Fingers point towards US on economic crisis as Chinese, Russian leaders speak

Nick Cargo
Published: Wednesday January 28, 2009

Prime Minister Vladimir Putin of Russia and Premier Wen Jiabao of China had strong words for certain entities over the state of the global financial system at the World Economic Forum in Davos, Switzerland on Wednesday.

Recent financial conditions are attributed by Wen, in his statement, to "inappropriate macroeconomic policies of some economies and their unsustainable model of development characterized by prolonged low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit; lack of self-discipline among financial institutions and rating agencies and the ensuing distortion of risk information and asset pricing; and the failure of financial supervision and regulation to keep up with financial innovations."

"In other words," he continued, "we must strike a balance between savings and consumption, between financial innovation and regulation, and between the financial sector and real economy.

"The current crisis has inflicted a rather big impact on China's economy. We are facing severe challenges, including notably shrinking external demand, overcapacity in some sectors, difficult business conditions for enterprises, rising unemployment in urban areas and greater downward pressure on economic growth."

Putin called out the United States directly in his speech, calling the current economic state a "perfect storm." "I just want to remind you that, just a year ago, American delegates speaking from this rostrum emphasised the US economy's fundamental stability and its cloudless prospects," he said. "Today, investment banks, the pride of Wall Street, have virtually ceased to exist. In just 12 months, they have posted losses exceeding the profits they made in the last 25 years. This example alone reflects the real situation better than any criticism."

"Excessive dependence on a single reserve currency is dangerous for the global economy," Putin said, calling for multiple reserve currencies in addition to the dollar.

"The time for enlightenment has come," he went on. "We must calmly, and without gloating, assess the root causes of this situation and try to peek into the future."

The failure to "duly heed tremendous risks" and "substandard regulation" are among the causes Putin cited, along with "colossal" disproportions between "the scale of financial operations and the fundamental value of assets."

"The entire economic growth system, where one regional centre prints money without respite and consumes material wealth, while another regional centre manufactures inexpensive goods and saves money printed by other governments, has suffered a major setback," Putin added. "A considerable share of the world's population still cannot afford comfortable housing, education and quality health care. Even a global recovery posted in the last few years has failed to radically change this situation."