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‘Smarter govt’ needed: Bush

US President defends free market system, warns against ‘too much government’

NEW YORK — United States President George W Bush yesterday (this morning, Singapore time) urged leaders of the world’s biggest economies not to abandon free-market capitalism as they seek an escape from the financial crisis, calling it the “best system” for delivering growth, and urged world leaders to adopt modest financial reforms that stop short of the tighter regulations Europeans favour.

“History has shown that the greater threat to economic prosperity is not too little government involvement in the market, but too much,” Mr Bush said during a speech in New York, a day before about two dozen world leaders converge on Washington for a weekend summit he is hosting.

“Our aim should not be more government. It should be smarter government.”

G20 leaders including Australian Prime Minister Kevin Rudd and French President Nicolas Sarkozy have used the crisis to demand greater government control of markets and to attack the US for failing to rein in investors and speculators. Under debate are proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks and subjecting credit rating companies to stiffer oversight.

“In recent years, investors could, broadly speaking, ignore the role of government when thinking about markets,” said Mr Alex Patelis, chief international economist at Merrill Lynch in London. “That period is now over.”

Mr Bush yesterday said the G-20leaders will consider pushing common standards for accounting, improving oversight of financial-market instruments such as credit default swaps and better protecting investors against fraud. He said ways wwill be sought to coordinate market regulations across borders and to hand emerging markets more power within the International Monetary Fund and World Bank.

“The answer is not to try to reinvent that system,” Mr Bush said. “It is to fix the problems we face, make the reforms we need, and move forward with the free market system.”

The G-20 leaders, who oversee close to 90 per cent of global gross domestic product, will begin their summit in Washington tomorrow. The Organization for Economic Cooperation and Development today predicted the economy of its 30 richmember nations will contract0.3 per cent next year.

For all his defence of markets, Mr Bush this year extended the reach of government by backing bailouts of American International Group, Bear Stearns, Fannie Mae and Freddie Mac. His administration is also implementing a US$700-billion ($1.05-trillion) financial rescue programme which US Treasury Secretary Henry Paulson yesterday shifted toward relieving pressure on consumer credit, scrapping an effort to buy devalued mortgage assets.

“I’m a market-oriented guy, but not when I’m faced with the prospect of a global meltdown,”Mr Bush (picture) said.

Yet he also asserted that government intervention isn’t a “cure-all” and that the crisis was caused by failures among investors, regulators and governments rather than the free-market model. He said steps taken so far by governments and central banks were thawing credit markets and stabilising financial conditions, although he acknowledged “more difficult days ahead”.

THE BLAME GAME

Politicians overseas have heaped blame on the US and the notion of unfettered markets promoted byMr Bush for the turbulence.

German Chancellor Angela Merkel last month attacked “greed, speculation and mismanagement” and yesterday called on counterparts to agree an end to “blind spots” in the financial system. Mr Rudd said “the root of this malaise” lay in the “twin evils” of greed and fear that went unchecked because of “obscene” failures in oversight.

While defending capitalism as the “most efficient system ever created”, Mr Sarkozy also said the view that “everything could be solved by deregulation, free competition and the market” was no longer valid.

In a sign the administration does not accept full responsibility for the world’s woes, Mr Bush noted that “many European countries had much more extensive regulations and still experienced problems almost identical to our own”.

With Mr Bush leaving office in little more than two months and the issue of regulation too complicated to be addressed in 24 hours, G-20 officials are signalling more talks are likely soon after US President-elect Barack Obama is inaugurated.

Mr Bush said the summit will be the first in a series of meetings. “This crisis did not develop overnight, and it will not be solved overnight,” he said. :The New York Times