ids hans singer memorial lecture 28 oct 2010
TRANSCRIPT
Hans Singer, Economic
Development, Crisis, Recovery and
the United NationsJomo Kwame Sundaram
United Nations Assistant Secretary General for Economic Development
28 October 2010
Singer’s Legacy:Well ahead of the
curve• UNICEF Report• Terms of trade• Soft loans, wild man• Food security• Kenya Report: pro-poor growth• Basic needs: global social
protection floor• Global imbalances & inequality• Global economic governance
1947 UNICEF Report• Importance of nutrition of children
and pregnant women • Importance of education • Social development important • Right balance between investments
for present and future generations
• MDGs: SG’s maternal and child health
‘Sensitive periods
in early brain
development
Binocular vision
0 1 2 3 7654
High
Low
Years
Habitual ways of respondingLanguage
Emotional controlSymbol
Peer social skillsRelative quantity
Central auditory system
Commodity Price Index, 20C
Source: Grilli and Yang (1988); Ocampo and Parra (2003).
Figure 1AGGREGATE REAL COMMODITY PRICE INDEX, EXCLUDING OIL (GYCPI)
30
50
70
90
110
130
150
1900 1920 1940 1960 1980 2000
1900
=100
Manufactures’ Terms of Trade
Unit value of manufactures exported by developing countries relative to manufactures exported by developed countries
90
95
100
105
110
115
120
125
130
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2001
2002
2000
=100
Wild man of the UN!• SUNFED IDA: WB arm for soft loans
• For proposing soft loans for developing countries,
attacked by: • WB President Eugene Black • Senator Joseph McCarthy
Food insecurity• Abolition of World Food Council created
gap • Problem further accentuated by GATT
Agreement and WTO creation• Agricultural trade liberalization has
undermined food security lost capacities
• 2007-08 food price spikes- bio-fuels- futures as financial assets: post-subprime flight to safetyindexed trading
Global economic management
Original Bretton Woods proposals:• Global economic management by United
Nations (General Assembly, ECOSOC)• IMF to deal with financial, monetary, and
balance of payments disequilibria, with overriding objective of full employment, and many functions of world central bank
• World Bank to fund projects, not to be involved with macroeconomic policies
or structural adjustment
IMF• Not world’s central bank or lender
of last resort• Full employment no longer
consistent objective• Inflation targeting contrary to
Article IV, Section 1(i)• Capital account liberalization
promotion contrary to Article VI
World Bank• Programme lending – moved
away from projects• Structural adjustment programmes – failed to generate growth spurts
• Hard/soft issues: WDC/NYC IMF/WB
IMF/WB governance• Based on principle of ‘one dollar,
one vote’• So, financially powerful countries
control BWIs, refuse to allow major capital increase
• So far, inadequate voice, share reform
• Appointment of heads of WB, IMF NOT on merit, open competition
BWI-UN relations• Singer anomaly: WB President and IMF
MD address ECOSOC • But SG no voice at BWIs’ annual meetings• Partly rectified since 2002 Monterrey
consensus• Singer proposed:
– the Bank and Fund might well be requested to submit an annual report to the General Assembly and ECOSOC to explain what attention they have paid to the resolutions of the GA and ECOSOC, in accordance with their Terms of Agreement
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Crisis financial impacts on developing countries• Despite non-involvement in sub-prime debacle:
Emerging stock markets collapse greater Reversal of capital flows, FDI also down Spreads rise, much higher borrowing costs
• But financial positions stronger than during Asian + LA crises (more foreign reserves, better fiscal balances)But reserves rapidly evaporating with export collapse; fiscal space also disappearing
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Trade impacts• Exports decline all developing countries
• Terms of trade primary exporters
• Trade surpluses, reserves run down quickly
• But lower energy, food prices helped net food and oil importers
Stimulus lags delay recovery
0 2 4 6 8
3 month delay
Immediate andsustainedstimulus
efforts
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2009 2010 2011
Jobs recovery lags output recovery, 1991, 2001Duration of output recovery and job market recovery after the 1991 and
2001 US recessions (in months)
0
10
20
30
40
50
60
Output Job market recovery
1991 2001
Major Challenges•Lower commodity prices •Reduced export demand•Domestic demand down too•Employment, incomes, demand lower•Trade surpluses smaller, deficits bigger•Short-term capital inflows reversal•Less FDI•Stock markets’ negative wealth effect•Bank lending growth down; higher costs•Domestic private investments down
