Today’s “currency wars” stand at the intersection of many critical issues. These include the ability of developing countries to deploy capital controls, the role of the US as global financial hegemon, the inadequacy of the global financial architecture, the power of the IMF, and the role of the BRICs (and other rapidly growing developing countries). All of these issues are at center stage both at today’s meeting of G20 Finance Ministers in Washington DC and at yesterday’s BRIC Summit in Sanya, China (which South Africa attended for the first time).
The Other Imbalances: Inequality and the financial crisis
Michael Lim Mah-Hui, Guest Blogger
Much of the discourse on the structural imbalances of the recent great financial crisis has focused on the current account imbalances between countries. In fact, many Western mainstream economists blame the Asian surplus countries’ “savings glut” as a fundamental cause of the crisis without reflecting on their own “consumption glut” as the mirror image of the problem.
Nevertheless, two other structural imbalances that are equally, if not more important, causes of this crisis, are less discussed. These are: the imbalance between the financial sector and the real economy, sometimes known as “financialization” of the economy; and the imbalance in income and wealth between the rich and the poor and not so rich. These other two imbalances are discussed at length in my recent book with Lim Chin, Nowhere to Hide: The Great Financial Crisis and Challenges for Asia.
Beyond Keynes: An interview with Justin Yifu Lin
The following interview with new World Bank Chief Economist Justin Yifu Lin is re-posted from the World Policy Institute’s World Policy Journal, a Triple Crisis partner. We periodically cross-post items of interest.
In May 1979, Justin Yifu Lin—a 26-year-old company commander in the army of the Republic of China and a recent graduate of the MBA program at National Chengchi University—defected from Taiwan to mainland China by swimming across the straits to Fujian Province, leaving behind his pregnant wife and three-year-old child.
Seven years later, after obtaining a Master’s degree in Marxist political economy from Peking University, he became one of the first citizens of the People’s Republic of China to receive a PhD in economics from the University of Chicago. Reunited with his family, and returning to China, he became a professor of economics at Peking University and founded the Beijing-based China Center for Economic Research. In June 2008, he became the chief economist of the World Bank, the first ever from a developing country. In a conversation with World Policy Journal editor David A. Andelman and managing editor Justin Vogt, Lin explained his vision of the global recovery and the role of the World Bank in helping developing nations grow and prosper.
Food Price Volatility: What Was and Wasn’t Said in the Leaked Report to the G-20
Triple Crisis is pleased to welcome Jennifer Clapp as a regular blogger.
Despite the slight dip in the FAO food price index in March, global food prices still remain 37 percent higher than they were at this time last year. In this context, eyes are fixed on the upcoming G20 meetings where France, as host, has pledged global leadership on the issue of commodity price volatility.
A confidential draft report prepared by 9 international organizations for the G20, leaked in late March, gives us a glimpse into the analysis on volatility in food and agricultural markets that informs the G20.
New Financial Architecture: Towards a “Beijing Consensus”?
Joseph Stiglitz has written an article in the Financial Times dated April 1, 2011, arguing that a substantially enhanced issue of Special Drawing Rights (SDRs)by the IMF should be the first step in the reform of the international monetary system. The article is of special significance because it is based on a statement issued by 18 leading economists from across the globe calling themselves the Beijing Group, which includes nine known Chinese figures.
The IMF's welcome rethink on capital controls
Triple Crisis blogger Kevin Gallagher co-authored the following opinion article with José Antonio Ocampo in the Guardian on the IMF’s formal recognition of capital controls as a vital policy tool for regulating destabilizing capital flows in developing countries.
In contrast to most western governments, over the past two years, the International Monetary Fund (IMF) has boldly conducted one of the most honest self-assessments of its actions leading up to the financial crisis, has become somewhat critical of inflation-targeting and has endorsed the use of capital controls. In March of this year, the IMF held a full conference on rethinking macroeconomics where its organisers concluded that the crisis has shattered the economic orthodoxy behind the fund’s previous policies.
