Remarks – Tiff Macklem
Senior Deputy Governor of the Bank of Canada
Presented to: Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks’ Association (IBA)
In some respects, Canada and India could not be more different. Canada is the world’s second-largest country in geographic size, with a population of 34 million. India, as one of only two countries with more than a billion people, is the world’s second largest in population and is expected to be the largest within 15 years. However, there is much we share, not least, vast and diverse geographies, diversity among our citizens, a common democratic heritage as members of the British Commonwealth, and market-based economies.
In my remarks today, I will focus on these and other similarities between India and Canada, as well as our strong, joint interest—indeed, our leadership role—in the G-20 reform program to achieve durable financial stability and sustainable and balanced economic growth.
My message, in a sentence, is that while the G-20 has made considerable progress in strengthening the microeconomic rules governing the regulated financial system, we have fallen short in correcting the imbalances that are plaguing the global economy and fuelling financial vulnerabilities. And this is having consequences. The slow progress by some countries in implementing adjustments needed to address macroeconomic imbalances is holding back the global recovery and increasing the risk of financial instability.
Canada and India are caught in the crosshairs. What can we do?
Individually, we can ensure our own macroeconomic policies—monetary, fiscal and exchange rate—are sound and supporting necessary adjustments. We can advance the implementation of higher global regulatory standards in our own financial systems. And we can ensure rigorous regulatory supervision of our financial sectors.
Together, Canada and India can provide a strong voice encouraging G-20 countries to accelerate their efforts to develop and implement concrete, measurable plans to reduce macroeconomic imbalances, address financial vulnerabilities and support a sustainable expansion.
Canada and India Weathered the Financial Crisis Better Than Most
Worldwide, the cost of the financial crisis that broke out in 2007 and escalated dramatically in the fall of 2008 has been enormous. The ensuing recession was the worst the world had seen since the 1930s and the most globally synchronized in history. Almost 28 million jobs were lost globally. Economic output in the major advanced countries, as represented by the G-7, fell by 5 per cent from peak to trough. For emerging-market countries, a collapse in trade led to a marked growth slowdown.
And today, four years from the start of the crisis and two years into the recovery, we are still not out of the woods. The European sovereign crisis has intensified, the U.S. credit rating has been downgraded, and a broad range of data has come in weaker than expected. All have led to an abrupt loss of risk appetite in financial markets. The implication is somewhat weaker economic momentum globally together with elevated risks.
Both Canada and India weathered the financial crisis better than most, and remain well-positioned to absorb aftershocks. To an important degree, this reflects the guidance we took from our own past mistakes. A central lesson we both learned is that adjustment deferred is inevitably adjustment magnified and intensified. And in response to this bitter experience, we put in place sound economic frameworks that have increased the resilience of our economies.
In the early 1990s, Canada and India both experienced serious economic crises and deep recessions. These crises produced similar epiphanies, which galvanized the political will necessary to make substantive policy reforms: in particular, to liberalize trade; to strengthen monetary, fiscal and financial policy frameworks; and to undertake needed structural reforms.
In Canada, a series of factors coalesced, including the lack of a credible nominal anchor for monetary policy, inefficient production, large and chronic fiscal deficits, and structural rigidities in labour markets. The resulting crisis led to key reforms. These included a free trade agreement with the United States and Mexico, an inflation-targeting framework for monetary policy, and a major fiscal consolidation that reduced the federal deficit from almost 6 per cent of GDP in 1992–93 to near zero five years later. Our employment insurance and public pension plans were also reformed as were regulations governing the financial sector.
The initial impact of each of these separate reforms was modest, but the benefits quickly cumulated and reinforced each other to become very substantial: low and stable inflation, declining government debt, stronger and more stable output growth, lower unemployment and financial stability.
I won’t presume to lecture on the history of the reforms instituted here in India, but I would suggest the world needs to hear more about India’s success story. The impact of the changes put in place is both impressive and instructive. As the Indian economy became more open to the rest of the world and its economy more market-oriented, economic growth doubled, rising from about 4 per cent in the early 1990s to more than 8 per cent by the end of the decade and this trend of strong growth performance has continued since the turn of the century. India’s exports of goods and services, as a share of GDP, more than tripled, rising from 7 per cent in 1990 to 22 per cent in 2010. But the most remarkable measure of success was that from 1994 to 2005, almost 29 million people—or close to the entire population of Canada—were lifted out of poverty.
