-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

November meetings of leaders from the Group of 20 industrialized nations may not have had exchange rates on the agenda, but the notes prepared by the International Monetary Fund included some meaty foreign exchange references.

The first is the view that although the dollar has moved closer to medium-term equilibrium it “still remains on the strong side”.  The second is the (widely held) view that the dollar “is now serving as the funding currency for carry trades” which has contributed to upward pressure on the euro.

The third was the acknowledgement that the Chinese renminbi has depreciated in real effective terms and remains significantly undervalued from a medium-term perspective.  To deal with the latter the IMF prescribed the usual recipe; namely that “exchange rate appreciation would help limit capital flows” and “facilitate a shift towards domestic consumption that is needed in many emerging economies, notably those with large external surpluses”.

None of the points put forward by the IMF on foreign exchange are ground breaking.  However, the fact that the IMF judged it appropriate to outline these issues ahead of the G20 meetings is suggestive of the economic and thus political relevance of these issues.  China’s exchange rate peg is clearly at the forefront of these issues.

Also significant is the IMF’s mention of the upward pressure on the euro, which could be seen as acknowledging that the euro (along with the yen) is bearing the brunt of the dollar’s downward adjustment.  By recognising that the dollar is “still on the strong side”, the IMF may be warning that the upward pressure on the euro may have further to run.

Now that the euro/dollar is back at 1.500, the market will again begin to wonder whether at some point the authorities may act to stem the appreciation of the euro/dollar.  Intervention in euro/dollar cannot be completely ruled out but it remains a remote possibility because it would avoid the real issue.  The dollar’s decline is being driven by inflows into higher yielding markets which is unlikely to be turned around by intervention in euro/dollar as long as the market is forecasting low Fed rates and as long as risk appetite holds.  The rise in the euro vs the dollar is merely a symptom of these flows but the appreciation of the effective euro (and that of the yen) is being compounded by the fact that as the euro rises vs the dollar it also rises vs the renminbi.   At present, the effective euro exchange rate is creeping back to its December 2008 high which represents an all time high.   Rather than seek to rebalance euro/dollar, officials should be increasing pressure on China to address its policy regarding its exchange rate.

It is not just the Europeans and the Japanese that should be worried about the impact of non-flexible exchange rate policies.  The World Bank last week warned that asset price bubbles in parts of Asia are being driven by a rapid increase in equity and house prices notably in China, Hong Kong and Singapore.

The World Bank advised that policy should be tightened by “removing some of the support for liquidity in domestic and foreign currencies”.  Calls for the breaking of some exchange rate pegs within Asia are becoming more commonplace and China’s size will mean that its exchange rate policy will garner most attention.

The issue of exchange rate flexibility in parts of Asia is promising to be one of the most dominant foreign exchange topics of 2010 and President Obama’s visit to Beijing this week could kick it back into the headlines.
ResearchEMEA@forex.com

Hans Binswanger is the former senior adviser to the World Bank on rural development in Africa. He is currently an independent agriculture and development consultant based in South Africa. The opinions expressed are his own.

The World Bank’s recent study of the prospects of commercial agriculture in Africa focused primarily on the Guinea Savannahs that cover some 600 million hectares, of which about 400 million can be used for agriculture. Less than 10 percent of this area is currently cropped, making it one of the largest underused agricultural land reserves in the world.

During the past four decades, two similar, backward, landlocked, and largely rain-fed agricultural regions developed rapidly and became international agricultural powerhouses: The Cerrado of Brazil and Northeast Thailand. The difficult agro-ecological conditions, remoteness, and poverty levels of the two regions were successfully overcome, and the same should happen in the Guinea Savannahs.

The study found that farm level production costs in Africa are competitive, with family farmers generally having lower costs than commercial farmers. African farmers are also generally competitive in domestic and regional markets, but not competitive in international markets. Logistics costs are much higher than in Brazil and Thailand on account of inadequate transport, processing and marketing infrastructure; lack of competition in vehicle import and trucking industries; cumbersome transport regulations; and the need to pay bribes at border cross¬ings and police checkpoints.

