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The Current Challenges for Global Economic Growth

Mexico City, December 13, 2011
[Espanol con video]

Hon. James Flaherty, Canadian Finance Minister;
Doctor Agustín Carstens Carstens, Governor of the Bank of Mexico;
Distinguished Deputy-Ministers and members of the delegations participating in this event;
Ambassadors and members of the diplomatic corps accredited in Mexico;
Distinguished professors, academics, researches and representatives of international organizations with us today;
Dear federal employees;
Distinguished special guests;
Ladies and gentlemen:

It is a pleasure to be able to join you at the closing session of this very timely and important seminar "The Current Challenges for Global Economic Growth," the first event organized by Mexico as President of the Group of 20, a post that we assumed as of December.

I would like to offer all the participants of this event a warm welcome to our country: diplomats, economists, academics, government officials, financial analysts, economic journalists; in short, to welcome the most qualified experts who have fortunately gathered here at this seminar, and who have analyzed, in great depth, the very complex challenges and prospects facing the global economy. Without a doubt, more than ever, the world needs today the sum of all your talents and all your ideas in order to explore alternatives, to find innovative solutions that will enable the international economy to deal with the challenges it faces, to recover its equilibrium, and to get back onto the path of growth. I will study in detail the conclusions that have been reached in these working sessions through the Federal Government's Economic Cabinet in coordination with the Bank of Mexico, and I am sure they will be of great use to us.

I would like to take advantage of this occasion to talk to you about the five priorities of Mexico's Presidency of the G20.

First, it is evident that it is vital to promote economic stability and structural reforms for growth and employment. There can be no doubt that today we are living at a delicate time, of great global economic vulnerability, such as has not been seen in a long time. I believe that the word that defines the current state of affairs, and the cause of these problems, is "imbalance." There are deep macroeconomic imbalances within many economies, many of them powerful and developed economies, especially in terms of government spending and public debt. An imbalance in public finances. There are also a number of other global imbalances, especially in terms of the current account balances between certain countries and regions.

What is the first thing that should be done to reactivate growth? Although not sufficient by itself, it is clearly essential to correct these imbalances, which have affected the domestic economy of many countries and the global economy as well.

Therefore, the Presidency of the G20 will promote measures to restore economic stability, a prerequisite for growth and job creation.

With regard to fiscal imbalances, it is essential that those economies that are suffering the most, very advanced economies, in particular Europe and the United States, are able to assume responsibility for these issues and take clear and firm decisions in order to balance their public finances within a framework of political and social restrictions that we all know are extraordinarily complex. But the truth is, this is the path, in the medium-term, that can provide certainty to the public and private sectors, so that the engine of growth can recover.

Other imbalances that have to be addressed immediately are those that are occurring in countries that maintain, apparently, current account surpluses that are too big, not necessarily surpluses caused by a natural market effect, but as a result of intervention. We all know the most prominent cases.

The usual suspects are those, let us say, with (current account) deficits and surpluses that are too high and, at the same time, have a trading partner with deficits that are too high, as is the case of the United States and certain other nations.

I believe that we need to discuss these problems in the G20. We have to review these problems, address them with total honesty, and also explore ways in which we can find, once again, an equilibrium, in which global market variables can finally fulfill their task of allocating decisions between economic actors.

We have considered several issues. It is very clear to me that those countries that are currently suffering such crises, particularly the countries of Europe, are genuinely involved in finding a solution to their problems. This is how it should be.

And I believe that, what we can do is, simply, through these seminars, through the discussions of G20 leaders at presidential level (help each other find solutions).

As I have emphasized in the past, these discussions do not need to be conducted in person, with the enormous effort of bringing Heads of State together in one place; instead, I believe we can use technology in order to hold virtual teleconferences and meetings via the Internet. This will allow us to rapidly exchange points of view and to better help our teams towards agreements. It is important to explore alternatives and solutions.

My experience as President of Mexico is that when someone is not only watching the problems, but is also involved in the problem that has to be solved, not all points of view are properly taken into account.

The expression in Spanish is “the blindness of the workshop”. I believe that the participation and vision of experts, such as those gathered here today, can contribute to the exploration, from another point of view, of solutions that may not have been considered carefully enough.

Simply the exchange of experiences, for example, allows us to gain new perspectives that can provide new solutions.

I can tell you about a crisis in countries whose governments did not maintain reasonable fiscal balances, that spent more money than they received for many years, that built up public deficits that increasingly exceeded their GDP, that ran up huge debts. Until, finally, those debts increased even further when interest rates began to rise, and threatened to make them unpayable.

In fact, the debts of many of those countries became unpayable, and that also generated a crisis that resulted in the collapse of a region and impacted the whole world. But I’m not talking about today’s European crisis, but rather the Latin American crisis of the 70s and 80s.

And I think that we can always find valuable lessons that are worth exploring in these contexts.

We can also find in experiences, in the past, at least in our region, huge efforts by determined countries to sacrifice or to keep or recover their domestic balance, in order to prop up currency board schemes that in the end were impossible to maintain, and which caused economic, social and political consequences much more disastrous than could have been imagined.

