June 28, 2010

Financial unity in spotlight at G20 summit

VINCE VERSACE

staff writer

How nations should navigate still murky and potentially treacherous global financial waters is what one leading economist is looking for from the upcoming G20 Toronto summit. “You are looking for tight management of the ship,” said Alex Carrick, chief economist at CanaData.

“There are still some choppy waters out there and you’re looking for these leaders to come together to steer and keep the ship afloat.”

The G20 Toronto summit takes place this weekend on the heels of the recent G8 summit held in Muskoka. A collection of 20 global leaders from nations such as Malawi, Vietnam, China, the United States of America and host nation Canada, will discuss issues of financial sector reform, sustainable growth, international financial institutions and global trade.

“At these summits you are looking for the degree of accord or discord among these nations,” explained Carrick. “For Canada, it is an opportunity to meet or bind with other commodity countries, like Australia or Brazil, to possibly align policies or at least know what is happening in those countries.”

China has pre-empted some discord heading into the summit, said Carrick, with its recent announcement of letting its currency, the yuan, float more freely and partially adjust upward in its value versus the American dollar.

“The thing to watch for is will that actually happen after the summit?” said Carrick. “Are we talking a real free float or just two or three per cent?”

A freer floating yuan allows for more balanced growth around the world, noted Carrick. Chinese exports will sell for more and the expense to Chinese manufacturers to import raw materials goes down, leaving producers with an opportunity to raise prices.

China accounts for about 40 per cent of the world’s demand for copper, aluminum and zinc and 30 per cent of global demand for nickel. Commodity-rich countries like Canada will continue to benefit from that demand.

“There are three countries, Canada, Australia and Brazil, which are now a block because of commodities,” said Carrick.

“They have all done much better in this recovery than almost every other country because of Chinese demand.”

Announcements at the G20 about continued joint efforts to keep economic recovery going should be kept in mind, too. However, reducing financial stimulus would be a surprise, said Carrick.

Heading into the summit, discussions of an international bank tax have pitted G20 nations against one another.

A majority of European Union countries support the concept because it could create a contingency fund in case another financial collapse were to occur. Canada, Brazil and China, whose banks fared well during the 2008 financial crisis, are among the nations opposed to the concept.

Canada’s Finance Minister Jim Flaherty has stated that improved regulation and supervision of financial markets and increasing capital requirements would be more effective measures.

“The international bank tax is one more layer of taxes that not everyone would conform to,” Carrick said. “It is a whole other level of bureaucracy and someone would need to police it. The same results could be achieved by banks behaving more responsibly.”

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