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 24, 2008 | Economics and development, North America
Think an Obama Administration would spell an upwards march on the US aid budget? Think again.
The Obama / Biden campaign platform is formally committed to a doubling of US foreign assistance to $50 billion (which by my calculations works out at 0.36% of US gross national income – still a way off from the 0.7 target, but hey).
But now, it looks as though that commitment got dropped – in a little-noticed part of the Vice-Presidential debate between Biden and Palin on October 3. The debate chair asked:
“What promises — given the events of the week, the bailout plan, all of this, what promises have you and your campaigns made to the American people that you’re not going to be able to keep?”
And the very first thing that Joe Biden said in his reply was this:
“Well, the one thing we might have to slow down is a commitment we made to double foreign assistance. We’ll probably have to slow that down.”
And that was it; no explanation, no regrets, just a bald statement – a blunt demonstration of the relative weakness of the development lobby in the US.
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 Alex Evans | Oct 13, 2008 | Conflict and security, Global system
Nils Gilman at Small Precautions:
Six months ago (specifically: March 8, before even Bear Stearns had collapsed) I undertook a scenario planning exercise with Peter Schwartz, Steve Weber, and several other colleagues, trying to assess where this whole “sucker” (to use Bush’s choice phrase) could possibly end up. We spent a lovely, sunny afternoon on Peter’s balcony in the Berkeley Hills thinking rational but black thoughts about where it could all end up.
By the end of the exercise, as we discussed the various risks in the system, and how it might all play out, we had laid out a scenario whereby the money center banks, that is, the very core of the Western financial system (in the U.S., these are Citigroup, JP Morgan Chase, and Bank of America) could end up insolvent, necessitating a wholesale nationalization of the banking sector. We then looked around the table at each other and tried to imagine what this would mean for Western capitalism and democracy, and it just seemed too crazy to even consider. Political and ideological apocalypse on a scale of the collapse of the Soviet Union.
We all sat there, feeling a little crazy, and then finally one of us (who shall remain, for now, unnamed) uttered the most taboo words in scenario planning: “That could never happen. Impossible.”
And we all agreed, and wrapped up the session.
The wholesale ideological and political collapse of Communism? There were lots of smart people as late as 1989 who said that couldn’t ever happen, either….
