MORE WORK NEEDED TO RECTIFY GLOBAL FINANCIAL SITUATION

By Siti Hawa Othman

DOHA (Qatar), Oct 9 (Bernama) -- A lot more needs to be done to rectify the
current global financial situation where until now only 30 percent of the
important measures were in place, said a top global consultant.

Rajat Kumar Gupta, senior partner emeritus, McKinsey & Co, said what the
measures had accomplished so far were that they had stabilised the banking
system.

"However, a lot more work needs to be done. Many of them are on their way.
We have accomplished some of the important jobs like stabilising the banking
system and coordination among countries and so on.

"That probably accounted for 30 percent of critical pieces that have been
done and 70 percent remains to be done," he told Bernama in an interview in
conjunction with the recent QFinance Global Debates here.

Going forward, he said, a lot of hard work was needed like implementing
effective regulation and its enforcement, responsible behaviour in terms of
compensation and incentives, sales practices and consumer protection.

Gupta said the biggest damage brought about by the crisis was credit
contraction which had affected job creation.

"But there is a silver lining if you learn the lessons from it. The biggest
lesson is you cannot live beyond your means forever, it will come back (to
you)," he said.

On whether the crisis would result in the emergence of a different regime,
he said economic power was shifting due to fundamental demographic and economic
changes.

"Firstly, it is the shift in population with the advent of middle classes in
China and India.

"Secondly, the scarcity of commodities has resulted in the positive shift
for commodity-rich economies like the Middle East, Russia and Brazil.

On whether the new financial architecture would be more conservative, he
said, it could be in the sense of risk management like on leverage, better
governance and enforcement of regulation.

"Too much leverage has created problems and mispricing of risks. On the
converse, banks are about leverage or else they are not able to make money," he
said.

On complications brought about by some derivative products, Gupta said, one
should not curtail innovations but regulate them.

"I believe you can design complexity but if people don't understand, there's
something wrong.

"There should be effective regulation to see what's the real purpose of any
practical products," he said.

-- BERNAMA