IMF fiscal adjustments IMF April 2010 target debt/GDP ratios: Benchmarks:• Developed countries, 60% debt/GDP
ratio – median pre-crisis ratio • Developing economies, 40% debt/GDP
ratio – no explanation how figure derived
Average fiscal adjustments: • 8.7% of GDP for developed countries • 2.7% of GDP for developing economies21
Conventional framework• ‘A …budget deficit in excess of 1-2% of
GDP is evidence of…policy failure’ (Williamson 1990)
• ‘Developing economies should focus on containing inflation and ... adopt credible fiscal adjustment plans to boost confidence
in macroeconomic policies’ (GMR2010)• Maintaining macroeconomic stability to
ensure confidence remains priority for all countries (GMR 2010, p. 82)
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IMF on debt implications
• GMR 2010: 67 low income countries • Debt vulnerability:
–Low 20–Moderate 24–High 15–Debt distress 8 (12%)
• Yet recommends: fiscal consolidation for ALL countries
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IMF: growth-based vs contractionary fiscal consolidation (1996)1996 IMF study of 74 cases in 20
industrialized countries during 1970-95:• Strong global economic growth helps
achieve successful consolidation• Weak global growth reduces chances
that consolidation will cut debt-to-GDP ratio
• Fiscal retrenchments + loose monetary policy offset recessionary impacts
Fiscal consolidation contractionary
• Fiscal consolidation typically contractionary • Little empirical support that fiscal austerity
stimulates economic activity in short term• 2 yrs after fiscal consolidation of 1% of GDP:
- reduces real GDP by ~ 0.5% after 2 yrs- increases unemployment rate by ~ 0.3%
• Even for likely sovereign debt-default risk countries, results not expansionary – output falls by ~0.4% over 2 years
Impact of 1% GDP fiscal consolidation contractionary
Spending cut impact matters
Composition matters• Largest contractionary effect
from public investment cuts
• Even with transfer cuts, no strong evidence of expansionary effects – results
statistically insignificant
Conditions matter• Without complementary policies, -
ve impact of fiscal consolidation much larger
• Larger -ve impact due to sudden reversal, premature, contractionary fiscal consolidation
• Synchronized consolidation by large economies even worse
Fiscal consolidation logic!
• Fiscal consolidation after sustainable recovery assured
• East Asian recovery strongest EA should fiscally consolidate
• G7-US economies fiscally consolidating now weaken EA recovery, ability to be new locomotive for world recovery cause new downturn 30
EMEs’ fiscal rules restrict space
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Need for fiscal space• Macroeconomic policies should not
be driven by fear of outliers• Most developed countries have fiscal
space – no inflationary pressure• Debt sustainability OK, but specific
debt- GDP targets arbitrarily determined
• Fiscal policy typically residual, development not prioritized
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Crisis should lead to reform• A crisis foretold• International financial architecture: non-system?• Ideology: deregulation, self-regulation,
inadequate and inappropriate regulation• Financial globalization: growth, stability?• Capital account liberalization vs IMF Article 6• Policy: market-led? Pro- or counter-cyclical?• Finance’s inflation fetish? Public sector deficit?• Reserve currency Unsustainable global
imbalances • International cooperation: G7 G20, UN?
Lost Bretton Woods moment?
Bretton Woods, 1944: United Nations conference on monetary + financial affairs
• 15 years after 1929 Depression• Middle of WW2• US initiative vs UK Treasury stance• 44 countries (28 developing countries; 19 LA)• UN system: IMF, IBRD, ITO• Clear emphasis on sustaining growth, job
creation, post-war reconstruction, post-colonial development, not just monetary + financial stability
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System reform agenda
• Lack of reserve currency system unsustainable global imbalances
• Financial deregulation- deregulation, self-regulation- inadequate + inappropriate regulation
• Capital account liberalization vs Art. 6• International financial architecture:
non- system since 1971 end of BW• Policy coherence: Align IMF, WB
with UN development agenda, IADGs
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Thank youPlease visit UN-DESA esa.un.org and G24 www.g24.org websites
• Research papers• Policy briefs• Other documents
Acknowledgements: UN-DESA, G24