07 April 2009

No quick fixes

UK’s Prime Minister Gordon Brown has put it succinctly at the G20 Summit in London recently: there are no quick fixes to resolving the world economic meltdown. So, will the $1.1 trillion dollar deal help?

If anything, the financial markets around the world have responded marginally positively to the G20 trillion dollar news. But the greatest gain, certainly, has accrued to the IMF – which, I thought, had fallen out of the world economic radar in the recent past – bringing it back into prominence after years of anonymity.

It looks like, at the moment, the IMF funding and the credit lines are to be extended to smaller/poorer/fiscally-immobile/developing countries. Eastern Europe has been mentioned often, but there’s no news of Africa. Mexico’s got lucky with a $47 billion credit line; so, perhaps, names of other countries will be announced soon.

The trillion dollar deal is expected to improve trade flows, raise world output, increase demand, save people’s jobs, save several ‘poorer’ economies, and shorten the recession. To me, this certainly doesn’t sound like a quick fix; but rather, a grand plan. The question is: can all this be achieved?

The good news is, if the G20 leaders can rustle up a trillion dollars in a single day, there’s probably more money available for funding, should there be a need for another rescue operation. The bad news is, the plan doesn’t seem to account for key Western economies which are still weighed down by the debts of their banks, businesses and individual consumers. After all, that’s where the trouble started!

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