NO ‘ONE-SIZE-FITS-ALL’ IN TACKLING GLOBAL RECESSION

http://www.thejakartapost.com/news/2015/09/16/your-letters-no-one-size-fits-all-tackling-recession.html

As Christine Lagarde took center stage, all eyes turned to her. Flashlights of cameras rained down at her. Journalists flocked like moths around her. Her words were gold, luring 'miners' to just dig up for more. It was her highly anticipated speech the audience loved to hear the most. Sitting in the back rows, I could tell that she was the star of Bank Indonesia-IMF joint conference "Future of Asia's Finance: Financing for Development 2015."

The extensive debate and controversy over policies exercised by the IMF over these past years, did not stop experts, academicians, policy makers and practitioners around the globe to hope for more. Pinning down their aspiration on this international financial institution for remedies to cure the ongoing global economic recession, the words of its Commander in Chief on any given event drew all ears. Initially designed to ensure the stability of the worldwide financial system after World War II, the IMF's policies has changed over time, allegedly nuanced with political agenda and vested interest of the world superpowers.

Nonetheless, from my personal observation during the session, there's nothing new on Lagarde’s remarks. It's like an old repetitive forgotten recipe cooked all over again. The aroma was somewhat familiar, the overall presentation was inviting and the taste was delectable, yet it did not jolt my taste buds to yearn for more.

The four "I" formulas namely: Innovation, Infrastructure, Integration and Inclusion are not new concepts among emerging markets policy makers particularly Indonesia. They have been chased and pursued with perseverance albeit without great success due to factors as have been highlighted by the Indonesia's Minister of Finance in the session i.e: legal battle and cultural hindrance. These four strategies are as elusive as the mythical creature.

Notwithstanding, policy makers in Indonesia has launched efforts to maintain its financial stability and resilience right after the 1997/1998 economic crisis. Bank Indonesia is an ardent campaigner to promote financial inclusion, strengthen Islamic banking role in financing, upgrade an integrated payment system gateway and so forth to tackle challenges ahead in achieving financial stability.

Yet, the sharp sell-off in China’s stock market, the main engine of global growth in recent years, has sent shockwaves among market players. China's continued economic slowdown has cast doubt over the future of this Asian Giant. Panic attacks drove market players to make irrational actions.

Further, the uncertainty over the Fed's plan to raise its benchmark rate, gave rise to more volatility. The Eurozone economy hasn't shown any significant improvement either as if time froze into a standstill. The world economy is getting more volatile.

What I find interesting is the refreshing remarks presented by Andrew Sheng, the distinguished Fellow of Asia Global Institute and Chief Advisor to China Banking Regulatory Commission. His was not too technical and basically jargon free. He was matter of factly offered incisive views and critiques on the problems and issues of the current global financial world. The unconventional monetary policies of zero interest rate policy has created oceans of liquidity. The global economy faced increased risk of inflated bubbles as investors easily acquired mountains of highly-leveraged debt that increased their excessive risk taker appetite.

Against this backdrop, Andrew Sheng mentioned the fifth "I" which was actually the driver of inclusive participation in the economy, namely "Incentive" to tackle the global imbalances. He elaborated that Future Finance needed incentives to act or to persuade society to act against disaster myopia in the face of growing evidence of rising risks.

The future is about incentive. It is about long term investment.  It is about risk sharing and it is about ownership. It is no longer about mere personal gain but it should be about social gain for the overall economy to survive together.

He argued that there was a distinctive trait in the analysis of the role of incentives in the current financial reforms.  The combination of excessive management compensation schemes and moral hazard were the two most important incentives that led to excess risk building up in the system. It drove investors to build up empires of wealth with any means necessary. Greed becomes the norms.

One noteworthy lesson from his overview is how he advised that the world economy should adopt the concept of risk sharing as practiced in Islamic Finance. The system in Islamic finance as in Sukuk is about equality. It is about bringing the social benefits of any investment instead of solely personal benefit that leads to greed and social injustice.

In the end, I should agree with Andrew Sheng that there can be no ‘one-size-fits-all’ solution for global problems, because the world is too diverse and heterogenic. This also implies that we can only at best agree on major principles at the global level, with implementation differences for different countries.