KUALA LUMPUR: Central banks should take social equity and environment into their
policies and re-steer finance into serving the real sector, said Distinguished Fellow of
Fung Global Institute Tan Sri Andrew Sheng.
“We must restore balance to financial environment like finance to serve the real
sector for jobs, equity and ecology,” he said at the Asian Institute of Finance’s
Distinguished Speaker Series 2014 here yesterday.
Sheng said advanced economies’ central bank policies do not revive long-term
growth because low rates affect pension funds’ cash flow to invest in long-term
projects and funds go for higher yields through leverage and speculation in asset
appreciation, rather than through long-term environment projects.
“Finance is still on an unsustainable path. Environment sustainability cannot be
financed at current rates.
“There are two elements of sustainable finance. Whether finance can continue its
present path or whether finance can fund sustainability environment,” he said.
Sheng suggested that central banks establish a cooperative framework to facilitate
public-private partnership to achieve policy goals. They should then define clear roles
and responsibility for government agencies, state-owned enterprises and private
companies to avoid potential cannibalisation.
According to him, the pure market-based model has failed in resource allocation,
price discovery, risk management and corporate governance.
Sheng said advanced economies’ central policies already take into consideration the
need for job creation but use only interest rate tools.
“Quantitive easing only provides liquidity to the financial sector but the real sector
complains of shortage of funds,” he added.
Sheng said interest rate management can be aligned with long-term sustainable
growth and inter-generational fairness.
A version of this article appeared in The Sun Daily, 22 August 2014
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