Dr M calls for reform to Global Financial System

Call for fresh Bretton Woods-type conclave
T. Ramavarman
ABU DHABI — Former Prime Minister of Malaysia Dr Mahathir Mohamad has called for a fresh conclave of the all the countries of the globe to evolve reforms in the global financial and monetary system to prevent the recurrence of the ongoing financial crisis.

This conference to be arranged along the lines of the Bretton Woods conference of the early twentieth century, should thoroughly examine the lapses and abuses in the present practices and systems that had led to the current global financial crisis with the participation of all the countries, he said.

Dr Mahathir who is also the Honourary President of the Perdana Leadership Foundation was delivering a talk on ‘The Global Financial Crisis: Lessons Learned and Way Forward’ at the Emirates Centre for Strategic Studies and Research, or ECSSR, here on Wednesday night.

Emphasising that the proposed conclave should be inclusive, the practice of some rich nations arbitrarily selecting few countries for a conference to frame prescriptions for managing the economy of other nations should be abolished, he said.
Market cannot regulate itself

He said one of the important lessons to be learnt from the present crisis is that market cannot regulate itself.

The whole idea of market is to make money and if it starts regulating, then the operators in it cannot make money. The idea that ‘‘market will regulate itself,’’ and they should be left completely free, is no more acceptable.

“The Governments must not abdicate its responsibility of regulating the market as a neutral third party. The idea that ‘lesser the government the better’ has come copper in the wake of the global financial crisis. The governments come back, to rule, to introduce laws and to regulate the markets,” Mahathir said.

“The banks and financial institutions must be directed to adhere to the principles of prudence when lending. They should not indiscriminately lend much more than the money they have, and should not lend to people who do not have the capacity to repay. The financial markets should be limited to avoid undue play of speculators and gamblers,” he said.

“Limiting of financial markets may lead to shrinking of the GDPs and per capita income or PCI of nations. But these figures do not actually indicate the real prosperity of the nations. The presence of few millionaires and billionaires in a country can inflate the GDP and PCIs of nations, which may in fact be facing poverty. We need to evolve newer criteria to evaluate the real wealth of a country,” he said.

After the crisis subsides, many of the rich countries will be poorer that what they were appearing to be before. These nations were appearing to be rich by projecting the GDP and PCI figures, he said in reply to questions.

Replying to another question he said he hoped capitalism would emerge cleaner after the present crisis through the introduction of reforms in market mechanisms, financial systems and monetary structures, and reducing scope for abuses and manipulations.

Even though the Islamic Finance systems had adopted several methods to prevent abuses the growing tendency to introduce products similar to the conventional financial systems into the Islamic System can push it also into a crisis, Dr Mahathir said.