Ideas to Action:
Independent research for global prosperity
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.
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:
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
In a recent interview on CNN en Español I discussed the evolving role of the U.S. Federal Reserve Board and its implications for developing countries. People in Latin America are following this issue closely. That’s because the global crisis has reminded everybody that an unstable financial sector in the industrial countries has powerful ripple effects not only on the financial sector of developing countries but also on the real economy, with serious consequences for poverty and inequality.
I have been following the lively exchanges begun by Liliana Rojas-Suarez’s post on the development impacts of the U.S. financial crisis, especially Michael Clemens's provocative post and Nora Lustig’s thoughtful reply.
For many developing countries, the U.S. credit crisis will mean slower growth and rising inequality. The effects will be protracted, and not all will show up at the same time. And the nature and degree of impact will vary widely. Some countries, notably those with extensive foreign exchange reserves and strong fiscal positions, will be much better able to cope than others. But overall the crisis is very bad news for developing countries and especially for the poor.
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