By Eswar Prasad and Karim Foda
Despite all the portents of doom the world economy has been quietly mending itself.
This is not to say that the recovery is firmly entrenched or that few risks remain, but despite the rough patches in 2010, it is important to keep in mind that the economic picture looks far better now than it did a year ago. Read more
By Kevin P. Gallagher
At the recent annual meeting of the Asian Development Bank Taiwan’s Central Bank governor Perng Fai-nan urged emerging market nations in Asia to use capital controls to promote financial stability.
Yesterday, this call was echoed by Noeleen Heyzer, executive secretary of the United Nations Economic and Social Commission for Asia and the Pacific. She singled out China, India, Singapore, Indonesia and South Korea as the most vulnerable nations in need of controls
These statements would have been unthinkable a decade ago, and shows how much has changed.
Part of the stigma attached to capital controls has been dampened by the new tune at the International Monetary Fund (IMF). In a February 2010 staff position note and in the IMF‘s Global Financial Stability Report (GSFR) the IMF said that capital controls are a legitimate part of the toolkit for emerging markets. What’s more, the IMF’s economists found that those countries that deployed capital controls in the run-up to the current crisis were among the least hard hit from the global financial crisis.
It is time for the debate over capital controls to shift from whether to deploy controls to how and when.
The problem is that many of the world’s trade and investment treaties, especially those with the US, make it very difficult to effectively use capital controls. Read more
In March the Reserve Bank of India (RBI) published the balance of payments data for the October-December quarter of 2009. It elicited surprisingly little comment. Surprising, because for the second quarter in a row the current account deficit was well above 3 per cent of GDP. Read more
By Michael Pomerleano
Developing and developed countries alike are inextricably connected in the international financial system. Yet this system is heading into strong headwinds and a dangerous period in which vulnerabilities will increase in the international financial system. Read more
By Kevin P. Gallagher
Clear and consistent proposals toward crisis recovery and prevention are needed at the International Monetary Fund upcoming annual meetings. Unfortunately, the IMF has been sending mixed messages over the past two months on the subject of capital controls. Read more
Anybody who looks carefully at the world economy will recognise that a degree of monetary and fiscal stimulus unprecedented in peacetime is all that is prodding it along, not only in high-income countries, but also in big emerging ones. The conventional wisdom is that it will also be possible to manage a smooth exit. Nothing seems less likely. So let us consider the endgame, instead.
The remainder of this column can be read here. Please post comments below. Read more
The bogeyman of a hung parliament is being used to terrify British voters. What is needed, it is argued, is a government with a strong majority, to rescue the UK from the threat of national bankruptcy. This is nonsense. The UK does not face national bankruptcy and, if it did, would not need strong single party government to save it. Has everybody forgotten that in the gravest crisis ever faced by the UK, Winston Churchill governed with a coalition? Why is the present crisis so very different? So poorly has single-party despotism governed the UK that I would welcome a coalition or, at worst, a minority government.
No serious person denies that the country confronts a huge fiscal challenge. Among those serious people are, of course, the leadership of the Liberal Democrats. I cannot be the only person who believes that Vince Cable, the party’s shadow chancellor, is far better qualified to address this challenge than any current member of the Conservative front bench. Indeed, the latter has blown worryingly hot and cold over its elusive plans for fiscal stringency. Read more
So what did I make of this year’s annual meeting of the World Economic Forum at Davos? It felt like sitting at the bedside of somebody who had survived a heart attack but was unsure how long it would take to recover full vigour, if, indeed, he would at all. The mood of “Davos men” (yes, they mostly still are) was, as my colleague, Gideon Rachman, has pointed out, one of anxiety. Meanwhile, the participants in a still predominantly western meeting looked at the youthful vigour of emerging economies with admiration, envy and even fear.
For me, the highlight of the programme was the economic outlook session on Saturday.* This is not only because I was moderator. The starting point for the discussion was an obvious one: the policy interventions of late 2008 and 2009 have been a resounding success. The outcome has been a far briefer and shallower recession than most participants imagined a year ago. That is obvious from the successive consensus of forecasts for 2010. For almost every significant economy, the forecast for growth this year is higher than it was a year or even six months ago (see charts). The world economy survived the heart attack in the financial system. Read more
By Roger E.A. Farmer
For the past nine months I have been presenting some new ideas at academic conferences where economists have been grappling with the current financial crisis. Boston, Montreal, Amsterdam, London, Cleveland, Sydney, Atlanta … Only the venues change. The participants and the papers are always the same. Read more
By Michael Pomerleano and Andrew Sheng
As the Financial Crisis Inquiry Commission begins looking at the causes of the recent financial crisis, we need to consider that crisis is a failure of governance. Lucian Bebchuk from Harvard Law School has written extensively on the failure of private sector governance: boards that failed to make informed judgments or control the risks incurred by their institutions, self-serving management that lost control over reckless risk taking and compensation systems that invited speculation by traders. Although Sheila Bair, chair of the Federal Deposit Insurance Corporation (FDIC), has openly expressed her discontent with the governance of the banks and the FDIC is considering tying premiums to compensation, we are likely to witness the largest bonus season the industry has ever seen. Read more