Home Today's Paper Most Popular Video Gallery Photo Gallery
Subscription Blog Signin Register
Logo
Tuesday, October 23, 2018 10:26:06 AM
Follow Us On: Facebook Twitter Twitter Twitter Twitter

Global economy vulnerable a decade after

By
05th-Aug-2018       
Comments
Share your thought
Post a comment »
Read all () »

Anis Chowdhury and Jomo Kwame Sundaram :
Ten years ago, deteriorating confidence in the value of US sub-prime mortgages threatened a liquidity crisis. The US Federal Reserve injected considerable capital into the market, but could not prevent the 2008-2009 global Financial Crisis (GFC).
The 2008 meltdown exposed the extent of finance-led international economic integration, with countries more vulnerable to financial contagion and related policy 'spillovers' exacerbating real economic volatility. It also revealed some vulnerabilities of the post-Second World War (WW2) US-centred international financial 'architecture' - the Bretton Woods system - modified after its breakdown in the early 1970s.
Robert Triffin, the leading international monetary economist of his generation, had long expressed concerns about the use of a national currency as the major reserve currency. International liquidity provision using the greenback required the US to run balance-of-payments deficits, ensuring US monetary policy spillovers to the world economy while eroding confidence in the greenback.
The Bretton Woods system was under increasing strain from the late 1960s, as US President Johnson funded the increasingly unpopular Vietnam War by issuing debt, rather than through higher taxes. The system finally broke down when the Nixon administration unilaterally cancelled the US commitment to dollar (gold) convertibility in August 1971.
What emerged was a 'non-system' for Triffin. Since then, the US dollar, issued by fiat, has relied on the greenback's own credibility and legitimacy to continue as de facto world currency.
Current 'non-system'
In 1985, Triffin identified three systemic problems of the international financial 'non-system'. First, "its fantastic inflationary proclivities, leading to world reserve increases eight times as large over a brief span of fifteen years" since the breakdown of the Bretton Woods system.
Second, "skewed investment pattern of world reserves, making the poorer and less capitalized countries of the Third World the main reserve lenders, and the richer and more capitalized industrial countries the main reserve borrowers of the system".
Third, "crisis-prone propensities reflected in the amplitude" and frequency of financial crises such as the 1980s' debt crisis causing developing countries' 'lost decades'. Other critics have identified further flaws.
First is the 'recessionary bias', due to the asymmetric burden of adjustment to payments imbalances. While deficit countries are under great pressure to adjust, especially when financing dries out during crises, surplus countries do not face corresponding pressures to correct their own imbalances.
Second is the cost of the perceived need of emerging and developing countries to 'self-insure' against the strong boom-bust cycles of global finance by building up large foreign exchange reserves and fiscal resources, especially after the 1997-1998 Asian financial crisis.
Such precautionary measures enabled emerging market economies to undertake strong counter-cyclical measures during the GFC. But they have huge opportunity costs as such reserves are generally held as presumably safe, liquid, low-yielding assets, such as US Treasury bonds.
Hence, Triffin complained that "the richest, most developed, and most heavily capitalized country in the world should not import, but export, capital, in order to increase productive investment in poorer, less developed, and less capitalized countries… [The] international monetary system is at the root of this absurdity."
Reform appeals
There were renewed calls for reform of global economic governance in the wake of the GFC, especially by the 2009 UN Conference on the World Financial and Economic Crisis and Its Impact on Development.
Governance reform of the IMF and World Bank should ensure fairer, more equitable representation of developing countries. This should improve the accountability and credibility of the Bretton Woods institutions, enabling them to better address current financial and economic challenges in the world.
The UN also called for a "multilateral legal framework for sovereign debt restructuring". Without a fair, legally binding, multilateral sovereign debt work-out mechanism, developing countries remain vulnerable to private creditors, including vulture funds.
There were renewed hopes for trade multilateralism and early successful completion of the Doha Development Round of the World Trade Organisation (WTO), giving developing countries better access to external markets, seen as vital for balanced global recovery and development. The promise to keep international trade open echoed G20 leaders' unfulfilled commitment to eschew protectionism.
However, only a few of the modest promised reforms have been implemented, with limited changes in international financial governance, still dominated by G7 economies. After all, every financial crisis is followed by appeals for reforms, with complacency setting in with hints of recovery.
Less coping capability
Most developed country governments are now more heavily indebted than in 2008, when they bailed out large financial institutions, but failed to sustainably revive the world economy. Major monetary authorities do not have much policy space left after long pursuing unconventional expansionary policies.
Meanwhile, developing countries have been subject to increasing international integration, e.g., through global value chains, foreign financial institutional investments and increased short-term capital flows induced by the unconventional monetary policies of the US Fed, ECB and Bank of Japan, while debt-sustainability concerns for some are growing again.
These vulnerabilities have been compounded by growing trade protectionism, and dwindling precautionary reserve holdings of many developing economies as global trade has slowed. Even before President Trump's election, developed countries had effectively killed the Doha Development Round, not least by opting for bilateral and plurilateral, instead of multilateral free trade deals.
Trump's more explicit rejection of multilateralism in his efforts to eliminate major US bilateral trade deficits are now expected to further set back prospects for world economic recovery. Despite pious declarations to the contrary, most national policymakers typically turn from rhetoric about international cooperation to focus on domestic issues.
It has not been different this last time. A decade after the worst economic downturn since the 1930s' Great Depression, the world economy remains vulnerable.

(Anis Chowdhury, Adjunct Professor at Western Sydney University (Australia), held senior United Nations positions in New York and Bangkok and Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007).

