Finance ministers from the Brics nations warned of mounting contagion risks at a meeting in Washington yesterday, but failed to advance any concrete measures that could help to resolve the crisis.
“The crisis is worsening. We have to prevent it from getting to another dimension,” Guido Mantega, Brazil’s finance minister, said “Until now the crisis was only in the advanced countries, [...] but there is now a risk that the sovereign debt crisis of various countries may develop into a new financial crisis. There is a risk of a crisis of large proportions.”
But although the Brics grouping – Brazil, Russia, India, China and South Africa, which joined the group last year – indicated a willingness to assist in measures aimed at restoring confidence to battered markets and preventing a renewed global downturn, yesterday’s meeting of finance ministers from the five nations failed to arrive at specific recommendations.
Earlier, South African finance minister Pravin Gordhan described proposals to buy European bonds to limit the scope of a crisis as “an idea that my Brazilian colleagues have raised”.
“Those of us that have the ability to contribute to that should perhaps consider that,” he told Emerging Markets. “Buying European bonds is just one idea.” The most important thing is to “re-establish the level of co-operation and give and take” that emerged after 2008.
Gordhan also came out strongly in favour of the financial transaction tax proposed by France at the G20. “In principle we have to start looking at alternate sources of financing.
“There are still some debates about where the tax is generated, whom does the tax go to, does it operate on a country basis, does it operate on a global basis?” he said.
But India has expressed reservations. Duvvuri Subbarao, governor of the Reserve Bank of India, said that the country is “able to absorb the [capital] flows that are coming in” and was taking no measures to control them. “We are quite unlike other economies which have a problem of excess of capital flows.”
Subbarao added that Brics policymakers had to balance the merits of assisting in the recovery of Europe and advanced nations with domestic development needs.
“There is (an) enormous amount of demand for resources at home for poverty reduction, so there is going to be a big, big tension between giving money to a multilateral institution for the purpose of restoring global stability and meeting our own aspirations at home,” he said.
Gordhan said a new cohesiveness was needed to meet international challenges. “We look forward to returning to the good old days of the G20 in 2008 when there was urgency, there was passion, there was coherence and a lot of cohesion which enabled us to avert the great depression. Now we require the great recovery. How we get there is part of the challenge,” he said.