Oral statement by Angel Gurría, OECD Secretary-General, to the International Monetary and Financial Committee
(read the Gurría's written statement)
Washington D.C., 11 October 2008
The financial crisis is deepening and spreading. It has evolved into a solvency issue, fuelled by a “systemic confidence breakdown”. It is now threatening to gradually paralyse the global economy.
Decisive policy action is urgent to restore confidence and restart the flow of credit.
There is no “one-size-fits-all” solution. But most financial solvency crises have to be tackled through clear, coordinated and consistent approaches that include three main elements: 1) guaranteeing liabilities; 2) separating out the bad assets; and 3) recapitalising the institutions affected.
Global rate cuts will struggle to calm the markets without this type of systemic rescue plans.
Once the crisis has passed, it will be important to implement longer-run structural reform of the global financial system to prevent the recurrence of crises in the future.
Better regulatory and supervisory frameworks will have to be designed to gear financial innovation towards public benefit.
It will be also essential that governments consider the long term consequences for the financial sector in terms of competition, incentives for prudent behaviour, consumer protection, improved financial education and corporate governance.
Countries will need to share experiences and policy solutions in all these areas. Multilateral dialogue will be essential to build a new global financial framework. OECD can be the ideal forum to build it.
The dislocation of financial markets, combined with persistent housing market downturns in a growing number of OECD countries, continue to bear down on growth.
OECD short-term forecasting models point to activity stagnating through the end of this year, with quarterly growth likely to be negative in a number of cases.
Recent falls in commodity prices should give some boost to real incomes in commodity-importing countries, however uncertainty remains substantial, with risk heavily skewed to the downside.
It is time for well coordinated and strong decisions. All confidence crises demand clear signals. Beyond the urgency treatment, structural policy must play a key role. Reviving Doha can help us send the most urgent message of all: that the world community can work together and that a serious and prolonged global recession can indeed be avoided.