LONDON Feb 11 The world's financial system must
be reconfigured to encourage more investment in shares as part
of wider efforts to increase economic growth, an influential
think tank said on Monday.
The Group of Thirty (G30), made up of current and former
regulators and central bankers, said without such reform it will
be hard to raise at least $7 trillion annually it estimated
leading economies will need by 2020 to put growth back on track.
The financing is needed for government and private sector
infrastructure projects, education, research, housing and
business expansion, the G30 said.
"We have to get beyond the short-term issues that are being
discussed and look at the long-term and see how growth is going
to be revived and how employment is going to be created," former
Mexican finance minister Guillermo Ortiz and G30 member told a
"Here's a set of ideas. Our hope is that some of these ideas
... will spark the interest in how to get long-term finance on a
The report seeks to put several issues to the Group of 20
(G20) finance ministers meeting in Russia later this week.
It could be pushing on an open door.
The G20 came to the fore during the 2007-09 financial crisis
to stitch together a global consensus on regulatory reforms, but
its focus has switched to an urgent need to boost growth.
Former European Central Bank President Jean-Claude Trichet
said "quick wins" could include rowing back limits faced by
pension funds and other investors in shares.
BIAS AGAINST EQUITY
"Everywhere in the world there are biases against equity, in
the advanced economies and the developing economies. We are
trying to remove these biases," Trichet said.
A wider range of instruments was also needed and the report
urges developing countries to push ahead to set up capital
markets to issue shares and other finance-raising instruments.
The reforms are needed otherwise growth will remain sluggish
due to the ageing population in the west, bank deleveraging and
a retreat from equities by pension funds.
UK Financial Services Authority Chairman Adair Turner said
another issue being put to the G20 is the need to reduce tax
advantages debt enjoys over equity.
The report also takes aim at how holding sovereign debt is
favoured, while holding other types of debt, such as bonds
linked to infrastructure projects, was less favourably viewed.
The report calls on the G20's regulatory task force, the
Financial Stability Board - on which Turner sits - to consider
new accounting rule to encourage pension funds to hold shares or
other assets for several years. This would avoid having to value
the holdings quarterly, which can create volatility.
Another idea would be to link a fund manager's pay to
returns over at least three years or more, to encourage a
longer-term investment perspective.