In addition to resolving these problems, awakening of this sleeping giant requires appropriate agricultural policy regimes, greater state leadership and greater development expenditures for family farmers, greater involvement of local governments, communities, and the private sector.

Despite recent efforts, mainly by foreign investors, to launch large-scale agribusinesses in Africa, the study found no evidence that the large-scale farming model is either necessary or even particularly promising for Africa. The apparently successful settler farms of eastern and southern Africa were nurtured by streams of preferential policies, subsidies, and supporting investments.

Nevertheless, large-scale farming, along with other alternatives, may be considered in Africa in three circumstances:

• When economies of scale are present in processing of perishable crops, as in “plantation crops” (sugar, oil palm, tea, bananas and other horticultural crops for export). The alternative to plantations is contract farming that is widely practiced across the world. Note that plantations in the Philippines and Indonesia have lost competitiveness to family farmers in Thailand.
• When Africa’s producers must compete in overseas markets that have stringent quality requirements and demand traceability back to the farm. While this may be difficult in to do via contract in farming, it is the predominant mode for the rapidly growing exports of high value commodities in China.
• When land must be developed in areas with few people. Three solutions are possible: Immigration, as in the Guinea Savannas of West Africa, machine hire from private contractors or larger farmers, as is practiced all over the World, or large scale commercial farming.

If large scale farming is used to solve any of these problems, politically difficult problems are likely to arise in land allocation to commercial farms. Virtually all areas are claimed by some individuals or groups or used in some way. For investors, the alternative to direct involvement in farming are investments in seed and other input sectors, storage, processing and marketing, often involving contract farming.

Much of the technology that family farmers will need is already on the shelf, such as improved seeds, mechanization via animal draft or tractors, low on no till technology, fertilizers and pesticides. But dissemination requires better services and marketing facilities. Low input technologies have little potential in areas of medium to high soil fertility and are more applicable to low fertility environments. Since the main market opportunities for African farmers in the medium term will be in domestic and regional markets, organic farming will primarily have potential in niche markets in the developed world.

In the longer run African agriculture faces a daunting science and technology challenge to maintain and increase its competitiveness and to deal with climate change: It has more environments, more crops, more pests and more diseases than any other continent and will need to find its own technological solutions rather than rely on borrowing.

This will require much larger expenditures on science, research, and science education. Genetically modified organisms will be an important part of the solutions to the multiplicity of stressors in African agriculture. It would be better if European stakeholders were to limit their opposition to GM organisms to Europe, rather than impose their preferences on poor and hungry Africans.

–James Saft is a Reuters columnist. The opinions expressed are his own.–

When the U.S. dollar ultimately loses its status as the world’s premier reserve currency it will be painful for all involved, almost certainly disorganized, and very possibly a very good thing.

World Bank President Robert Zoellick outlined the risks to the dollar’s status in a speech in Washington on Monday.

“The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency. Looking forward, there will increasingly be other options to the dollar,” he said.

Zoellick went on to emphasize how choices in the United States on inflation, fiscal policy and financial system reform would help to influence the dollar’s fate.

Quite true. The U.S. cannot simply devalue its way to competitiveness, nor can it appear to be inflating away its debts without risking a run on the currency. The Chinese and others would sell dollars or fail to buy up new debt if they felt the U.S. was behaving both cynically and irresponsibly.

China has good reasons not to force a crisis and devalue its holdings of dollars, but not immutable ones. The two nations are like two men trying to swim to shore while dragging a heavy box of gold, the difference being that the U.S. is tethered to the box while China is only holding on. If China decides the water is too rough it can let go, sacrifice its dollar holdings and swim for it. The United States is not so lucky.

“Exorbitant privilege” is a term coined by an understandably embittered French Finance Minister Valery Giscard d’Estaing to describe the fact that under the old Bretton Woods currency system the United States, unlike everyone else, could simply print dollars to cover current account deficits.

