University summit looks for economic solutions

The U.S. government’s takeover of mortgage giants Fannie Mae and Freddie Mac marks a sharp change in the world’s long-standing view of the United States as a low-risk investment, according to several former foreign finance ministers Monday at a global economic summit at the University of Virginia.
“The U.S. for a long time has been seen as a source of financial stability,” said Peter Costello, who was treasurer of Australia from 1996 to 2007. “Now it is seen as source of financial instability.”

Costello was one 13 former finance members who convened in the dome room of the Rotunda at UVa to consider the challenges facing the world’s economy — everything from the global impact of America’s sub-prime mortgage meltdown to the rising rate of inflation. The two-day summit, organized by the Miller Center of Public Affairs at UVa, is the first of what is planned to be an annual conference on the economy.
Led by former U.S. Treasury Secretary John W. Snow, the conference also featured former finance ministers from Iraq, South Korea, Germany, Afghanistan, Kuwait, Canada, Brazil, Spain, China, India and Italy.

The global economy faces a new set of problems, such as slowing growth, rising inflation and unprecedented spillover of economic woes between different nations. The United States’ housing and credit challenges, for example, are having an effect on the economies of countries around the world, he said.

Snow added that he believes the greatest threat to the world’s economic health is the growing scarcity of resources. Countries such as China, India, Brazil and South
Korea continue to enjoy explosive growth, placing a strain on the world’s supply of food, energy and arable land. As a result, prices are rising and endangering future economic growth.
“We want growth, but we want growth that occurs in a sustainable way,” Snow said.
In Snow’s view, the scarcity of resources can be solved only by technology, meaning a combination of genetically modified food and alternative energy research, along with conservation efforts. With so many “smart people” working to address the constraints of dwindling resources, he said, the effort could become a catalyst for growth in the same way that the Internet sparked huge economic growth.

Another challenge on the horizon, several ministers said, is a growing protectionist sentiment around the world. Such political stances, they said, endanger free trade and economic growth.
There was wide agreement among the ministers that the financial institutions that monitor the world’s economy ought to be strengthened. And they generally agreed that nations should handle their own domestic financial problems, such as the takeover of Fannie Mae and Freddie Mac.

A few ministers suggested that the world needs a strong global lender that would bail out nations on the brink of financial collapse. While the United States was able to seize Fannie and Freddie to bolster America’s housing market, other nations might not be able to take such a step with troubled huge financial institutions, said Hans Eichel, Germany’s finance minister from 1999 to 2005. “We need an international lender of last resort,” said Eichel, speaking through a translator.
Eichel added that he believes all nations should be subject to a set of common financial regulations and rules.
Dr. Antonio Palocci, a physician and former finance minister of Brazil, said he doubts that regulations could prevent such economic problems as America’s housing market downturn.

“Do we have the ability to avoid bubbles?” Palocci asked, also speaking through a translator. “My opinion is we do not have that ability.”
In some cases, such as with Fannie and Freddie, only the government can take the necessary steps to protect the economy, said Domenico Siniscalco, who was Italy’s finance minister from 2004 to 2005. In most cases, he said, market forces are sufficient to correct the problem. “Let the market work,” he said. “Why should you know better?”
Several former ministers, including those from Germany, Spain and South Korea, suggested that the U.S. economy ought to be monitored by the International Monetary Fund, much like other nations’. Snow said he was skeptical that such a move would do anything to keep America’s economy strong.