I think all of these are lessons that have been gained from very difficult experiences in countries and regions, at different moments in time, that can, to some degree, be taken into consideration and analyzed today,.

There is a point on which I think most countries agree, and on which Mexico has been clear in previous G20 meetings: the importance of international trade as an engine for global economic growth, especially in a globalized economy.

And, as a consequence of this, the importance of rejecting protectionist measures as a response to the crisis. The importance of defeating once again those nationalistic and protectionist tendencies that, in contrast to what the speeches say, end up defending specific interests.

I want to say it, clearly, in an international forum, with reference to Mexico and the world. The options, the alternatives, the congresses or political parties that close the doors of international trade to their consumers and their producers, are closing the doors of growth to their countries in a complex economic context, such as the one we are experiencing now.

To close the doors to the opportunities offered by the international market, particularly for countries that have achieved a high level of competitiveness, as I can honestly say is the case with Mexico, means closing the door to progress, employment, and opportunities for our fellow countrymen.

I hope that this G20 meeting will allow us all, truly, to open up spaces that have been closed to international trade, through the emergence of constant protectionist efforts at a global level.

I often tell this anecdote, that at G20 meetings we have a sacred phrase, which gets repeated meeting after meeting, of saying no to protectionism, of committing to continue and immediately bring the Doha Round to an end. And the next day, 15 of the 20 key figures of the G20 impose protectionist measures on trade and on their economies.

I believe this is a point that has been exhausted and has to be solved, and if we want to recover the path to global growth, we have to make space for trade and investment on a global level, with much greater audacity that we have shown up until now.

A second point that the Finance Minister already outlined in his conclusion: the importance of promoting the strengthening of financial systems and fostering financial inclusion to encourage economic growth.

We know very well that the crisis began, mainly, because of confused decisions, because of excessive risk-taking by global financial entities, because of, perhaps, deficiencies in the mechanisms meant to contain the implications of all those risks. In the end the catastrophic consequences of these failings were not spotted in time in 2009, and it is time to redesign all of those mechanisms.

And, also, to promote financial inclusion within economies, particularly in developing countries, as in the case of Mexico.

Let me tell you that, here in Mexico, we help the six and a half million poorest families in the country via conditional transfers, a program that, by the way, was conceived here in Mexico. It involves making payments to a family on the condition that they take their children to school and to the doctor, which later became Oportunidades here in Mexico, Bolsa Familia in Brazil, and other similar programs across the region; it has resulted in a substantial reduction of poverty since the beginning of the program in the late 1990s and throughout the last decade.

Two weeks ago, we decreed that all cash transfers, the conditional transfers in Mexico, for the six and a half million beneficiaries, must be made through a debit card, linked to a bank account, establishing at a stroke the largest program of financial inclusion known to this day, or at least, that we know of, and that will permit all those people to have access to savings, credit, and certain life insurance mechanisms.

I believe that in the G20, we must emphasize, on the one hand, the strengthening of financial systems at a global level, and on the other, the deepening and broadening of financial inclusion within countries.

Thirdly, obviously, we must improve the international financial architecture for a global economy that is completely interconnected.

The G20 should continue to strengthen the capabilities of the international financial institutions, notably the International Monetary Fund (IMF), an institution which has given a great deal of help to a great number of countries in Latin America during our crises, and that became a focus of for everybody’s hatred and resentment. However, at the end of the day, I believe that was part of its function.

I believe that the IMF has a role to play in the 2011-2012 crisis that we are battling, not only in Europe, but all over the world. It is necessary for the IMF not only to rely on a strategy that satisfies its long-term financial requirements, but to be able to act in a timely and effective way during episodes of crisis as severe as the one we are currently experiencing.

Also, it is important that the G20 contributes to the design of mechanisms that increase the Fund’s resources in the short term, to ensure that it can meet the most pressing demands of the actual crisis.

I understand that Mexico has already authorized the increase in resources that we will give to the IMF, in compliance with our G20 agreements and commitments.

And I am truly sorry that countries like the United States, for example, have not yet made the contribution that the IMF needs to strengthen its finances. And let me say the same, now that I am on the topic, about the Inter-American Development Bank, that I know is still carrying on, but that also needs more resources.

It is vital that the IMF and all ad hoc international financial institutions stand ready to fulfill their roles in the crisis we are currently experiencing, before it is too late.

Moreover, the G20 will seek to improve the surveillance capabilities of the IMF, something that was very common in Latin American economies during the 1980s, and that, paradoxically, will have to be common now in certain troubled European economies.

In order to prevent future financial crises, the G20 should create a new surveillance framework for the IMF that includes not only exchange rate policies, but also variables such as capital flows, the status of international reserves, the regulation of financial markets, external repercussions etc.

Fourthly, an issue that personally concerns me, and Mexico, is the subject of food security, which has been addressed at other G20 Summits, and which I think should be addressed now.