Bretton Woods is gone, but the arrangements which replaced it also tended to underwrite U.S. overconsumption, as purchases of U.S. dollars as reserves by other nations kept funding rates lower despite household or government profligacy.

“The United States is incredibly fortunate that the dollar enjoys this special status,” Zoellick said. “When I work with countries struggling to pay for budgets or finance trade deficits, I reflect on how Americans do not spend a moment considering the unique advantages of being able to issue bonds and print money freely.”

My best guess is that Americans will spend quite a few moments in coming years considering that unique advantage, and that while they will miss it, they should also be sorry they ever enjoyed the right to borrow freely and seemingly without consequence.

THERE’S NO “G20″ IN “TEAM”

Of course the U.S. current account deficit has contracted massively, standing at about 3 percent of gross domestic product in the first quarter as compared to 6.5 percent of GDP in 2006. That’s the result of plunging global trade and steep falls in investment in the United States. And while the personal savings rate has jumped in the United States, which after all it had to since credit was no longer easy, the government has stepped up massively as a borrower, overwhelming households’ efforts to save.

Barclays Capital calculates that the United States now needs to attract 46 percent of the world’s net savings, i.e. the sum of all current account surpluses, as opposed to 54 percent before the crisis broke.

That 46 percent figure is an improvement, but it too is ultimately unsustainable. It’s also arguably starving lots of other places of investment that could ultimately produce higher returns.

The newly empowered G20 group of nations has meanwhile resolved to rebalance the global economy, using peer pressure to force the irresponsible to shape up and the overly tight to start spending at home.

The world’s central bankers and politicians just received an object lesson in what a good idea it is to have a bunch of reserves piled up against a bad day. Even putting China aside, responsible leaders in places like India will have a very tough time trusting in an international body to protect their own best interests. And because that body doesn’t have any real power to compel, it will be ignored. That means that there is a good risk, G20 or not, that everyone is trying to simultaneously keep their currencies low and exports high.

The only body seemingly exempt from market discipline, the United States, is not going to be in a position to resume eating up everybody’s exports. This is a recipe for very slow growth and for rising international economic tension. That doesn’t make the changes proposed at the G20 a bad idea, but they are not sufficient and threaten to be a resolve-softening time waster.

So not so much as rebalancing but a re-basing of growth expectations. Look for continuing dollar weakness alongside that, with the real drama being not the decline but the rate of decline.

–At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.–

– Angel Gurría is Secretary-General of the Organization for Economic Cooperation and Development; Nancy Birdsall is President of the Center for Global Development. The views expressed are their own. —

All financial crises end. The question is not if we will recover, but how we can build a resilient global economy to speed and bolster that recovery. While many immediate dangers remain, now is the time to look beyond the exigencies of today.

We must take a hard look at weaknesses in the international system that might stand in our way as we rebuild. There are several, but we take this opportunity to highlight one weakness in our ability to build a resilient global economy for the future: the inadequate state of comparable data on international migration.

This is our biggest weak spot on globalization. While many countries collect and publish detailed data on who legally enters or leaves their territory, they do not do it in the same way. In consequence, it is difficult to know clearly and to compare across countries how many persons immigrate and emigrate, for how long and for what reason.  Strangely, it is much easier to get a good picture of global movements of textiles and Treasury Bills than global movements of human beings. Vast disparities in income per head between countries mean that small changes in labor mobility may have large effects on the global economy. But we cannot begin to manage such changes well if the community of nations is not counting even legal migrants in the same, systematic way.

The main obstacle to good statistics is not that labor mobility is such a hot-button political issue. That would tend to raise interest in better data. Rather, the main obstacle is that statistics are a classic “public good”: the benefits are generalized, but the costs are localized. Everyone would gain from better statistics, but the individual governments that must bear the cost of compiling them have competing priorities. Result: decades of international recommendations for better and more comparable migration data have gone largely unheeded. The Organization for Economic Cooperation and Development (OECD), the United Nations, the World Bank, and many others have made great strides towards compiling better public global data, but much more is needed.

