LONDON, Feb 11 (Reuters) - 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 news conference.
“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 strong footing.”
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.
“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.