A Glimpse of the Future


Jeff Hayden altby Jeff Hayden

(Version in عربي)

One of my favorite car trips in the United States heads east out of Los Angeles and runs through the windswept San Gorgonio Pass, gateway to the Mojave and Sonoran deserts. I’m a fan of the drive on Interstate 10 not only because it affords access to a dramatic desert landscape but also because the funnel-like pass at San Gorgonio prompts thoughts about the planet’s energy future.

The pass—one of the windiest places in the United States—is home to the San Gorgonio Pass Wind Farm, an array of more than 4,000 turbines that harness wind to produce “clean”—non-fossil-fuel-based—energy. It’s a stunning sight, and I always wonder, is this what a sustainable energy future looks like? Can thousands of turbines sprawled over the landscape be part of society’s answer to a most pressing question: how to balance the massive need for energy to power economic growth and development while addressing our urgent need to sharply reduce carbon emissions, a chief contributor to climate change.

The question fuels intense debate—one that has become increasingly polarized and that frequently puts growth and sustainable energy in opposition. But are the two—growth and a more sustainable mix of energy sources—really enemies? Can a more benign mix of energy sources and technology bring power to the 1.3 billion people who don’t have it?

These questions, along with December’s United Nations climate summit in Paris, provided the inspiration for this issue of F&D.

The answers are complex but reassuring. Nicholas Stern of the London School of Economics argues that the twin challenges of fighting poverty and climate change are not mutually exclusive. And the International Labour Organization’s Peter Poschen says we need not choose between green and jobs.

Continuing with the energy theme, IMF economist Ian Parry looks at the practical problems of setting a price for carbon that reflects its true costs. And F&D analyzes the four major declines in oil prices in the past 30 years and finds an eerie similarity today to the prolonged slump that began in 1986.

On other topics, Paul Collier and coauthors look at the costs of treating and preventing HIV/AIDS in Africa. This issue of F&D also examines the high penalty countries pay when they default on sovereign debt, skewering the conventional wisdom that the costs of default are minimal, and includes articles on the bad effect elections have on intelligent decision making about public investment, the increasingly common practice of offering citizenship “for sale,” and China’s investment in Africa. And we profile economist Richard Layard, who says economics has strayed too far from its original purpose of promoting happiness and maximizing well-being.

No Puzzle About Weak Business Investment: It’s the Economy!


By Aqib Aslam, Daniel Leigh, and Seok Gil Park

(Versions in عربي中文Français,  日本語Русский, and Español)

The debate continues on why businesses aren’t investing more in machinery, equipment and plants. In advanced economies, business investment—the largest component of private investment—has contracted much more since the global financial crisis than after previous recession. And there are worrying signs that this has eroded long-term economic growth.

Getting the diagnosis right is critical for devising policies to encourage firms to invest more. If low investment is merely a symptom of a weak economic environment, with firms responding to weak sales, then calls for expanding overall economic activity could be justified. If, on the other hand, special impediments are mainly to blame, such as policy uncertainty or financial sector weaknesses, as some suggest, then these must be removed before investment can rise.

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Acting Collectively: A Better Way to Restructure Government Debt


By Sean Hagan 

(version in Español)

To restructure or not to restructure? That is a question few governments would like to face. Yet, if a country does find itself with an unsustainable debt burden, one way or another, it will have to be restructured. And if that time comes, it is better for the debtor, creditors, and the entire financial system that the restructuring be carried out in a prompt, predictable, and orderly manner.

The global financial crisis ushered in a new wave of sovereign debt crises that has reinvigorated discussions over the current framework for sovereign debt restructuring. The experience with Greece’s debt restructuring in 2012 and the ongoing litigation involving Argentina, in particular, provide a salutary reminder that vulnerabilities remain.

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Understanding Spillovers


By Olivier Blanchard, Luc Laeven and Esteban Vesperoni

The global crisis—which challenged paradigms about the functioning of financial markets and had significant consequences in other markets—and the sluggish recovery since 2009, are a reminder of the importance of understanding interconnections and risks in the global economy. The increasing trend in global trade, and even more significant, in cross-border financial activities, suggests that spillovers can take many different forms.

The understanding of transmission channels of spillovers has become essential, not only from an academic perspective, but also policymaking. The challenges faced by policy coordination after the initial response to the crisis in 2009—illustrated by the debate on the impact of unconventional monetary policy in emerging economies—raise wide ranging issues on fiscal, monetary, and financial policies.

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Christine Lagarde on Sovereign Debt, Growth and Social Instability


by iMFdirect

The IMF chief gave a speech in New York City today that sets out how the IMF can help countries tackle this troika of challenges to the global economy.

 Watch the speech

 

Euro Muscles in Brussels: Christine Lagarde on Greece


by iMFdirect

The head of the IMF Christine Lagarde was clear during her press conference in Brussels yesterday—European leaders’ deal to help Greece and the euro area is a very constructive and comprehensive package of measures to resolve debt problems.

“What to me is critical—really a game-changing decision—is the leaders’ commitment and determination to provide support to countries until they have regained market access, provided that they successfully implement their programs.”

Watch the press conference:

The 17 heads of state of the eurozone have agreed to provide €109 billion in fresh financing for Greece. Together with voluntary contributions from the private sector and continued support from the IMF, this will close the financing gap in Greece’s budget and give the country the breathing room it needs to restore growth and competitiveness.

Greece has not yet requested a new program from the IMF, but Lagarde said it was the global lender’s intention to be an active participant in helping Greece restore growth, debt sustainability and return to financial markets.

The European leaders also agreed to make the terms of the European Financial Stability Facility more flexible, a measure called for by the IMF in its recent assessment of the euro area.

“This flexibility is a key element, in the view of the IMF,” said Lagarde.

The Solution Is More, Not Less Europe


By Antonio Borges

(Versions in عربي,  中文, 日本語EspañolFrançais)

It is hard to hold the course in the middle of a storm, but European policymakers need to if they want European integration to succeed. The sovereign debt crisis is a serious challenge, which requires a strong and coordinated effort by all involved to finally put it behind us.

Surviving the storm will be of little consequence if the euro area finds itself trapped in the perpetual winter of low growth. Germany may be expanding at record speed right now, but it wasn’t so long ago when it grew much more slowly—just 1.5 percent per year between 1995 and 2007. In contrast, Sweden grew by 3 percent a year and the United States by 2 percent during the same period.

Many experts fear that without reforms, growth in Germany could drop even lower in the next 5‑10 years and beyond when global trade cools again. The situation is worse in the countries that currently find themselves in the eye of the storm.

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