A subject that is related to a global problem that we are currently experiencing, the rise in prices, not only of commodities in general, such as oil and minerals, but particularly of food in the last two years that has affected billions of the poorest people. The rise in the price of the basic food basket implies an almost mechanical increase, an almost automatic increase, in global poverty levels.

That is to say, if the poorest families spend more than half of their earnings on food, and food prices have increased by 25% on average, this means that there is a direct impact on income levels and an increase in poverty rates, ceteris paribus, in all countries.

And we are seeing this, moreover, in truly dramatic crises such as the famine in the Horn of Africa, which is also clearly linked to the problem of the rise in food prices around the world.

I believe, also, that however much has been said about Twitter and Facebook playing a key role in the Arab Spring in North Africa and the Middle East, that the truth is, my friends, that when bread, flour, and gasoline prices rise, societies behave in a very, very different way.

This is an important problem that we must also address. It is true, it is obvious, and it is understandable that the rise in commodity prices and, as a consequence, of food prices, is related to a rise in demand, particularly in the largest emerging economies, such as China and India. That is a very logical and obvious explanation.

But still, one fact that I cannot get out of my mind is that when the first recession came in 2009, commodity prices, including oil and food, decreased considerably.

And now, however, even though we have almost recessionary economic conditions in most places around the world, food prices are surging. We must find an explanation for this.

The explanation is obvious. It is true that there is higher demand for these products from emerging economies that have a greater purchasing power than before, and I am happy about that, but I do not think we can dismiss other factors, such as financial manipulation, the current financial structure, and financial speculation.

Alternatively, we should measure the real impact caused by expansive, anti-recessionary monetary policies which, instead of translating into an increase in the aggregate demand in the countries themselves, actually transfers that purchasing power to commodities markets around the world; we then start confronting very difficult paradoxes.

Such as that monetary policy designed to be countercyclical in a recession ends up causing prices of basic goods to rise, such as oil, and then becomes a recessionary monetary policy. This is simply a theoretical exercise or a curiosity that one day, I hope, I can be proved wrong about.

Finally, the agenda, my friends, has a fifth element, which is the promotion of sustainable development, including an integral design, an infrastructure agenda, of energy efficiency, green growth and financing of sustainable development, which is of fundamental importance for all of us.

It is true that in many people’s opinion, the world has too many problems right now for us to think about the environment. Nevertheless, environmental issues still exist. Today, in Texas, for instance, and, as a consequence, in Mexico. Texans have temperature and humidity records going back 180 years, while we just have records going back 70 years, but we are living through the worst drought on record as a consequence of climate change.

This year, a hurricane hit New York right on Fifth Avenue, something that had never happened before. And tornadoes in the United States even hit Massachusetts and Maine.

There is a terrible climate change problem. This is not just an issue regarding environmental issues. This is an issue that relates to the viability of our civilization’s whole model as we look ahead to the end of this century.

In addition, if you want to see it from a pragmatic point of view, this is also an economic issue. It is an issue of pesos and cents. This is to say, what we do today to avoid the consequences of climate change, even if it is expensive, will be much cheaper than what we will have to do in the future to pay the cost of adapting to the consequences of climate change. This is what we have to do. And there are ways of doing it. There are ways to generate growth linked to combating global warming.

In Mexico, we had a very good Conference of the Parties, COP-16. COP-17 has just concluded in Durban, South Africa, and it picked up a very important point we proposed in Mexico: the creation of the Green Climate Fund.

I must say, however, that I find it very troubling and a shame, that nations that have been highly committed to the future of humankind through the fight against climate change, have now decided to abandon the extension of the Kyoto Protocol, in the exact moment when the world requires more support to tackle, with decisive action, an overwhelming challenge for humanity.

My friends, I have gone on longer than I intended. I would just like to congratulate the Finance Ministry and the Bank of Mexico on the organization of this very good seminar.

You will talk to me soon during lunch about your conclusions, which I am keen to learn about. I am sorry that I was unable to be here this morning, but my work did not allow it.

I want to congratulate all of you for coming to Mexico and to thank you enormously for your trust, because we need to think creatively, and from a different perspective, from those who have to resolve problems as complex as the current ones today or tomorrow in their parliaments, as is happening in Europe right now.

I believe that your participation is very helpful. As you know, next June we will hold the G20 Summit here in Mexico, in Los Cabos. We are ready for it; it will be a great meeting and I hope that we can find solutions there to all the problems that I have mentioned.

A final point – the logo of the Mexican Presidency stands behind me. It is a play on words about the number. It is the year 2012, but it is the G20 in the year 12 and it is represented by a pyramid seen from above, which is a stylized version of the Teotihuacan pyramid, which has five levels on each of its sides, 20 levels in total, representing each of the 20 countries of the G20, which united and joined together, make for a solid construction, one that endures for centuries, as we want the new economic and financial system to endure, one capable of providing prosperity, justice and certainty for generations to come.

Thank you very much. And I wish you every success going forward.

Thank you.

Source: Mexican Presidency of the G20

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