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Stephen Long with the week in economics -

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Stephen Long with the week in economics

Broadcast: 03/04/2009

Reporter: Leigh Sales

Stephen Long joins Lateline for the usual Friday night chat on the economic topics of the week.


LEIGH SALES, PRESENTER: Here to analyse the outcomes of the London G20 Summit is Economics
Correspondent Stephen Long.

Stephen, what do you make of the end result of the G20?

STEPHEN LONG, ECONOMICS CORRESPONDENT: Well, Leigh, the first thing to note is what's not in the
communique: any commitment to extra fiscal stimulus and any mention of toxic assets and ridding the
banks of those toxic assets - the big issue that Kevin Rudd mentioned on a regular basis in the
lead-up to the meeting. And this stands in stark contrast to the so-called "Sherpas' meeting" and
the communiqué out of that when the finance ministers and central bank governors met in mid-March.

They said that the key priority was getting the flow of lending going again by recapitalising the
banks and ridding them of impaired assets. So what do we make of this? They're presuming that the
Geithner plan is the answer, perhaps. But, it is a surprise that there wasn't more made of the
urgent need to recapitalise the banks, restore lending, other than a vague commitment to doing
"whatever it takes".

LEIGH SALES: So, are there some initiatives out of this that will make a difference in the here and

STEPHEN LONG: The big issue is the tripling of the budget for the International Monetary Fund and
also the fact that they're allocating $250 billion towards restoring trade finance. Now, we know
that there's been a collapse in world trade, a 24 per cent fall in the last three months of last
year and it's continued into this year. Getting trade finance going again, finding a way to
actually get ships moving and allow people to restock their shelves is seen as a key, particularly
to rescuing the emerging economies. But again, there's no detail about how this is going to work.
And the way I read the communiqué, there's also some double counting, because it seems to me that
$250 billion comes out of the money that's been allocated to the IMF.

LEIGH SALES: So, do we have a new world order on financial regulation?

STEPHEN LONG: We had the sketch, a pretty basic sketch. You wouldn't even call it, really, a
blueprint for a new world order on financial regulation. There isn't really detail about how it's
gonna work, Leigh, other than talk that we're gonna do it through the financial stability board, as
it's being renamed, the financial stability forum, which actually missed the crisis in the first
place. But, clearly, there is a plan that there's gonna be more regulation of hedge funds and the
shadow banking system, as you would expect.

But when we talk of a "new world order", what do we mean? In the lead-up to this meeting, there was
a lot of talk about a new world order being a redefining of the relationship between East and West.
And, in fact, there was talk from key opinion leaders about the need for this meeting to forge what
was known as "the grand bargain" between China and the United States, where China would be
convinced to actually save more of its income on a national - sorry, spend more of its income on
its own domestic economy, and the West, and America in particular, would be convinced that it
actually needed to save more and spend less to end the debt-fuelled binge, and the big structural
imbalance of the money flowing from China to the West to fuel that debt-fuelled binge. Now, that
really hasn't been addressed at all in this. Big ask, I guess.

LEIGH SALES: So - well, Stephen, if there are all these shortcomings that you point out, why have
the markets rallied?

STEPHEN LONG: A bit of a relief rally that there was unity at the end, after signs of division. But
I also think that there was a key issue outside of this agenda and that was changes to the
accounting rules in the US, Leigh, which will mean that banks don't have to writedown these toxic
assets to their current values and will therefore be able to book higher profits, at least on
paper. That was a big part of that rally.

LEIGH SALES: Stephen Long, thank you very much. Have a good weekend.