Monetary and fiscal issues

Paris Conference for Long-Term Value and Economic Stability


Introductory remarks by OECD Secretary-General, Angel Gurría, at the Paris Conference for Long-Term Value & Economic Stability held in Paris on 22 June 2009



Monsieur de Romanet, Ladies and Gentlemen:


It is a great pleasure to welcome you on behalf of The Long-Term Investors Club and OECD to this day of round table discussions and conferences on Long-Term Value and Economic Stability. I am glad to see so much talent and experience gathered here.


Let me remind you this is not a “sterile” brainstorming or a philosophic discussion. The results of these exchanges will be presented to the Ministers of economics, finance and other important areas from the 30 OECD countries and 10 other emerging economies during our Council Meeting at Ministerial Level, which will take place in Paris on 24 June.


I therefore commend you to be bold and pragmatic in your assessments and proposals; to be conscious of the policy advising potential of your interventions.


1. The crisis and the importance of “long-term”

The current financial and economic crisis has revealed the paramount importance of investment decisions. It has exposed the danger of having investment incentives linked to short-term profits. It has cast a light on major systemic failures: in our financial regulatory systems, in our rating agencies and supervisory bodies’ procedures, in our corporate governance and in our belief in the efficient market hypothesis and risk management.


This crisis has also exposed the need of better global economic governance, and, most importantly, the need to insert a longer-term vision in our policies and regulations, in our incentives, in our business ethics and our investments.

There is definitely no going back to business as usual, so the new regulatory frameworks, the recovery measures, the needed reforms, have to take into consideration these failures and need to build a stronger and more resilient global economy.


This is therefore a very timely moment to discuss the virtues, the possible benefits and limitations of long-term investments. We need to help policy-makers understand their particular nature to make the most of their capacity to provide certainty. We must benefit from their capacity to help to bring back confidence and to achieve long-term sustainable development throughout the world.


2. Long-term investment: For more stable and greener growth

Long-term investments are not a panacea. They are not immune to the temptations of greed, nor are they responsible investments by nature. But let’s acknowledge it; they tend to imply a greater degree of commitment. Greater commitment with recipient countries and sectors, with longer-term policies, with development strategies, sound analysis and economic stability in general.


In times of highly volatile markets the presence of long-term investors is a reassurance, a compensator element. As my friend Augustin de Romanet highlighted in a recent report, they take on structural investments with risks that short term investors refuse to take; they are ready to invest an important part of their resources in portfolio shares of companies with a promising future; they tend to assume responsibility on infrastructure projects where profitability cannot be appreciated until a very long term, within the framework of a sustained growth, and demanding and promoting long-term quality information.


Furthermore, long-term investors in all their forms ─ insurance and pension funds, reserves funds, sovereign wealth funds, endowment funds, etc. ─ can play a very important role in reactivating economic growth in synchrony with our fiscal stimulus packages; they can also help us recover growth and trust facilitating investment in major structural challenges like climate change, renewable energies, water shortages, the food crisis, ageing and international migration.


This is not to say that long-term investments do not pose important challenges. In fact they do imply numerous concerns and require special attention from policy-makers for several reasons. Their sheer size and possible impact on national security is one of them. Global pension funds, for example, lost close to 5 trillion dollars throughout the subprime crisis, with tremendous social consequences. The remarkable increase in Sovereign Wealth Funds (SWFs), which could reach 15 trillion dollars by 2015, is another source of concern which recently threatened to trigger a tide of protectionist measures.

At OECD we identified this threat and reacted promptly to bring certainty through multilateral consultations and rigorous analysis. Reassured by this work, our Ministers subscribed an “OECD Declaration on Sovereign Wealth Funds and Recipient Country Policies” during our 2008 Ministerial Council Meeting. In this Declaration they welcomed the constructive contribution of SWFs, manifested openly their concerns regarding the potential political implications of these investments, and endorsed a series of principles to avoid protectionist barriers to foreign investment.


3. New rules: Stabilising the role of long-term investment

Long-term investments have to be regulated, and they have to respond to internationally agreed rules and principles, like the OECD Principles of Corporate Governance or the UN Principles for Responsible Investment. But we have to be very careful that any new regulations coming out of this crisis do not inhibit long-term investments.


In the current reflection process on the reformulation of national and international financial regulation, it is important to define new parameters that allow long-term investors to operate within a stable framework, and that recognise the specific features of this kind of assets.


Current financial regulations have difficulties acknowledging the fact that an asset’s immediate value may be substantially different from its long-term value, as economies have the ability to overcome temporary difficulties and continue growing in the long run.


Should we adapt accounting rules to value a long-term investment on the basis not only of its present market quotation but also considering the value of its future cash flow on the long run? Should long-term investments be differentiated from other shorter-term financial activities? Should they be regulated by a specific regulatory and supervisory authority?


You will address these and other key questions today. I just want to remark that it is time to stabilise the role of long-term investors. Time to build together, with an active participation of every one of you and in close communication with decision-makers, a stronger (not necessarily larger) regulatory framework that can unleash the great potential of these investments.

4. A broad & collective response: the OECD contribution 

The only way we can build this new stable and encouraging framework is through a broad and collective response that takes into account all the different angles, sectors and actors involved. This is why this reflective event, that brings together long-term investors of all types, prestigious economists, politicians and representatives of central banks and international organisations, can make a crucial contribution.

At OECD we have been working hard to strengthen the underlying rules by which market economies operate; to build trust and confidence in international investment; to keep markets open to trade and investment; to strengthen corporate governance and competition frameworks; and to help governments phase out their emergency measures.


Our Strategic Response to the Financial and Economic Crisis is taking stock of all our existing policy instruments and best practices; of our multidisciplinary capacity and our growing plurality and inclusiveness, to help countries forge a responsible crisis management. In other words, to help governments design recovery measures that do not compromise competition, that do not breed protectionism, that do not hurt the environment even more and that place  equity and human progress at the very centre of our efforts.


And here I see the natural synergy between you and us. Both the Long-Term Investors Club ─ with the enthusiastic and visionary support of La Caisse de Depots─ and OECD, are working in parallel tracks to raise the long-term view of policies, regulations and investments; to strengthen the long-term sustainable development capacity of nations; to make this crisis an opportunity to tackle our structural challenges.


Ladies and Gentlemen:


Governments can find a natural ally in long-term investors. An ally to balance the short-term logic of their fiscal stimulus packages; to turn these packages and recovery measures into smart and effective policies based on innovation and green growth; an ally that can help them phase out many of the emergency measures without destabilising their long-term growth strategies.


One of the features of the world’s most successful investors is that they spot long-term areas of opportunity and buy into them before they become fashionable with their view set on time and their hope on stability, and they stick to their holdings, even if they go through turbulent or even bad economic times. This commitment, this view, is what has built the strength of the most advanced economies, the strength of our nations; and it is also the view that will get us out of this crisis and help us build a stronger, cleaner and fairer global economy for the benefit of all.


I thank you very much for being here. May you have very productive discussions. And remember, the long-term starts now!

Thank you very much.


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