by Alex Evans | Oct 26, 2008 | Economics and development, Global system
Dani Rodrik:
Paul Krugman frets that we are about to witness the mother of all currency crises in emerging markets, and I am afraid that he is right. As I wrote in my previous post, the financial crisis in the developing world has just started and there are indications that it will get a lot, a lot worse. What is different with this phase of the crisis is that it cannot be addressed by governments in the affected countries issuing their own fiscal guarantees and domestic currency. These countries need external lines of credit, and they need it fast before the scale of the problem becomes truly unmanageable.
The solution is clear. The IMF, possibly along with central banks of the G7, has to act as a global lender of last resort to emerging markets. These countries have to have ample access to liquidity in reserve currencies–quickly and with few strings attached–for them to be able to fend off what may otherwise become a historic rout of their currencies. And China should join in: it should make a portion of its near-$2 trillion of reserves available in support of this global enlargement of credit lines.
Emerging markets have every right to say that they are being swept under by a crisis that is not their own doing. But the real reason the rest of the world needs to move on this front is naked self-interest. Combine a deep recession in the advanced countries with an uncontrolled depreciation of emerging-market currencies, and the pressure to erect trade barriers in the U.S. and Europe will be impossible to withstand. A vicious cycle of unemployment and protectionism feeding on each other a la 1930s could transform the deep recession everyone is already expecting into a second great depression. It can get worse…
And with this bit of good news just in, Dominique Strauss-Kahn should have no distractions to prevent him from focusing on this most urgent task. There are some reports that the IMF is moving in this direction. I have a feeling that this will be the make-it-or-break-it week for emerging markets. I hope the IMF will make an announcement in time to make a difference.
by Jules Evans | Oct 25, 2008 | Conflict and security
There’s an interesting interview with Chinese premier Wen Jiabao by Fareed Jakaria on the CNN website. Wen again talks about his love of Marcus Aurelius’ Meditations, and how it plays a role in his political philosophy.
This philosophy, as far as I can tell, is one of Stoic resilience in the face of catastrophe, such as the earthquake that hit China in May, when Wen immediately flew out and took command of the recovery situation.
He spoke at greater length in New York in September:
I had a background in geological studies and I am familiar with an important theory in the study of the history of geological periods: that is the catastrophic theory. In the past six years since I took office as the Chinese Premier, it is fair to say that we have encountered numerous disasters and difficulties.
From the outbreak of the SARS epidemic, to the sleet- and snow-storm that hit southern China, and then to the massive earthquake that devastated Wenchuan, Sichuan province, and from the accidents in the coal mines to the food safety incident that occurred recently, all this has given us a very informative experience, and we have learned new things from overcoming these difficulties. As I always say: what a nation loses in a disaster will always be compensated by progress later on.
As you may know, I very much enjoy reading Meditations, a classical work written by Marcus Aurelius. In this classical work I once read: as for so-called great men, where are they now? They are all gone. Some of them may be enough to form a story and some others may not even be enough to form half a story. So I would rather prefer leaving some spiritual legacy behind, mainly as the following two points:
Number one, in the wake of a disaster, we should not yield to the difficulties, rather we should have the courage to face up to the difficulties head-on and we should have the courage to lead our people to surmount the difficulties. To do that, we need to have a firm stand; we need to have courage and confidence.
Number two, as far as a government is concerned, a government should be responsible for its people, should be dedicated to serving the people, and should be marked by dedication and its clean and honest behavior. Except for these, a government should not have any privilege whatsoever. All the power belongs to the people and all the power should be used for the people.
As an old Chinese saying goes: a spring silkworm keeps producing silk until it dies and a candle keeps giving light until it burns into ashes. I am already sixty-seven years old, and I will dedicate the rest of my power and energy entirely to the Chinese nation and to the Chinese people and I hope that when I leave this world people will remember that I, as the Premier, have actually followed the two principles that I mentioned before, and that way I will also rest in peace.”
Grandpa Wen’s love of Marcus Aurelius has done wonders for the old Stoic’s reputation in China. The Meditations has been in the top ten bestseller list there for several months.
by Alex Evans | Oct 22, 2008 | Cooperation and coherence, Influence and networks
If you haven’t read it already, World Bank President Bob Zoellick’s speech on multilateral reform earlier this month is definitely worth a read. One of best nuggets in it is his call for “a Facebook for multilateral economic diplomacy” – the rationale for which goes like this:
The G-7 is not working. We need a better group for a different time. The G-20, though valuable, is too unwieldy in moving from discussion to action. We need a core group of Finance Ministers who will assume responsibility for anticipating issues, sharing information and insights, exploring mutual interests, mobilizing efforts to solve problems, and at least managing differences.
