The recent G20 meetings in February and April have showed that the G20 works. The achievements are not dramatic, but the forward progress is visible, if at a measured pace. Last year, the US had been pressing for rebalancing—basically asking mostly China, but also other current account surplus countries, to adjust their macroeconomic policies to increase their domestic demands and reduce their relative export focus. Those countries argued that the US’s own macroeconomic policies—fiscal and monetary—needed to adjust drastically. Rather than drifting into confrontation and stalemate, this issue has been tackled relatively effectively by the G20.
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Showing posts with label IMF. Show all posts
Showing posts with label IMF. Show all posts
Tuesday, May 10, 2011
Wednesday, March 23, 2011
Thoughts on the G-20 and the BRICs
Reflections last year on the role of the BRIC countries
Bric-à-Brac or More?
The second Bric summit is just under way at the time of this writing. The grouping was the inspired creation of Jim O’Neill, Goldman Sachs’ chief economist, almost a decade ago. Economic size and growth potential were the main criteria for the grouping of Brazil, Russia, India and China. Other dimensions of size—area and population—correlate as well. Three of the four have nuclear weapons capabilities and the same three are also strategic powers by virtue of size and geography.
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Thoughts on the decline of Europe, prompted by Greece's mess
Greece, the G-20 and India
Greece’s fiscal problems have had ripple effects across Europe, bringing back memories of the autumn of 2008, when a global financial meltdown seemed imminent. At that time, countries such as Hungary and Latvia were the poster children for profligacy and bad risk management. Greece was hiding its fiscal woes at the time, apparently by using currency swaps sold by Goldman Sachs. Now its budget deficit is revealed to exceed 13%, and financial concerns have spread to Portugal, Spain and Italy.
Unlike the 2008 problem countries of Eastern Europe, the new fiscal bad boys are all members of the euro zone. This raises the stakes enormously, since they do not have independent currencies that can depreciate, and their pain becomes the entire euro zone’s problem. How did this come about, and what can be done?
more...
Two more recent pieces on the G-20 and global rebalancing
What the G-20 Should Do
The upcoming G20 summit takes place at a pivotal moment. The halo of the G20’s response to the financial crisis in 2009 has faded, and it is receiving a lot of flak for not getting things done. In my last column (November 1), I argued that the G20 has an important potential role to play as a manager of current and emerging global risks, including those of climate change as well as financial volatility. For the moment, though, the focus is on global imbalances—the large current account surpluses and deficits that major members of the G20 are running. These imbalances were less of an issue (though still a concern) when the world economy was growing rapidly, and the US, in particular, was booming. The change in US circumstances is therefore a major cause of the new frictions.
more...
A Guide to Global Rebalancing
The financial crisis rejuvenated the International Monetary Fund (IMF) and the G20, giving each new roles to play in managing the economic mess. New rules for financial regulation and new financial safety nets to promote stability are being developed. Presumably, when the world economy next looks like it is falling off a cliff, the response will be strong and coordinated. It is harder to get agreement on non-crisis tasks. There is some consensus that large current account imbalances (mirrored by large international capital flows) prolonged the run-up to the crisis and made it worse when it hit. In any case, large imbalances are not indefinitely sustainable, because they lead to unsustainable debt positions for borrowers and tricky portfolio decisions for lending countries.
more...
Bric-à-Brac or More?
The second Bric summit is just under way at the time of this writing. The grouping was the inspired creation of Jim O’Neill, Goldman Sachs’ chief economist, almost a decade ago. Economic size and growth potential were the main criteria for the grouping of Brazil, Russia, India and China. Other dimensions of size—area and population—correlate as well. Three of the four have nuclear weapons capabilities and the same three are also strategic powers by virtue of size and geography.
more...
Thoughts on the decline of Europe, prompted by Greece's mess
Greece, the G-20 and India
Greece’s fiscal problems have had ripple effects across Europe, bringing back memories of the autumn of 2008, when a global financial meltdown seemed imminent. At that time, countries such as Hungary and Latvia were the poster children for profligacy and bad risk management. Greece was hiding its fiscal woes at the time, apparently by using currency swaps sold by Goldman Sachs. Now its budget deficit is revealed to exceed 13%, and financial concerns have spread to Portugal, Spain and Italy.
Unlike the 2008 problem countries of Eastern Europe, the new fiscal bad boys are all members of the euro zone. This raises the stakes enormously, since they do not have independent currencies that can depreciate, and their pain becomes the entire euro zone’s problem. How did this come about, and what can be done?
more...
Two more recent pieces on the G-20 and global rebalancing
What the G-20 Should Do
The upcoming G20 summit takes place at a pivotal moment. The halo of the G20’s response to the financial crisis in 2009 has faded, and it is receiving a lot of flak for not getting things done. In my last column (November 1), I argued that the G20 has an important potential role to play as a manager of current and emerging global risks, including those of climate change as well as financial volatility. For the moment, though, the focus is on global imbalances—the large current account surpluses and deficits that major members of the G20 are running. These imbalances were less of an issue (though still a concern) when the world economy was growing rapidly, and the US, in particular, was booming. The change in US circumstances is therefore a major cause of the new frictions.
more...
A Guide to Global Rebalancing
The financial crisis rejuvenated the International Monetary Fund (IMF) and the G20, giving each new roles to play in managing the economic mess. New rules for financial regulation and new financial safety nets to promote stability are being developed. Presumably, when the world economy next looks like it is falling off a cliff, the response will be strong and coordinated. It is harder to get agreement on non-crisis tasks. There is some consensus that large current account imbalances (mirrored by large international capital flows) prolonged the run-up to the crisis and made it worse when it hit. In any case, large imbalances are not indefinitely sustainable, because they lead to unsustainable debt positions for borrowers and tricky portfolio decisions for lending countries.
more...