The reforms adopted by Canada and India left our economies better able to adjust to the financial crisis and ensuing recession. This was a crisis that did not ignite within our borders. Yet our sound policy frameworks, combined with diligent implementation, have fortified our countries against the international shock waves and afforded us greater policy flexibility to respond to adverse real and financial spillovers.
Canada, India and the G-20
So it should perhaps not be a surprise that as the G-20 emerged as the premier forum for economic co-operation, Canada and India were approached to take on a leadership role in forging a global consensus around needed policy reforms. In particular, our countries were asked to co-chair two critically important G-20 working groups.
First, the G-20 Working Group on Enhancing Sound Regulation and Strengthening Transparency was established in the lead-up to the London Summit to tackle weaknesses in the financial system that had been laid bare by the crisis. In a remarkably short period of time, our working group was able to achieve agreement among G-20 members on the broad directions of financial sector policy reform. The recommendations in our report were adopted by G-20 leaders at the London Summit and set in train an ambitious financial reform agenda.1 I will come back to this in a moment.
Second, the G-20 Working Group on the Framework for Strong, Sustainable and Balanced Growth, which is ongoing, was launched following the Pittsburgh Summit to build a consensus around the policies required across the G-20 to sustain the recovery and ensure that policy frameworks and actions are consistent domestically and globally.
Let me say a few words about both projects—what has been achieved and what remains to be accomplished.
Financial Sector Reform
The financial crisis revealed all too starkly that liquidity buffers were glaringly inadequate, and that the global banking system as a whole was dangerously undercapitalized and overleveraged. To redress this core vulnerability, new global standards in the form of Basel III have been agreed. They substantially increase the loss-bearing capital that financial institutions must hold and establish new liquidity standards and a limit on leverage. These new standards represent a significant strengthening of the global rules. The combination of greater emphasis on true loss-bearing capital—namely, tangible common equity—and increased minimum capital levels has effectively raised the minimum global capital requirement seven times. Moreover, for the largest and most interconnected global banks, these requirements are being supplemented with additional loss-absorbing capital. These are major accomplishments.
The new rules must now be assiduously implemented in every institution. All jurisdictions must ensure strong supervision and oversight. Scrupulous international assessment must ensure equivalent implementation of these new higher standards.
Furthermore, we must agree on and implement a perimeter of regulation and oversight that encompasses all systemically important financial institutions, markets and instruments. And a new system of firewalls needs to be built to prevent the failure of one counterparty in the over-the-counter derivatives market from creating systemically perilous knock-on effects.
In short, much has been achieved and much remains to be accomplished. It is critically important that the momentum driving financial sector reform be maintained.
G-20 Framework for Strong, Sustainable and Balanced Growth
Progress on the Framework for Strong, Sustainable and Balanced Growth has lagged that of financial sector reform—and needs to accelerate.
The G-20 leaders launched the Framework in 2009, just as the global economy began recovering. Their goal was to safeguard the nascent recovery and achieve stronger global growth over the medium to long term. Leaders recognized the importance of beginning in the early stages of the recovery to put in place policies that would foster the adjustments needed to sustain recovery, prevent a re-emergence of global imbalances and support financial stability.
At the Toronto G-20 Summit in 2010, agreement was reached on a comprehensive, three-pillared policy package to support stronger, more sustainable and more balanced growth. It included:
• fiscal consolidation in advanced countries that is credible and clearly communicated;
• for emerging markets, strengthened social safety nets, infrastructure spending and, for some, increased exchange rate flexibility; and,
• for the entire G-20 membership, the pursuit of structural reforms to increase and sustain our growth prospects.
Advanced countries made their commitment to fiscal consolidation more concrete by agreeing to at least halve their fiscal deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016.
Six months later, in Seoul, G-20 leaders called for indicative guidelines to identify large and persistent macroeconomic imbalances and for corrective policy actions to address the underlying root causes.