Tariff
Add Rate

News Archive

Inside The New Nation

Editorial »

The authoritarian ruler must go


THE Maldives' top court on Sunday ended weeks of uncertainty by rejecting strongman President Abdulla Yameen's controversial bid to annul last month's election results, upholding his landslide defeat to the opposition candidate Ibrahim Mohamed Solih. The five-judge Supreme Court bench unanimously ruled that Yameen had failed to prove his claim ...

Cricket »

Asia Cup knock still Imrul's best


After registering his highest ODI score in the series opener against Zimbabwe, Bangladesh batsman Imrul Kayes has still rated it as his 'second-best' innings.Imrul smashed 140-ball 144 runs including 13 fours and 6 maximums against Zimbabwe which helped Tigers win by 28 runs in the first ODI at Mirpur.Even after ...

Football »

Messi injury means Coutinho, Dembele must step up for Barca


AP, Barcelona :With Lionel Messi out with a broken arm, the two most expensive signings in Barcelona's history have a perfect opportunity to step up and show their value.Barcelona spent more than 300 million euros to sign Brazil midfielder Philippe Coutinho and France forward Ousmane Dembele last season as it ...

International »

Turkey turns up heat on Saudi crown prince over Khashoggi


AFP  :Turkey's pro-government media published new claims on Monday linking Saudi Crown Prince Mohammed bin Salman to the death of journalist Jamal Khashoggi after President Recep Tayyip Erdogan vowed to reveal the "naked truth" about the case.Erdogan said at the weekend he would give new details in a speech on ...

International »

Nnamdi Kanu: Nigerian separatist leader resurfaces in Israel


Missing Nigerian separatist leader Nnamdi Kanu has resurfaced in Israel more than a year after soldiers stormed his home. "I'm in Israel," Mr Kanu said on Sunday in a broadcast on his outlawed pirate radio station - Radio Biafra. A video of the Indigenous People Of Biafra (Ipob) leader praying ...

City »

Prime Minister Sheikh Hasina administering oath to the newly elected Mayor of Barishal City Corporation Serniabat Sadik Abdullah at her office in the city on Monday.


Entertainment »

Emon, Airin pair up in movie for first time


Sheikh Arif Bulbon :Popular film actor Emon and model cum actress Airin Sultana have paired up for the first time in a movie titled Akash Mohol. Noted filmmaker Delwar Jahan Jhontu is making the movie under the banner of Impress Telefilm. The shooting of the movie began at the Bangladesh ...

Cricket »

Imrul Kayes scores career best 144


Bangladeshi opening batsman Imrul Kayes proved his worth scoring his 3rd ODI century with career best 144 runs in a tough situation against Zimbabwe in the first match of the three-match ODI series at the home of Bangladesh Cricket-Sher-e-Bangla National Stadium in Mirpur on Sunday.When Bangladesh were losing wickets on ...

Football »

Emery's Arsenal face gruelling week


Unai Emery admits Arsenal will struggle to cope with a draining schedule that sees them host Leicester at the start of three games in seven days.Emery's side will be pushed to the limit by the television schedulers, who moved their Premier League clash with the Foxes to Monday evening at ...

Entertainment »

Shahnoor: Shukla of movie Indubala


Sheikh Arif Bulbon :Shahnoor loves acting in different roles. She always feels comfortable to present herself in challenging roles. For this reason, she was seen to act in such type of roles in recently acted movies. As a part of its continuation, she is going to work in a challenging ...

City »

Bangladesh Jatiyatabadi Chhatra Dal and Jubo Dal and other organisations brought out a procession protesting verdict against BNP Acting Chairman Tarique Rahman in August 21 grenade attack case at Kalyanpur area in the city yesterday .


International »

Withdrawal from nuclear arms deal `dangerous step` for US: Moscow


AFP, Moscow: Withdrawing from a Cold War-era nuclear weapons treaty with Russia as US President Donald Trump has announced he plans to do is a dangerous step, Russia's deputy foreign minister warned on Sunday."This would be a very dangerous step that, I'm sure, not only will not be comprehended by ...

Editorial »

Khashoggi`s brutal murder has brutally damaged image of Saudi Kingdom


The Saudi Kingdom has ultimately confirmed that writer and critic Jamal Ahmad Khashoggi was killed inside the Saudi consulate in Istanbul city.  Saudi state media reported Khashoggi was killed in "fist-fight" with the Kingdom's officials inside its consulate. The announcement marked a U-turn from the Kingdom, which had previously denied ...

International »

Khashoggi criticises Saudi Prince in newly released interview


Saudi critic Jamal Khashoggi criticized Crown Prince Mohammed bin Salman's "authoritarian rule" shortly before his death, in an interview published following confirmation he died at the kingdom's Istanbul consulate.Speaking off the record to a Newsweek journalist working on a story about the Saudi leadership, he insisted he did not view ...

Business & Economy »

Economists sign declaration against Brazil frontrunner


AFP, Rio De Janeiro :More than 350 economists -- among them a Nobel Prize winner -- have signed a declaration saying Brazil's frontrunner to be president, far-right politician Jair Bolsonaro, is not the best choice for his country.The experts stated that Bolsonaro's leftist rival, Fernando Haddad, was "the best alternative" ...

 
Items that you save may be read at any time on your computer, iPad, iPhone or Android devices.
 
Are you new to our website? Do you have already an account at our website?
Create An Account Log in here
Email this news to a friend or like someone
Email:
Write a comment to this news