G-20 'may have limited options' to tackle crisis

Civil service head Peter Ong said yesterday that leaders remain committed to bringing stability and fostering economic growth but will have less space to do so than in 2009, when the last financial crisis struck.

The permanent secretary for the Finance Ministry said at a seminar on the G-20 summit that leaders will have fewer options on the fiscal side because many countries are undergoing moves to consolidate their finances.

They will also have less flexibility to use monetary policy as policies are already accommodative, said Ong at the Lee Kuan Yew School of Public Policy yesterday.

And with high unemployment, leaders are likely to have less political capital to push through difficult but necessary measures.

"I think the overall climate will be one where the space offered to leaders going to Los Cabos (for the G-20 summit) will be quite limited," said Ong.

"But I think they will all be quite committed."

Leaders of the biggest economies in the world will meet in Los Cabos in Mexico next month to tackle the most pressing economic issues facing the world, including the euro zone debt crisis.

The summit will be held just a day after Greece goes to the polls to elect a new government, which could determine whether Athens leaves or stays in the euro zone.

This in turn could have huge ramifications on the global financial system and economy.

Ong and Mexico's Ambassador to Singapore Antonio Villegas spoke on the G-20's role in tackling the euro zone crisis. The seminar was chaired by the Lee Kuan Yew School of Public Policy dean Kishore Mahbubani.

The G-20 is made up of the 20 biggest countries, accounting for more than 80 per cent of the world's economy and trade.

Despite its size, the G-20 should not be seen as a "saviour of the world", said Villegas, whose country holds the presidency of the group.

Instead, it is an important platform for the leaders of these economies to discuss, plan and coordinate policies to tackle issues confronting the global economy.

"I think that if we did not have the G-20, we would have to invent it now," he said.

On the euro zone crisis, Ong said that leaders will face a difficult and tricky balance between ensuring austerity in government finances to restore confidence in the markets and boosting growth.

"Leaders will need to find the right balance between market demands and mounting political difficulties," said Ong.

The politics of the two biggest economies of the world, the United States and China, will also go some way to determine how the economy turns out this year, said Professor Mahbubani.

He noted that both countries will undergo a period of political transition this year - the US with its presidential elections and China with its 18th Communist Party Congress. Leaders there will be anxious to make sure the global economy does not tank, as it could affect the political process.

"As you know, leaders are concerned about their countries' futures. Leaders are also concerned about their own futures," he said.