For financial and economic cooperation, we should consider a new Steering Group including Brazil, China, India, Mexico, Russia, Saudi Arabia, South Africa, and the current G-7. Such a Steering Group would bring together over 70 percent of the world’s GDP, 56 percent of world population, 62 percent of its energy production, the major carbon emitters, the principal development donors, large regional actors, and the primary players in global capital, commodity, and exchange rate markets.
But this Steering Group would not be a G-14. We will not create a new world simply by remaking the old. It should be numberless, flexible, and over time, it could evolve. Others may be added, especially if their rising influence is matched by a willingness to help shoulder responsibilities.
This new Steering Group should meet and videoconference regularly to foster group responsibility. The Deputies should have frequent and informal discussions. An active network of bilateral consultations within and beyond the group will support it. We need a Facebook for multilateral economic diplomacy.
It’s a timely reminder that there’s no hard and fast rule to say that multilateral cooperation has to revolve around formal multilateral organisations – and especially refreshing to hear this coming from the head of the World Bank. (And yes, he does have a Facebook page, since you wonder.)
Responses to the financial crisis over the last few weeks seem to bear out Zoellick’s point. Although multilateral cooperation has been central, multilateral organisations haven’t been: the IMF, for example, has been largely absent from the main action, and while the EU managed in the end to be at the forefront of marshalling a collective response, it was the Council of Ministers – not the Commission – that pulled it all together.
In this light, it’s perhaps ironic that while Gordon Brown has come to be seen as one of the main organisers of this non-organisationally-based but nevertheless fundamentally multilateral crisis response, his stated vision for multilateral reform is very organisationally focussed, what with emphasis on a new Bretton Woods, an enhanced early warning role for the IMF and so on.
by David Steven | Oct 21, 2008 | Climate and resource scarcity, Conflict and security, Global system, Influence and networks
In the summer, I gave a talk at the United Nations University G8 symposium on climate change, where I explored the threshold between conflict and cooperation on carbon control.
Belatedly, the talk is online – either as a pdf, or you can read the full text after the jump.
(more…)
by David Steven | Oct 19, 2008 | Climate and resource scarcity, Cooperation and coherence
Imagine you’re advising China or India – or perhaps a poorer developing country such as Ghana – on their preparations for the climate change negotiations in Copenhagen. What sort of deal should these countries be prepared to accept? What would seem fair?
Nick Stern sidles up to these questions in his paper – Key Elements of a Global Deal on Climate Change. His starting point is that global emissions need to drop to around 20 gigatonnes of carbon dioxide equivalents (and then further to around 10GT CO2e in the decades that follow) – that’s around 2 tonnes of CO2e in 2050 for each of the world’s 9 billion people or so.
Stern believes that there is no choice but for countries to converge on this per capita average:
This target for per capita emissions by mid-century is so low that there is little scope for any major country to depart significantly above or below it. If one or two large countries were to manage only to reduce emissions to, say, 3T or 4T per capita, then it would be difficult to see which other major grouping of countries would be able to get emissions close to zero: and the global target would be unlikely to be reached.
So…let’s imagine the Americans have accepted this logic (suspend belief for a moment) and have a proposal for reducing their emissions from over 20T today to Stern’s 2T by 2050. They enter the negotiating room expecting other countries to do the same.
How would you advise China, India or Ghana to respond? They start from a very different point – around 5T per Chinese citizen, 2T for an Indian, and maybe around 1/2 tonne for a Ghanaian.
Now, as Stern admits, for them, simple convergence would be a pretty rough deal.
All major groups getting to 2T/capita is a pragmatic approach and not a strongly equitable one. It takes little account of the greater per capita contributions of the developed countries to the historical and future contributions to the stock of GHG emissions.
My instinct would be to urge the Chinese, Indians and Ghanaian to forgo what might be a fun, but ultimately unproductive, squabble about historical emissions. Be magnanimous about the past, I’d suggest. Instead focus on what really matters – who’s going to be allowed to emit what over the next forty years.
Because however far Chinese, Indian or Ghanaian emissions are allowed to increase before they start to drop towards 2T – its absolutely certain that their total emissions between now and 2050 (on a per capita basis) will be significantly lower than America’s.
In other words, there’s no trajectory that can be drawn that gives these countries a fair share of the next generation emissions ‘cake’.
So what deal would you advise them to strike?
