by Alex Evans | Nov 6, 2008 | Climate and resource scarcity
Next week sees the publication of the International Energy Agency’s latest flagship World Energy Outlook, which has been heavily leaked to the Financial Times. The report makes the same point that I’ve been arguing since prices started to slide from their peak of $147 over the summer (to around $60 today): oil prices are going to go back up. A lot. As Javier Blas and Carola Hoyos summarise in the FT,
The world economy will witness a $2,000bn shift in wealth and power from oil-consuming countries to members of the Organisation of the Petroleum Exporting Countries as oil prices rise to $200 a barrel by 2030.
The IEA says that Opec oil reserves are big and cheap enough to increase production and cap oil prices, but it warns: “Investment by these countries is assumed to be constrained by several factors, including conservative depletion policies and geopolitics. “There remains a real risk that underinvestment [bet-ween now and 2015] will cause an oil supply crunch” the report states…
In its report, the IEA sees oil prices reaching $200 by 2030, almost doubling last year’s forecast of $108 by the same year. The report suggests that current oil prices – below $70 a barrel and less than half their peak summer level – are a temporary effect of the economic crisis.
The $200 a barrel figure is the same one mooted by a Chatham House report on oil published in August, which shared the IEA’s concern that the investment needed to bring new production on stream just wasn’t happening fast enough. The IEA was already worried about that point when it published last year’s Outlook, remember – the fact that prices have crashes to less than half their peak level since then will hardly have helped to bring new investment on stream.
Exactly as with food prices, then, it’s the recent fall in prices that represents the blip – and the recent highs that represent the start of a long term trend. The IEA’s report is just the latest in a series of very good reasons why policymakers need to get their act together quickly on agreeing collective approaches to resource scarcity issues while the political heat on them is – for a little while – off.
But to repeat what I said in July, massive investment in new oil production just can’t be squared with what needs to happen on climate change. The global deal that we really need for managing energy security and competition for oil resources is a global framework for climate policy that manages the problem over the full term of its lifecycle – not just the next few years, as with Kyoto, as this is far too short term to give real investment certainty – and that has targets for all countries, not just developed ones.
That, of course, takes us straight back to David’s recent question on developing country participation. More on that in another post shortly…
by Mark Weston | Nov 3, 2008 | Africa
Defying the global financial crisis, Guinea-Bissau, Gambia and Guinea have recorded sharp rises in foreign direct investment in recent months. Trouble is, according to the United Nations Office on Drugs and Crime, most of the increase is drug money. “Foreign direct investments in these (three) countries, unexplained so far by their economic performance, have exploded. Remittances have grown. Even the currencies of the region are being revalued,” says the beleaguered head of the organisation, Antonio Maria Costa. “This is a form of money laundering, it comes in as foreign direct investment, it goes into rural real estate, purchase of land, hotels, tourism,” he told West African leaders in Cape Verde, who are meeting to discuss the problem.
As well as the above three countries and Sierra Leone, which I wrote about in July, a researcher who works for Kofi Annan claims that Ghana has become another hub for the drug deluge, which he believes will affect the country’s current election campaign. Here’s a helpful map of West Africa’s Cocaine Coast – expect Liberia and Cote d’Ivoire, which like Sierra Leone and Guinea-Bissau are struggling to rebuild after devastating wars and which are surrounded by drug havens, to be next.
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 Alex Evans | Oct 24, 2008 | Cooperation and coherence, Economics and development, Global system, London Summit
We are now officially beginning some sort of post-credit crunch global governance feeding frenzy. We now have the following to look forward to:
– The report of a new High Level Commission on modernisation of the World Bank, chaired by former President of Mexico Ernesto Zedillo;
– A UN General Assembly task force on the global financial system, chaired by Joseph Stiglitz (composition and terms of reference to be announced on 30 October);
– An EU summit on the financial crisis and reform of global financial institutions on 7 November, to prepare for…
– A G20 summit on international financial institution reform in Washington DC on 15 November (though no-one seems to have told the G20 secretariat);
– A UN Financing for Development summit from 29 November to 2 December – it’s been in preparation since last year, but Ban Ki-moon has now suggested turning it into a UN summit on the financial crisis, in NYC rather than Doha as planned (Ban says:
“I strongly believe that holding the summit at the United Nations, the symbol of multilateralism, will lend universal legitimacy to this endeavour and demonstrate a collective will to face this serious global challenge…”)
I make no claim to this being a comprehensive list (and will add to it as I find more baubles to hang on the tree). But it all invites the question: how much is really going to be achieved through all this pannelling and summitry? As Eurodad, the civil society network on debt relief, notes on its website:
Several meetings that Eurodad staff have had in recent days reveal that senior European policy makers have few precise reform proposals for this summit meeting and have not started negotiating a common EU position. Indeed smaller European countries are unhappy that they will be excluded from the 15 November meeting. The summit – with its extravagant “Bretton Woods II” billing – may reveal a very dangerous gap between expectations and delivery,
Too right. Over the summer, there were no fewer than three summits (FAO; G8: WTO) that claimed in advance that they were riding to the rescue on food prices, and which then failed to deliver anything interesting. Now it looks like we’re about to do the same on the credit crunch…
Update: Eurodad have produced a helpful FAQ on the ‘Bretton Woods II’ summit – download it here. Thanks to Alex Wilks.
Update 2: David and I have published a briefing paper on the Summit.
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.
