Nanjing and the New International Monetary System


By Dominique Strauss-Kahn

(Version in 中文)

I am delighted to be back in China this week for a high-level seminar in Nanjing on the international monetary system. Every time I come to this part of the world, I am impressed by the dynamism of the economies and the optimism of the people. The future is here.

The region’s economic performance over the past few decades has been nothing short of remarkable. Asia now accounts for about a third of the global economy, up from under just a fifth in 1980. This trend has been reinforced by the crisis, with the emerging market powerhouses leading the global recovery.

Asia has also made tremendous progress with poverty reduction. China alone has pulled hundreds of millions of people out of poverty over the past few decades. Such a feat has never before been accomplished in the history of human civilization.

But to sustain this progress, Asia needs to grapple with numerous challenges today, among them the need to deal with overheating pressures and volatile capital inflows. And this relates directly to our discussion at Nanjing. Continue reading

Latin America’s Twin Challenges—Increasing Rate of Growth and Managing Volatility


By Dominique Strauss-Kahn

(Version in Español)

Earlier this month, I had the opportunity to discuss Latin America’s regional outlook with government leaders, parliamentarians, and university students in Brazil, Panama, and Uruguay.

The key conclusion that I took away from these meetings is that Latin America faces two principal economic challenges: to increase the sustainable rate of economic growth and to reduce the volatility of growth.

In my meeting in Calgary on March 26 with Finance Ministers of the region, I focused on the second challenge so that favorable conditions today do not come at the expense of a bust tomorrow.

It’s a nice coincidence that this meeting of Finance Ministers of the Americas and the Caribbean was held here in Calgary. Canada is a good example of “managing the good times,” but as in many countries across the globe, some challenges remain. Continue reading

Observations on the Evolution of Economic Policies


Guest post by Michael Spence, New York University,
Professor Emeritus Stanford University, and
co-host of the Conference on Macro and Growth Policies in the Wake of the Crisis

It was a privilege to participate in the IMF conference devoted to rethinking policy frameworks in the wake of the crisis. Highly encouraging was the openness of the discussion, the range of views, the willingness to question orthodoxy, and the posture of humility.

One gets the impression that the crisis has triggered a response that it should trigger, and we have embarked on a path of rethinking conceptual frameworks and policy choices in a way that will contribute to the stability of the system.

That said, the good news is that we recognize that in finance and parts of macroeconomics the models or frameworks are incomplete. That represents a challenge to the academic community. But it also means that, in the short run, participants and regulators will be operating with incomplete models. This will require judgments (which will be uncomfortable in contrast to the earlier sense of certainty). There will be mistakes. And, as Olivier Blanchard said in his excellent summary, we will proceed step-by-step, evaluating the impacts of policy choices and sometimes reversing course. Continue reading

Government Bonds: No Longer a World Without Risk


By José Viñals

The risk free nature of government bonds, one of the cornerstones of the global financial system, has come into question as the global crisis unfolds.

One thing is now very clear: government bonds are no longer the risk-free assets they once were. This carries far reaching implications for policymakers, central bankers, debt managers, and how the demand and supply sides of government bond markets function.

After a recent IMF conference on a new approach to government risk, I’d like to highlight three key aspects: Continue reading

A Balanced Debate About Reforming Macroeconomics


Guest post by Joseph E. Stiglitz, Columbia University, and
co-host of the Conference on Macro and Growth Policies in the Wake of the Crisis

The most remarkable aspect of the recent conference at the IMF was the broad consensus that the macroeconomic models that had been relied upon in the past and had informed major aspects of monetary and macro-policy had failed. They failed to predict the crisis; standard models even said bubbles couldn’t exist—markets were efficient. Even after the bubble broke, they said the effects would be contained. Even after it was clear that the effects were not “contained,” they provided limited guidance on how the economy should respond. Maintaining low and stable inflation did not ensure real economic stability. The crisis was “man-made.” While in standard models, shocks were exogenous, here, they were endogenous. Continue reading

Raising Government Revenue in Africa: A Road out of Poverty


By Mark Plant

(Version in Français. Listen to the podcast in English or Français.)

Governments in Africa have a prime objective—to reduce poverty. To improve living standards and create jobs, they need to provide their citizens with better health care, better education, more infrastructure. They need to build hospitals, schools, and to pay doctors, nurses, teachers.

All this costs money. How to pay for this—in a way that is both fair and efficient—is a question that all governments face.

There are limits to how much a government can receive as grants from donors or borrow from donors or the private sector. So raising tax revenues is a necessary element for governments to spend on providing more of these essential services and, in turn, reduce poverty. Continue reading

An Important Starting Point—with One Gap


Guest post by David H. Romer,
University of California, Berkeley, and
co-host of the Conference on Macro and Growth Policies in the Wake of the Crisis

I had one major source of unhappiness with last week’s conference: the participants were largely silent about the dismal outlook in the advanced economies for the next several years. The current outlook for unemployment in the United States, Europe, and Japan is probably worse than it was in late 2008. Then, mainstream forecasts for 2009–2011 showed unemployment rising sharply—but generally to levels below what we are experiencing today—and then returning toward normal at a moderate pace. Today, not only is unemployment higher than most 2008 forecasts of its peak levels, but the expected pace of recovery is weaker.

Despite this deterioration, the dire sense of urgency in late 2008 has not increased. Indeed, it has largely disappeared. I find this complacency in the fact of vast, preventable suffering and waste hard to understand. Continue reading

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