orchestrated to achieve that outcome
because basically what we had was appearance of a split, then a show of unity and relief on markets
that the world's leaders had come together to sign this historic document.

Now the question about whether that market rally will be sustained depends entirely on whether the
optimists are right that there are already tentative signs that the policy prescriptions put in
place are doing some good and we will be looking at coming out of this crisis in 2010, albeit with
very, very constrained economic growth; or whether the pessimists are right and we ain't really
seen the full impact of it yet and we're going to get another vicious cycle as the real economy is
further hit with rising unemployment throughout the world, loan losses in business and consumer
markets and households going to the wall, and that leading to a further banking crisis.

TANYA NOLAN: Much more of the tale to be told. Economics correspondent Stephen Long thank you.