India asks developed nations to shun protectionsim

As leaders of the world's richest and influential developing countries prepared to meet in London on Thursday on how to fix the global economy, India asked industrialised nations to shun protectionism in trade, a view strongly endorsed by host Britain.

Articulating India's position before he left for London for the second G-20 summit, prime minister Manmohan Singh said it was important for the grouping to take "credible decisions" to help halt and reverse the current slowdown and instill a sense of confidence in the world economy.

British prime minister Gordon Brown also stressed that the G-20 leaders must give "oxygen of confidence" to the global economy.

"There are some issues which require particular focus such as the need to ensure the adequate flow of finances to the developing countries to overcome the reversal of international capital flows...the need to avoid protectionism in trade of both goods and services," said Singh, who is making his first overseas trip after the coronary by-pass
surgery he underwent on January 24, in a pre-departure statement in New Delhi.

Endorsing India's views against protectionism, British prime minister Gordown Brown said the current global crisis should not not make countries "retreat into the dangerous protectionism which in the end protects no one".

Brown, a former Chancellor of Britain, said the mistakes of the 1930s should be avoided.  "Never return to protectionism and isolationism of the past," he said at a welcome ceremony for Australian prime minister Kevin Rudd.

There is need for "coordinated fiscal stimulus by major economies to offset the decline in private demand, agreement on a set of principles to plug loopholes and weaknesses in the supervisory and regulatory arrangements...", said Singh, who is leading a high-level delegation.

Singh while asking developed countries to steer clear of protectionism  said the G-20 should work towards restructuring and reforming the international financial institutions.

At the summit to be also attended by US president Barack Obama, Singh is expected to make a strong plea to nations for avoiding the temptation to resort to protectionism for short-term gains.

The prime minister said considerable amount of preparations has been done ahead of the Summit including for an agreement on a set of principles to plug loopholes and weaknesses in the supervisory and regulatory arrangements for the financial institutions.

In a reflection of how the world was looking to India in finding solutions, the US said it expected New Delhi to play a greater role along with China in tackling the current financial crisis. Treasury secretary Timothy Geithner also said the US supported bigger responsibilities for India in the international financial institutions.

The G-20, an informal grouping of finance ministers and governors of the economies, account for 80 to 90 per cent of the world's Gross Domestic Product (GDP was atttended at the level of Heads of Government for the first time in November last year in Washington.

Manmohan Singh is also expected to voice a strong demand that multilateral development flows for development should not not dry up.

Amidst stiff demands from US and the UK that there should be a stimulus package to kickstart the economy, there are signs that the Summit, being hosted by Britain, which had organised a similar conference at the height of the Great Depression of the 1930s, may not agree on a coordinated action to pump money into the world economy to get the major economies out of the worst recession in decades.

It is another story that the earlier British experience of a global summit in the last century with the presence of eminent late economist John Maynard Keyenes was not a very happy experience as it was not seen to be a success then because of the US' reticence.

But now Britain and US are on the same side campaigning for governments to pump in more money into a stimulus package while countries like Germany and France want immediate reforms of the financial institutions, whose collapse is seen as the main cause of the crisis.

India has voiced concern that there are already signs of shrinkage of the global trade in the wake of the economic slowdown after the financial meltdown triggered by the collapse of some of the multinational financial institutions.

New Delhi also feels that individual countries will agree on stimulus package as they feel the need for it.

"One area we would like to see some action is in the area of protectionism. We have seen some countries have taken steps towards protectionist as measures to tackle the immediate problem," Foreign secretary Shiv Shankar Menon told the media on what India expected from the Summit adding, countries should avoid this temptation.

Brown said the current global crisis should not make countries "retreat into the dangerous protectionism which in the end protects no one".

"We are depending on a system in which anything happening anywhere impacts people everywhere," he said.

"I am an an avid supporter of the free market, free trade, global capital and globalisation and a system of global development. The crisis has a global source and the solution is also global."

"The global leaders must give oxygen to the world economy. We must clean up the banking system, set right policies relating to tax havens, fight massive unemployment. We must create and save 20 million jobs. We must reshape the global financial system on share global and moral values," Brown said in his speech to faith leaders at the St James Cathedral.

India would like that developed countries do not resort to protectionism that would badly hurt the global economy, especially the developing economies fighting the spill-over effects of the global downturn.

Another area where India would expect some agreement will be to see that the present difficulties do not lead to shrinking of development flows to the poor nations.

The Washington Summit saw as the "root causes of the current crisis" market participants seeking higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence.

"At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system," said the Declaration of the Washington Summit on Financial Markets and the World Economy.

Menon feels the London Summit would agree on an immediate regulator framework in this regard. 

As world leaders begin gathering here, the Australian prime minister has said that negotiations over the level of a fiscal stimulus may come about at another Summit that may be needed. "There will be a further summit, well in time for 2010, I assume, which will actually look at what metrics, what numbers, will be needed then."

Countries like Germany, France, Australia and China are said to be hesitant about agreeing on further tax giveaways or benefits increases campaigned by the US and Britain.

There are fears that the London Summit may focus more on easily achievable goals such as tax havens rather than ensuring commitment to specific goals on spending and protectionism.

A draft G-20 communique, leaked to a German news magazine, suggests that Britain wants the joint statement to herald a USD 2 trillion fiscal stimulus but this figure still needs to be agreed.