1. Michael Spence ISEO 2009 1

2. Sustained High Growth Dynamics Engagement with the global economy High levels of public and private investment Resource mobility the private sector competitive dynamics and structural change to work the avoidance of policies that interfere with these productivity increasing micro-economics. Stable financial and macro-economic environment Inclusiveness protecting those adversely by the competitive micro dynamics, ex ante equality of opportunity and ex post management of the extent of income and wealth differentials. Building over time an increasingly effective government Political leadership in representing inclusive values, choosing a strategic framework, establishing a vision, building consensus among key stakeholders and making key intertemporal investment choices appears to be essential. 2

3. Post Crisis Prospects Global economy openness Advanced country growth Re-regulation of the advanced country financial systems Transmission mechanisms How to think about developing country financial sectors Transmission mechanisms Circuit breakers Global aggregate demand and the US consumer/saver The IMF and volatile capital flows Resilience and the capacity to withstand shocks The defenseless countries in the crisis Climate Change Negotiations 3

4. Bad Ideas: Part 2 Assume (and plan accordingly) that the crisis is a mean reverting event and that we will return to a pre-crisis pattern of growth, capital costs, trade and capital flows in the global economy. Abandon the global economy market driven growth strategy because of the advanced countries financial sector failures even though the medium term returns in terms of growth may be lower. Continue with the energy subsidies on the assumption that with the crisis induced decline of commodity price, the public sector costs are not as high. Ignore the externalities from the financial system (functioning and stability) to the rest of the economy Focus macro and monetary policy on real variables like inflation, employment, growth ignoring potential sources of instability from the balance sheet (asset prices, leverage, derivatives expose) Buy assets whose risk characteristics are hard to understand. The high returns are likely to be accompanied by risk even though the latter may be hidden from view. Ignore the distributional lessons of the commodity price spike and the crisis. Pre- built and quickly implementable transfer programs are of great value, especially if they have attractive incentive properties with respect to employment. 4

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8. IMF Growth Forecasts Declined Frequently Over the Last 8 Months: Here are the Latest Two 8

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10. Indian Rupee to Dollar 10

11. 11 Brazil SA Rand Turkey LiraRussia ruble

12. China Yuan to Dollar 12

13. China Yuan to Dollar 13

14. Source: Bloomberg Jun 97 October 22, 2003 Korean Won Japanese Yen Taiwan $ Thai Baht Chinese Renminbi This May Look Familiar: China During Currency Crisis 1997-1998 China has appreciated against the entire developing world and the pound. Flat against the dollar and slightly depreciated relative to the euro

15. China as the Asia IMF: Use of Reserves in East Asia $95B of swap facilities to stabilize net capital flows of neighbors Continuing distrust of IMF in Asia – legacy of 97-98 crisis Stabilizing trading partner exchange rates is in their self-interest Concern about dollar, US fiscal deficits and debt Zhou Xiaochuan – super sovereign currency proposal in March 15

16. China Fiscal Capacity

17. China Foreign Debt

18. Reserves Chinese reserve accumulation Mostly reverse net inbound private capital flows Not mainly trade surpluses 18

19. The Climate Change Challenge to Growth G20 90% of global GDP 66% of population In 50 years they will all be advanced countries: with consumption, energy use and carbon emission patterns like OECD The question is can the world hit safe CO2 targets in 50-75 years with this growth. 19

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25. D(t) is the per capital emissions in the high growth developing countries without mitigation E(t) is the European emissions It is assumed that the mitigated emissions in the developing countries are M(t) as follows T(t) is between one and zero, is one at t=2009 and declines to 0 at t=2059. Recall that D(t) converges to E(0) at the end of the period 25

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30. Implementation Mechanisms Global CCTS Advanced Country CCTS with cross border and graduation criterion Advanced country targets with cross border and graduation criterion 30

31. Global CCTS 31

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33. Advanced Country CCTS 33

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36. Advanced Country Targets 36