That is why, last year, the Center for Global Development in Washington convened a blue-ribbon commission to tackle this issue. It was co-chaired by Patricia Santo Tomas, a former cabinet minister of the Philippines and current chairwoman of the board at the Development Bank of the Philippines, and Lawrence Summers, a Professor at Harvard University prior to joining the Obama administration. The commission brought together a small, stellar group of some of the world’s top experts on migration data. It asked the group to name five ways to improve international migration data in the short term, within existing institutions, at the lowest cost.

The resulting report, Migration Counts: Five steps toward better international migration data, starts with the simple recommendation that every census on earth include a small number of questions relevant to migration.  These include, “In what country were you born?”  Answers to this simple question, asked in every country, can be a powerful tool in systematically tracking all types of international movement. The 2010-11 round of censuses is already beginning, but this basic question is still not even asked in many countries where migration is important and growing—including Japan, Mexico, Korea, the Philippines, and Egypt.

The other recommendations suggest ways to compile and release data that governments already collect but that are often not easily accessible,  and ways that existing household surveys in developing countries can help us learn more about migration at low cost. At every stage the commission makes it clear exactly who should execute each step. One recommendation proposes that the OECD compile and house a database of existing Labor Force Surveys from around the world and the Organization is already working to do that.   Implementation of all of the Commission’s recommendations will require international collaboration and national support.

If the crisis has taught us anything, it is that we cannot address issues of international migration in the global economy on the basis of inadequate data. We cannot build a stronger world economy for our children without better information about one of the significant forces that will shape that economy. There is much that national governments and international agencies can do. The time for perfect migration data is still far off, but the time for better migration data is now.

World Bank President Robert Zoellick spoke at a Thomson Reuters Newsmaker on March 31st  in front of an invited audience and announced a $50 billion programme to counter a decline in global trade.

Zoellick, who once called for a  “Facebook for multilateral economic diplomacy”, also agreed to answer questions from bloggers, which our social media team had collected via Twitter and on this blog ahead of the Newsmaker.

You can watch video of the social media session here and follow the Newsmaker chatter on our Great Debate Twitter channel.

Jaspal Bindra is Chief Executive, Asia, for Standard Chartered Bank. The views expressed are his own.

Asia has come of age. When leaders from the Group of 20 nations converge in London, Asia’s rising powers - China, India,  Korea and Indonesia - will be sitting at the global high table to decide on ways to reshape the world’s financial and economic order.

There are expectations that the meeting will include concrete steps to revive economic growth, a boost in funding for the International Monetary Fund, and an understanding on the new financial architecture to restore trust in the financial system.

Asian policy makers are looking for two other critical assurances from the meeting: one, that the developed countries will keep their markets open; and two, that global capital flows needed to finance trade and investment will remain unchecked.

No one doubts the difficulty of reaching consensus. But the stakes have never been higher.

Amidst the frenetic attempts by individual governments to tackle the biggest economic crisis since the Great Depression, it is easy to forget that the progressive dismantling of barriers against international trade and investment contributed to the biggest economic boom the world has seen.

More than 200 million jobs were created worldwide between 2000 and 2007, according to the Institute of International Finance, and millions of people in the developing world were lifted out of poverty, as a result of free flow of capital, goods and services.

Yet, as the crisis continues, governments and businesses in Asia are increasingly worried that the world’s biggest and most developed economies will explicitly or implicitly legislate to encourage manufacturers to keep production onshore and, banks and insurance companies to keep money within their borders.

Any such protectionism comes at a dark time. Although Asia remains fundamentally robust, thanks to high private savings, conservative balance sheets of companies and financial institutions and mammoth foreign reserves, the ongoing financial turmoil has caused consumers and lenders in developed countries to tighten their purse strings.

Steps to ensure that trade and capital keep flowing ought to be at the top of the agenda for the G20 leaders.

A good start

Getting developing nations to the table with the Group of Seven developed countries is a good start. The G20 was born as a response to the Asian financial crisis of the late 1990s and, although a G20 group of finance ministers and central bank governors has been meeting since 1999, it is in this financial crisis that its role has taken center stage.

