Andrew Jay Rosenbaum
05 October 2015•Update: 06 October 2015
By Andrew Jay Rosenbaum
ISTANBUL
The secretary-general of the Organization for Economic Co-operation and Development (OECD) has voiced concern over the state of global investment.
"Something is very wrong with global investment, it is not working the way it should,” Jose Angel Gurria said Monday.
In an interview with Anadolu Agency on the sidelines of the G20 meeting in Istanbul, Gurria said: "Taking a global view, we need clearer, simpler and consistent rules to make global investment work again".
The problem is that investors do not feel safe as rules vary so dramatically from one country to another, he said.
"It's a spaghetti bowl," Gurria explained. "Regulations are made locally with a view to making investors safe on an ad hoc basis, depending on the time they are made, local conditions, etc. The result is that we are identifying more and more restrictions around the world on investment".
The organization has proposed a system of best-practice rules for investment called the "Base Erosion and Profit System," a technical term which refers to a breakdown of ideal legal and regulatory concepts for fair-trade practice and investor protection. "What is the best investment regime, what is the most favorable investment climate to incite large banks and institutional investors to take action," he explained.
"This should help erode protectionism, which we have as a legacy of the financial crisis. Instead of protection, we should work for the welfare of all individuals, not that of local companies, local workers, local banks," he said.
For emerging markets, this would be a guide for structural reforms, Gurria said. "We identify the changes that need to be addressed to increase investment, looking in a holistic way at the reform package that a country has to have," he said.
Countries cannot protect jobs, Gurria pointed out. "The result is only to shut out young people seeking to enter the labor market, and ultimately, that hinders growth. Instead, governments need to look at what goes wrong, and change it based on best practice. We offer a model that can be held up for comparison," he said.
Gurria gave the example of Turkey, where, he said, structural reforms will be fundamental in stimulating the economy. "Turkey has good fundamentals, but has been hurt by slow global growth. Structural reforms will enable Turkey to make the changes needed to adapt to new conditions. Turkey should use its access to Europe and improve its ability to compete in its largest export market," he said.
But all emerging markets will gain by adapting to best-practice rules we elaborated in the Base Erosion and Profit System initiative, Gurria said.
Earlier, speaking at the G20 meeting on global investment in Istanbul, Gurria said that there were 3,000 bilateral trade agreements globally, and the resultant conflict and contradictions were hindering global trade and global investment.
He warned that local regulations conflicting with global rules kept investors away. “For example, it is one thing to enact regulation to include more local content in technology. But the local content may not be standard, and so investors stay away,” he said.
Overall, the OECD regulatory restrictiveness index shows too little improvement, Gurria remarked.
“It is essential that we create global regulations to make conditions better for global investment,” Gurria said.
For now, Gurria insisted, conditions for investment were not working: “We have the lowest interest rates, the lowest exchange rates against the dollar ever, but investment is backtracking. There are trillions sitting on the side, not being used,” he said.
Gurria called for a hard look at regulation across the world to see that investment begins to flow freely again.