But actions have not always kept pace with commitments.
In advanced countries, the difficult task of legislating credible, well-defined fiscal consolidation plans is under way, but in some of these countries, current plans have yet to gain the full confidence of markets. Moreover, the consequences of inadequate progress have become more immediate. Sovereign debt concerns have contributed to a retrenchment in risk taking in global markets, sending the prices of safe-haven assets to record highs and pushing those of risky assets sharply lower.
In emerging markets, the pace of foreign exchange reserve accumulation has not slowed; on the contrary, it has accelerated. In 2010, aggregate reserves of G-20 emerging-market economies reached nearly US$5 trillion, or 32 per cent of their GDP. At US$3.2 trillion, China’s reserves alone have increased by almost a third since January 2010. This is also having more visible consequences.
The slow pace of exchange rate adjustment between the United States and China is holding back the recovery in the former and fuelling inflation in the latter. With only very modest adjustments of the renminbi against the U.S. dollar, China’s real effective exchange rate against its full range of trading partners has actually depreciated since June 2010. Moreover, as the consequences of this lack of adjustment spill over onto others, G-20 members are increasingly taking individual actions that collectively risk further thwarting needed global adjustment. The number of G-20 countries that are intervening against exchange rate movements has increased. And more emerging markets are taking measures to reduce capital inflows. As a result, countries representing more than 50 per cent of the U.S.-dollar trade weight are actively thwarting foreign exchange adjustment, either through quasi-fixed exchange rates or with newly introduced capital controls. Canada and India are not part of this group. But we are bearing the not insubstantial consequences of a weakened global recovery and the re-emergence of global imbalances.2
As co-chairs of the Framework working group, Canada and India are working together to develop concrete and measurable policy commitments to be tabled at the Cannes G-20 Summit in November. We have made good progress at the G-20 table on indicators and guidelines to define significant and harmful economic imbalances. This experience has helped to foster a common understanding of the issues and problems across the G-20 which, in turn, serves as a first step in achieving greater policy coordination. The working group’s focus now is on the key challenges of fostering greater exchange rate flexibility in emerging markets, encouraging deeper and more significant structural reforms, and strengthening the fiscal commitments made in Toronto. Both co-chairs also believe that there is a symmetry of interests between advanced and emerging economies in reducing the pace of reserve accumulation and are pursuing measurable commitments on this front. Achieving consensus on all of these issues will require a shared understanding of the mutual benefits and, here, Canada and India have an important role to play.
Let me conclude.
The G-20 countries have had considerable success outlining what must be done to enhance the resilience of the global financial system and to achieve stronger, more balanced growth. And the potential achievable benefits of taking collective action are large. The Bank of Canada conservatively estimates that the average net economic benefit to be gained over time by G-20 economies from the stronger agreed capital and liquidity standards is 30 per cent of GDP in present-value terms, or about US$13 trillion.3 Further, if the G-20 initiatives to unwind global imbalances are realized, the Bank estimates that the level of global demand could be $6 trillion to $9 trillion dollars higher by 2015 than when compared to a scenario of deficient global demand.4
But to achieve this promise, the pace of implementation of the G-20 Framework must step up. We are already bearing the consequences of inadequate adjustment. Unsustainable macroeconomic policies are increasing uncertainty, undermining a sustainable economic recovery and raising financial stability risks. And the longer needed adjustments are delayed, the more serious the consequences will ultimately be. Financial stability that is durable cannot be achieved without balanced sustainable growth—nor can growth be sustained without financial stability.
As the recent extreme market volatility has made all too stark, we hand financial markets the opportunity to speculate against needed adjustments at our collective peril. Financial markets are content until they are not. Policy-makers cannot predict when market sentiment will shift, but every delay in implementing policies to safeguard and support sustainable economic growth increases the likelihood of another calamity.
Canada and India are a world apart. My country is a medium-sized, advanced economy. India is an emerging giant. But the elements we have in common are significant and powerful, including our democratic heritage, our market-based approach to economic policy and our commitment to a prosperous global economy. We are strengthening the ties between our countries. And together we share a leadership role on the world stage to achieve a global economy that sustains strong and balanced growth to the benefit of all citizens.