In preparation for its annual meetings next week, on Tuesday the IMF took its work on capital controls a step further by issuing two reports (one official report and one staff discussion paper) outlining when nations should use capital controls, and what types of capital controls should be used under the proper circumstances. The new reports amount to yet another big step forward for the IMF – though there is still a long way to go.
The IMF’s welcome rethink on capital controls
Triple Crisis blogger Kevin Gallagher co-authored the following opinion article with José Antonio Ocampo in the Guardian on the IMF’s formal recognition of capital controls as a vital policy tool for regulating destabilizing capital flows in developing countries.
In contrast to most western governments, over the past two years, the International Monetary Fund (IMF) has boldly conducted one of the most honest self-assessments of its actions leading up to the financial crisis, has become somewhat critical of inflation-targeting and has endorsed the use of capital controls. In March of this year, the IMF held a full conference on rethinking macroeconomics where its organisers concluded that the crisis has shattered the economic orthodoxy behind the fund’s previous policies.
In preparation for its annual meetings next week, on Tuesday the IMF took its work on capital controls a step further by issuing two reports (one official report and one staff discussion paper) outlining when nations should use capital controls, and what types of capital controls should be used under the proper circumstances. The new reports amount to yet another big step forward for the IMF – though there is still a long way to go.
The EU Debt Crises: Three weaknesses of the European Stability Mechanism
The latest meeting of the European Council on March 24-25 was supposed to settle the economic governance reform of the EU. It did indeed agree on a so-called “Comprehensive Package”, including the terms of reference of the future European Stability Mechanism (ESM) to solve sovereign debt crises as well as a so-called “Pact for the Euro Plus”. Two years back, hardly anyone would have expected such progress. But in particular the ESM may prove insufficient both for the prevention and resolution of debt crises.
The Boom in Capital Flows to Developing Countries in Historical Perspective: Going for a Bust– Again?
Yılmaz Akyüz, Guest Blogger
The post-war period has seen three generalized boom-bust cycles in private capital flows to developing countries (DCs) and we now appear to be in the boom phase of the fourth cycle. All these booms started under conditions of global liquidity expansion and low US interest rates, and all previous ones ended with busts. The first one ended with a debt crisis in the 1980s when US monetary policy was tightened, and the second one with a sudden shift in the willingness of lenders to maintain exposure in East Asia as financial conditions tightened in the US and macroeconomic conditions of recipient countries deteriorated because of the effects of capital inflows. The third boom developed alongside the subprime bubble and ended with the collapse of Lehman Brothers and flight to safety in late 2008.
Unlike previous episodes, the Lehman reversal did not cause serious and widespread dislocations in DCs because of generally strong payments and reserve positions, reduced mismatches in balance sheets and, above all, the short-duration of the downturn. Indeed, it was soon followed by a rapid recovery in 2009 as major advanced economies (AEs) responded to the crisis caused by excessive liquidity and debt by creating still larger amounts of liquidity to bail out troubled banks and governments, lift asset prices and lower interest rates.
Albert Hirschman, Alan Greenspan, and the Problem of Intellectual Capture
I like the Financial Times (FT) for two main reasons: it gives me all I need to know that day in about seven pages every morning, and the fact that its ‘sound.’ By ‘sound’ I mean that, unlike the Murdoch press, I can rely on the FT to tell me the truth since consistently lying to the global investor class is a losing business model. But one should remember that for the FT, as it is for the rest of us, it’s still the truth as they see it.
A week or so ago the FT published a piece that asked why, if social democracies are so nice, their crime fiction is so dark? It’s a fair point, and anyone sitting through the middle section of ‘The Girl With the Dragon Tattoo’ has probably asked the same question. I didn’t read the FT’s answer, but my own answer comes from being in Iceland last week; a trip that gave me an insight into intellectual capture that I didn’t really appreciate before: that some truths are harder to shake than others.