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

Facing multiple crises What is to be done? IDEAs, New Delhi 29 January 2010. Global imbalances ballooned. USD bn. 1000. Latin America. Other industrialised. 800. Other Asia. China. 600. Japan. 400. Oil exporters. 200. 0. -200. -400. United States. -600. -800. Euro Area.

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

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  1. Facing multiple crisesWhat is to be done?IDEAs, New Delhi29 January 2010

  2. Global imbalances ballooned USD bn 1000 Latin America Other industrialised 800 Other Asia China 600 Japan 400 Oil exporters 200 0 . -200 -400 United States -600 -800 Euro Area Central and Eastern -1000 Europe 90 91 92 93 9495 9697 98 99 00 01 02 03 0405 06 07 2

  3. Then narrow with deflation 3

  4. Net Capital Importers 4

  5. ST Real Interest Rates Negative Rates 5

  6. US Fed Longterm Rates 6

  7. Financial deepening  fragility 7

  8. World Stock Markets: Now vs GD

  9. World Output: Nowvs 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

  18. Food prices remain higher

  19. Stimulus lags delay recovery

  20. Global recovery with coordinated vs uncoordinated stimuli, 2010-2015

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

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

  23. Output, jobs recovery lags, 1991, 2001

  24. 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

  25. Globalization: finance>trade 27

  26. Finance-investment nexus? 28

  27. Net transfer of financial resources from South to North

  28. 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

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

  30. G20 London Summit Commitments 33

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

  32. Systemic reform agenda Ensure macro-financial stability with counter- cyclicalmacroeconomic policies +prudential risk management, including capital controls Finance growth (output, employment) with developmentalfinancial system Ensure inclusivefinancial system -- NEW Monterrey policy coherence: Align IMF, WB with UN development agenda, IADGs But who will leadcomprehensive reform process?

  33. 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

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

  35. 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

  36. 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

  37. 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

  38. Thank you Please visit IDEAs www.networkideas.org UN-DESA esa.un.org and G24 www.g24.org websites Research papers Policy briefs Other documents 41

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