Monday, September 21, 2009
G-20 and rebalancing
The latest summit has an incredibly ambitious agenda. Reallocating voting rights in the IMF is small potatoes compared to the US "Framework for Sustainable and Balanced Growth." This involves the US saving more and cutting its budget deficit, Europe doing more to boost business investment, and China relying less on exports and more on domestic demand for growth.
I really don't understand the logic of this sort of coordination. Did the global imbalances contribute to the financial crisis and the resulting deep recession? Only in a second order manner, and not as an inevitable consequence. My colleague Mike Dooley argued that it was a natural process. China is using export led growth because consumers in the US and Europe are richer -- what better way to grow faster than making things that relatively rich people want (even if they are middle class by home standards)? The Japanese did it too. The US went after them too, back in the 1980s. Now they are not villains any more (even though they are running up current account surpluses still). Mike Dooley explained the process as one of the Chinese lending the US money to buy their goods -- a standard technique for boosting sales. Car companies in the US also made a lot of money for a while through financing their cars. Mike also reckoned that the US was the natural place for money to flow into, and through, because of the sophistication and safety of its system of financial intermediation.
That's where it went wrong -- the US financial system was not all it was hyped up to be. Poor regulatory enforcement and poor institutions undermined the good parts of the system. Essentially, foreigners were supposed to be parking money in the US for safety, but Wall Street found a way to effectively steal some of that money. It may also be that, like democracy, Wall Street is terrible, but still much better than the alternatives. In any case, none of this has much to do with global coordination.
Global coordination of some aspects of financial regulation makes sense, to prevent a race to the bottom, but different growth rates, levels of development, and domestic political compulsions are always going to lead to some imbalances. Households and firms sometimes go heavily into debt, at other times they save -- intertemporal exchange is a fact of life in market economies. The point is to make sure that equilibrating mechanisms such as exchange rates and interest rates do their job.
I don't think trigger mechanisms and punishments are a workable mechanism for a grand global coordination of macroeconomic policies. It's hard enough to keep the world trading system in order. Interestingly, the US seems to be one of the keenest for extending trade system rules and penalties to labor standards, environmental standards and the like.
The ostensible worry is about growth, and certainly crises cost a big chunk of output. But I think some careful, limited rethinking and redesign of financial regulations (and modernization of archaic, anti-competitive Wall Street institutions) should be enough. If the US really wants growth, it should be pushing technology transfer and innovation into the developing world as rapidly as possible. With that will come institutional innovations in developing countries. Domestic demand will take care of itself. Innovation is the lever of riches, and that's where the US could do so much more. The US should be sending dozens of Norman Borlaugs out into the developing world to deal with deficits in energy production, sanitation, health, education and a host of other constraints on growth.
The developing countries in the G-20 should rebalance the global agenda away from the US's short-term preoccupations, and towards what matters for global growth and well-being.
I really don't understand the logic of this sort of coordination. Did the global imbalances contribute to the financial crisis and the resulting deep recession? Only in a second order manner, and not as an inevitable consequence. My colleague Mike Dooley argued that it was a natural process. China is using export led growth because consumers in the US and Europe are richer -- what better way to grow faster than making things that relatively rich people want (even if they are middle class by home standards)? The Japanese did it too. The US went after them too, back in the 1980s. Now they are not villains any more (even though they are running up current account surpluses still). Mike Dooley explained the process as one of the Chinese lending the US money to buy their goods -- a standard technique for boosting sales. Car companies in the US also made a lot of money for a while through financing their cars. Mike also reckoned that the US was the natural place for money to flow into, and through, because of the sophistication and safety of its system of financial intermediation.
That's where it went wrong -- the US financial system was not all it was hyped up to be. Poor regulatory enforcement and poor institutions undermined the good parts of the system. Essentially, foreigners were supposed to be parking money in the US for safety, but Wall Street found a way to effectively steal some of that money. It may also be that, like democracy, Wall Street is terrible, but still much better than the alternatives. In any case, none of this has much to do with global coordination.
Global coordination of some aspects of financial regulation makes sense, to prevent a race to the bottom, but different growth rates, levels of development, and domestic political compulsions are always going to lead to some imbalances. Households and firms sometimes go heavily into debt, at other times they save -- intertemporal exchange is a fact of life in market economies. The point is to make sure that equilibrating mechanisms such as exchange rates and interest rates do their job.
I don't think trigger mechanisms and punishments are a workable mechanism for a grand global coordination of macroeconomic policies. It's hard enough to keep the world trading system in order. Interestingly, the US seems to be one of the keenest for extending trade system rules and penalties to labor standards, environmental standards and the like.
The ostensible worry is about growth, and certainly crises cost a big chunk of output. But I think some careful, limited rethinking and redesign of financial regulations (and modernization of archaic, anti-competitive Wall Street institutions) should be enough. If the US really wants growth, it should be pushing technology transfer and innovation into the developing world as rapidly as possible. With that will come institutional innovations in developing countries. Domestic demand will take care of itself. Innovation is the lever of riches, and that's where the US could do so much more. The US should be sending dozens of Norman Borlaugs out into the developing world to deal with deficits in energy production, sanitation, health, education and a host of other constraints on growth.
The developing countries in the G-20 should rebalance the global agenda away from the US's short-term preoccupations, and towards what matters for global growth and well-being.
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