One of the ways that rich and powerful countries can affect development is by doing more to prevent illicit financial flows. Last year I said that CGD in Europe would start work on this because:
The spectacle of U.S. politicians pushing the country to the brink of default is likely to have lingering effects on global financial markets and hence on development, the eleventh-hour compromise notwithstanding. In the near-term, however, the main issue is the U.S. economic slump and the increased likelihood that the world’s biggest economy will fall back into recession.
Recently the Latin American Shadow Financial Regulatory Committee (CLAAF), over which I preside, held its bi-annual meeting at CGD and issued its 24th statement. Among the CLAAF members that participated were several renowned economists, including Guillermo Calvo, Carmen Reinhart, Pablo Guidotti, Guillermo Ortiz and Roque Fernandez.
From January 6-9, I participated in the annual ASSA (Allied Social Science Associations) conference in Denver, Colorado. I was part of a high-level panel discussion with a number of distinguished economists including Janet Yellen, the Federal Reserve’s Vice-Chair; Martin Feldstein, of Harvard University; Andrew Brimmer, former Governor of the Federal Reserve Board; and Alan Krueger, former Assistant Secretary for Economic Policy, among others.
During the 13th and 16th of November, the Latin American Shadow Financial Regulatory Committee (CLAAF) held their second meeting of the year in Lima with the purpose of discussing the effect of the currency wars on the Latin American region. As a result of the meeting, we presented the 23rd CLAAF statement. The statement has been extremely well received and broadly covered by the Peruvian press.
Last weekend’s communiqué from the G-20 finance ministers is a first step to bridge the divide in the ongoing currency wars. I find both hope and disappointment in the Communiqué. It is very positive that the G-20 ministers have called for the IMF to help identify countries with policies leading to large and unsustainable imbalances. This is a step in the right direction, although no specific quantitative indicators have yet been advanced.
As the United Nations Climate Change Conference in Copenhagen continues, negotiators face a series of unresolved questions. What emissions targets should be agreed to? How much money should be provided to finance mitigation and adaptation in developing countries, and how should these financial flows be governed? Should intellectual property rights be reformed to facilitate the diffusion of low-carbon technologies?
The Financial Times published my letter to the editor last week responding to Gillian Tett’s article “Will sovereign debt be the new subprime?” I elaborated on the risks of increasing public debt in the U.S. and other developed countries, and warned that mere perception of an excessive supply of sovereign debt can reduce the real value of that debt. Here’s my letter:
This op-ed originally appeared in the Business Standard.
By Arvind Subramanian / New Delhi November 25, 2009,
This is a joint post with Benjamin Leo.
A special new lending facility was announced in July 2009 with the objective of providing up to $17 billion in new loans through 2014 and, to entice cash-strapped borrowers, the lender is waiving interest payments for the first two years. This may sound like dangerous new short-term teaser offers for sub-prime borrowers. But this isn’t coming from Countrywide Financial. It actually is a new IMF facility for low-income countries, including some of heavily indebted poor countries (HIPCs) who are just barely coming out of the last debt crisis.
The stated objectives of the new IMF facility are laudable: to offset the effects of the global economic crisis by boosting international reserves and supporting adjustment policies. And yes, the overall terms are more concessional than past IMF loans. Nonetheless, the net impact on national debt levels may be significant. And it was just four years ago that the IMF committed to cancel roughly $6 billion in bad loans to many of these very same countries.