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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 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.
On Monday, October 5, IMF Managing Director Dominique Strauss-Kahn and Princess Maxima of the Netherlands, an international development advocate and the UN Special Advocate for Inclusive Finance for Development, launched the IMF’s new Access to Finance Project at
This post originally appeared in the Business Standard.
Wanted: An Asian Managing Director and new approaches to capital flows.
The IMF will strike a triumphalist tone at its forthcoming annual meetings in Istanbul. Some of this will be warranted because the IMF’s record in responding to the global financial crisis was commendable, even if its record leading up to it was less stellar (see http://www.iie.com/realtime/?p=942 for more details).
We tend to think of globalization in the following way: the rich world exports financial capital, technology, sophisticated goods, and entrepreneurial and managerial skills in the form of foreign direct investment (FDI) to developing countries; the latter, in turn, export people, resources, and low-skilled goods to the rich world.