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Facing multiple crises What is to be done? IDEAs, New Delhi 29 January 2010.

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Presentation on theme: "Facing multiple crises What is to be done? IDEAs, New Delhi 29 January 2010."— Presentation transcript:

1 Facing multiple crises What is to be done? IDEAs, New Delhi 29 January 2010

2 2 Global imbalances ballooned United States Oil exporters Euro Area Japan China Other Asia Other industrialised Central and Eastern Europe Latin America USD bn.

3 3 Then narrow with deflation

4 4 Net Capital Importers

5 5 ST Real Interest Rates Negative Rates

6 6 US Fed Longterm Rates

7 7 Financial deepening fragility

8 World Stock Markets: Now vs GD

9 World Output: Now vs GD

10 World Trade: Now vs GD

11 Unemployment still rising

12 Economic recovery uncertain

13 Most developed economies slowly out of recession

14 Uncertain weak recovery in transition economies

15 Sub-potential recovery in developing countries

16 60 developing countries with declining incomes in 2009

17 Growth by main country groups Per capita GDP growth rate Change in growth rate / / World Developed economies Economies in transition Developing economies LDCs

18 18 World food prices lower after spikes

19 Food prices remain higher

20 Stimulus lags delay recovery

21 Global recovery with coordinated vs uncoordinated stimuli,

22

23 Double-dip recession with Premature stimulus withdrawal Widening imbalances + deep US$ devaluation can be avoided through sustainable rebalancing Early withdrawal stimulus Business as usual Coordinated, sustainable recovery Need coordinated sustainable recovery

24 Double-dip recession with Premature stimulus withdrawal Widening imbalances + deep US$ devaluation can be avoided through sustainable rebalancing Coordinated sustainable recovery for all Early withdrawal stimulus Business as usual Coordinated, sustainable recovery

25 Output, jobs recovery lags, 1991, 2001

26 Financial globalization Net capital flows from South to North (US largest borrower) Cost of funds not generally lower due to financial deepening (more intermediation, financial rents) Higher volatility Lower growth, higher instability

27 27 Globalization: finance>trade

28 28 Finance-investment nexus?

29 Net transfer of financial resources from South to North

30 Short-term capital inflows problematic No real contribution to investment, growth rates Asset (shares, real estate) price + related (e.g. construction) bubbles instead Cheaper finance for consumption binges Over-investment excess capacity All exacerbate instability, pro-cyclicality

31 31 Problems Crisis International financial architecture: non-system Policy responses: inadequate; double standards Inadequate and inappropriate regulation International cooperation: G7 G20, IMF strengthened

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33 33 G20 London Summit Commitments $1,100bn Total $250bn SDR allocation 44% to G7 countries alone Only $80bn to DCs $100bn Aid for the poorest New Commitments < $100bn $250bn Trade Finance New commitments < $25bn $500bn IMF Funding $0 New Commitments

34 G20 Pittsburgh commitments G20 takeover (G7)? BWI governance shifts Executive remuneration debate Financial regulation reform? Capital requirements Surveillance

35 Systemic reform agenda Ensure macro-financial stability with counter- cyclical macroeconomic policies + prudential risk management, including capital controls Finance growth (output, employment) with developmental financial system Ensure inclusive financial system -- NEW Monterrey policy coherence: Align IMF, WB with UN development agenda, IADGs But who will lead comprehensive reform process?

36 Bretton Woods moment lost? Bretton Woods, 1944: United Nations conference on monetary + financial affairs 15 years after 1929 Depression Middle of WW2 US initiative vs UK Treasury stance 44 countries (28 developing countries; 19 LA) UN system: IMF, IBRD, ITO Clear emphasis on sustaining growth, job creation, post-war reconstruction, post- colonial development, not just financial stability

37 Stiglitz Commission Report Macroeconomic stabilization: broader view Regulating financial markets Reforming global economic governance Systemic reform priorities: SDRs as reserve currency

38 4 crises, dilemmas Climate change vs development Reduce climate change while raising living standards for all Need to reduce GHG emissions in rich countries and slow (+ eventually reduce) them in developing countries Food prices lower after spikes, but higher than before while hunger rising since 95

39 4 crises: 1 solution? More renewable energy to mitigate sustainable development pathway Investment (vs market)-led approach to address climate change, development, food, recovery goals Cannot rely on markets alone More job creation from renewable energy Cross-subsidization (e.g. global or regional feed-in tariffs, scale economies) Big push: front-loading Scale + learning economies Need significant (fin. + technology) transfers

40 Global Green New Deal New Deal for recovery, social protection, jobs, infrastructure, development Green: more job creation from renewable energy (compared to fossil fuel energy) Global: cross-subsidization (e.g. regional feed-in tariffs, scale economies Public investment to induce private invt Cheap credit over-investment under- utilized capacity private investment reluctance public invt in renewables

41 41 Thank you Please visit IDEAs UN-DESA esa.un.org andesa.un.org G24 websiteswww.g24.org Research papers Policy briefs Other documents


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