1. G-20 Working Group on Enhancing Sound Regulation and Strengthening Transparency, “Final Report.” 25 March 2009, which can be found at: <http://www.g20.org/Documents/g20_wg1_010409.pdf>. [←]
2. Projections made by the International Monetary Fund show that imbalances narrowed from 2008 to mid-2009, but have been widening ever since and, without policy adjustments, are expected to worsen. [←]
3. Bank of Canada, “Strengthening International Capital and Liquidity Standards: A Macroeconomic Impact Assessment for Canada,” August, 2010. See also Mark Carney, “Bundesbank Lecture 2010: The Economic Consequences of the Reforms,” speech to Deutsche Bundesbank, Berlin, 14 September 2010. [←]
4. K. Beaton, C. de Resende, R. Lalonde, and S. Snudden, “Prospects for Global Current Account Rebalancing,” Bank of Canada Discussion Paper 2010-4. See also Mark Carney, “Restoring Faith in the International Monetary Sysem,” speech to Spruce Meadows Changing Fortunes Round Table, Calgary, 10 September 2010. [←]
Source: Bank Of Canada www.bankofcanda.ca
Duo glide around world’s largest fountain in Dubai
Paragliders Llorens and Goberna take magical flight above the Palm Fountain.
Horacio Llorens and Rafael Goberna defied gravity to perform The Breaking Pointe flight around the world’s biggest fountain at The Pointe, Palm Jumeirah in Dubai. Here is all you need to know:
– Spaniard Llorens is a five-time world champion and Infinity Tumbling Guinness World Record holder, who has performed a series of spectacular projects during the last five years including paragliding with a flock of starlings and with the beautiful Aurora Borealis as a backdrop.
– Brazilian Goberna was a Guinness Book of World Records winner at only 12-years-old and, in December 2016, he took to the skies above one of the seven wonders of the natural world when paragliding at Iguazu Falls.
– This time around, the duo teamed up in Dubai to showcase The Palm Fountain at the Pointe, Palm Jumeirah. They overcame a tricky preparation period to expertly glide between the fountain’s powerful jets of water.
– Spanning across the boulevard, the Palm Fountain features two giant floating platforms covering 14,000 square metres of sea water. Reaching an impressive 105 metres high and lighting up the Dubai sky with 3,000 LED lights, the fountain “dances” to hit songs from sunset until midnight.
– They undertook training first at Paramotor Desert Adventure on January 12 to test out their brakes and motors with technician Ramon Lopez finally arriving after being held up by the heavy snow in Madrid.
– Training was crucial for the challenge of flying during the night with low visibility as safety director Alan Gayton ensured they had a reserve parachute in case of a technical issue with the main parachute. Llorens and Goberna also had to study the movement of the water with great precision in order not to get caught up in the jets of water
– Flying over water, it was also mandatory to have a lifejacket with rescue boats, jet skis and divers on hand which came handy when Goberna suffered a technical malfunction on the first January 14 practice run.
– After repairs long into the night, they returned to Paramotor Desert Adventure to test out the motors again before completing the stunning flight on January 15 with Llorens and Goberna performing in harmony.
– Llorens, 38, revealed: “As soon as we got the opportunity, we wanted to fly there. We needed to know the area really well beforehand and we needed to know how to ‘play’ with the fountain – this was new for us. Such strong streams of water shooting 100 metres up is a lot, so we had to be really prepared.”
– Goberna, 26, explained: “The motor wasn’t flying so good because, prior to arriving in Dubai, it was last used in Europe at high altitude. I needed to adjust the carburettor in the air inside the motor. In the first practice flight over the water, I broke one propeller. I really couldn’t understand what was happening and then another one broke. Eventually, a backup motor was required. After a long journey, the final result was beautiful! The team worked incredibly hard to make it.”
– Llorens added: “The highlight for me was playing between the super shooters with Rafael, because it’s something we’ve never done before; it felt really new and really powerful.”
EU sets itself jobs, training and equality targets for 2030
By Jan Strupczewski
BRUSSELS (Reuters) – The European Commission on Thursday announced goals for the 27-nation bloc to reduce poverty, inequality and boost training and jobs by 2030 as part of a post-pandemic economic overhaul financed by jointly borrowed funds.
