In their expansive communiqué on the global financial crisis last weekend, the Group of 20 leaders bemoaned the pro-cylicality of financial regulation caused by lax regulators, inattentive rating agencies and greedy financial institutions. Curiously absent, however, is a candid acknowledgement of politicians’ central contribution to the mix. That is most unfortunate. Finding ways to insulate financial regulation from political meddling is critical to creating a more robust global financial system in the future.
As the global financial crisis radiates out from the developed economies into emerging markets, it is ravaging not only governance-challenged economies such as Venezuela, Russia and Argentina, the crisis is also striking countries like Brazil, Korea, and South Africa, which appeared to have made substantial and lasting progress towards macroeconomic stability.