Finance leaders tackle credit crunch
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MEECH LAKE, QUE. — Leading financial regulators from around the world are drawing up reform proposals to help Group of Seven countries avoid a repeat of this summer’s credit-crunch-inspired market turmoil, Finance Minister Jim Flaherty said yesterday.
G7 countries have asked the Financial Stability Forum – composed of G7 government finance departments plus the world’s leading central banks and regulatory bodies – to examine the causes of the credit crunch and recommend what action need be taken.
Mr. Flaherty said representatives from all G7 countries are drafting ideas to be reviewed when the group meets next in October. “The G7 deputies have discussed this and they are, through the Financial Stability Forum, working toward some recommendations that would be discussed in October at the meeting of G7 finance ministers in Washington,” he told reporters after meeting with U.S. Treasury Secretary Henry Paulson in Meech Lake, Que., to sign an updated bilateral tax treaty.
Economists have quietly suggested that regulators need to re-examine how best to monitor risk, although some would prefer this take place without public scrutiny so that there is less pressure to enact stricter rules that risk going too far and driving away much needed capital.
Separately, Mr. Flaherty brushed aside fears raised by one Canadian investment player who warned yesterday that a “speculative bubble” in the loonie at this level could cause a major recession, at least in Eastern Canada.
Mr. Flaherty said while the recent runup of the Canadian dollar’s value is more of a reaction to bearish sentiment toward the U.S. dollar, this country’s economic fundamentals remain strong.
His comments came as the loonie hit parity with its U.S. counterpart this week after a five-year climb largely on rising prices for the commodities that Canada exports.
An on-par loonie, however, is hammering manufacturers that have seen the price of their exports soar in recent years.
Addressing the flagging U.S. dollar, Mr. Paulson said a strong American currency was in his country’s best interest and talked up prospects for his country’s weakened economy.
“I feel very strongly that a strong dollar is in our nation’s interest and we believe currency values should be set in a competitive market place based on underlying economic fundamentals,” Mr. Paulson told reporters.
He said he remains optimistic that the U.S. economy will keep expanding this year despite setbacks.
“The housing slowdown in the U.S. and the capital markets turbulence we’re going through right now will take a penalty to our growth, but, again, we’re diverse and I’m very comfortable that we’re going to continue to grow throughout this year.”
Filed by Ivana Jankovic under Global Financial Crises