The EU executive arm said the European Union should boost employment to 78% in 2030 from 73% in 2019, halve the gap between the number of employed women and men and cut the number of young people neither working nor studying to 9% from 12.6%
“With unemployment and inequalities expected to increase as a fallout of the pandemic, focusing our policy efforts on quality job creation, up- and reskilling and reducing poverty and exclusion is therefore essential to channel our resources where they are most needed,” the commission said.
The goals, which will have to be endorsed by EU leaders, also include an increase in the number of adults getting training every year to adapt to the EU’s transition to a greener and more digitalised economy to 60% from 40% now.
Finally, over the next 10 years, the EU should reduce the number of people at risk of poverty or social exclusion by 15 million from 91 million in 2019.
“These three 2030 headline targets are deemed ambitious and realistic at the same time,” the commission said.
The goals are part of the EU’s set of 20 social rights, agreed on in 2017, to make the EU more appealing to voters and counter eurosceptic sentiment across the bloc.
They say everybody has the right to quality education throughout their lives and that men and women must have equal opportunities in all areas and be paid the same for work of equal value.
The unemployed have the right to “personalised, continuous and consistent support”, while workers have the right “to fair wages that provide for a decent standard of living”.
(Reporting by Jan Strupczewski; Editing by Nick Macfie)
UK aero-engineer Meggitt eyes return to growth after pandemic slump
LONDON (Reuters) – British engineer Meggitt said that it could return to profit growth in 2021 provided there are no further lockdowns, despite a weakening in the struggling aviation market at the end of 2020 and early this year.
Pandemic restrictions halted much flying globally last year and forced plane makers Boeing and Airbus to cut production rates, dragging down suppliers like Meggitt, which makes and services parts for such aircraft.
Meggitt’s underlying operating profit plunged by 53% to 191 million pounds ($267 million) in 2020, it said on Thursday, despite continued growth in its defence business which makes parts for military jets and accounts for about 45% of the business.
Meggitt, however, said it expected air traffic to recover in the second half of the year which would help it return to profit growth over the year, although its guidance for flat revenue disappointed analysts who had expected growth of 6%.
Meggitt’s Chief Executive Tony Wood said in November that he had expected flying to start to recover by Easter, but new variants have led to more restrictions and delayed the recovery.
“It has gone back a couple of months… it’s now very much in the summer,” Wood said of the recovery in an interview on Thursday.
Further in the future, Meggitt is positioning itself for the move to lower emissions flying, and its sensors and electric motors will be used on electric urban air mobility platforms, such as flying taxis, and in hybrid aeroplanes being developed.
But Meggitt said new tax breaks announced in Britain’s annual budget on Wednesday aimed at encouraging investment would not change its plans.
“Yes, it will be a benefit. Are we looking at any acceleration as a result specifically of that? Not really,” Woods said.
Shares in Meggitt were down 1% to 427 pence at 0943 GMT. The stock has risen by 50% since news of a COVID-19 vaccine last November, but is still down 23% on where it was pre-pandemic.
($1 = 0.7165 pounds)
(Reporting by Sarah Young; Editing by Alistair Smout and Susan Fenton)
Cannon Wealth Solutions Discusses The Need to Rebalance Portfolios and Monitor Risk
By Robert Cannon, the CEO of Cannon Wealth Solutions. The world in 2021 is significantly different after a year of...
Five ways to mitigate the risk of AI models
By Dave Trier, VP of Product at ModelOp In recent years, the banking industry has been at the forefront of...
Honda’s part self-driving Legend a big step for autonomous tech
TOKYO (Reuters) – Honda Motor Co Ltd on Thursday unveiled a partially self-driving Legend sedan in Japan, becoming the world’s...
Airbus to avoid redundancies in Germany, France, Britain
BERLIN (Reuters) – Airbus will make no forced redundancies in France, Germany and Britain, the European planemaker said on Thursday,...
Duo glide around world’s largest fountain in Dubai
Paragliders Llorens and Goberna take magical flight above the Palm Fountain. Horacio Llorens and Rafael Goberna defied gravity to perform...