The G20, whose member countries account for over 80 per cent of the world’s output and two-thirds of the world’s population, is a forum which truly represents the global economy. But will it produce real benefits for Asia?

At this summit, the emerging Asian powerhouses are expected to assert more leverage due to the relative strength of their position. Though weakened, the economies of China, India and Indonesia are still expected to show reasonable GDP growth this year of 6.8 per cent, 5 per cent and 4 per cent respectively, according to Standard Chartered economists’ forecasts.

The emerging powers have already notched up some gains. The G20 finance ministers, meeting in London in March, agreed to expand the Financial Stability Forum - a body which will set new standards for global financial institutions — to include developing country members. These countries will also join global forums that will set new international accounting and risk regulatory frameworks.

Greater participation of the rising powers in such key decision-making bodies should help resolve potential conflicts and go a long way in helping to rebalance the world economic order.

Ironically, it is the financial upheaval in the West which has brought the systemic importance of the emerging markets to the forefront. It is now clear that the imbalances between the high saving nations in the East and overspending economies of the West led to the asset bubbles in the United States and Europe.

To correct the imbalances, the big savers, particularly in Asia, will have to find ways to spend more to boost domestic economies. Higher local consumption will help the economies reduce their dependence on exports. Domestic spending will also help ameliorate the slowdown in investments from the West.

China has made a decisive move on this front, with its stimulus plan to spend almost $600 billion, largely in infrastructure projects. It has also pulled out all stops to make foreign direct investments easier for domestic companies.

New trade routes

Asian economies will also need to trade more between themselves and with the Middle East and Africa. That is already happening in some trade corridors. Trade between China and Africa has expanded 20-fold in just over a decade. For some countries in the region, China has replaced the U.S. and Europe as the biggest export market. This process is likely to accelerate as western consumers cut back on spending and increase savings.

Asian members of G20 are also looking to the international financial institutions such as the IMF and the World Bank to revive investments into the region’s developing economies. But the IMF is cash-strapped after bailing out several East European economies. It is hardly in any position to rescue another medium-sized economy in Asia, Africa or Latin America should the need arise.

The meeting of G20 finance ministers made some headway on this issue. The ministers agreed to substantially expand the IMF’s resources, possibly increasing the Fund’s emergency borrowing program by $500 billion, so that the institution can once again play its role as a lender of last resort in times of international crisis.

The Asian Development Bank also plans to triple its capital base to $165 billion, enabling it serve the poorest and most vulnerable sections of population in the region.

Emerging Asian powerhouses such as China and Korea, apart from the established members like Japan, are now expected to provide a significant part of the funding required to recapitalize these global financial institutions.

However, greater monetary contribution from the rising powers would have to be accompanied by giving them a greater say in the running of these institutions. For instance, today, Korea has more than twice the economic output of Belgium, but Belgium’s representation in the IMF is 50 per cent greater than Korea’s. This is where the developed countries will have to give up some more ground.

G20 leaders must accelerate the process of revising the quota allotted to IMF member countries so that the emerging markets can get voting rights in the Fund which reflect their financial weight.

Progress has been made since the G20 leaders first met in Washington in November with the aim to restore normalcy to the global economy and markets. But risks remain.

It was the progressively free movement of capital, goods, people and services across borders that fueled the economic rise of the emerging markets and raised affluence in the developed world. The risk is that this could unravel if the current financial turmoil leads to heightened protectionism, curbed capital flows and fragmentation of the global economy. The G20 has the duty to ensure this does not happen.

- Johannes Linn is a Senior Fellow and the Executive Director of the Wolfensohn Center for Development at the Brookings Institution. The views expressed are his own. —

One of the tasks for the G20 Summit in London is the reform of the IMF and the World Bank, key global institutions to help address the current crisis and to prevent the occurrence of future crises. Reform of the IMF is more urgent both in the short and medium term while reform of the World Bank, although equally important, is less pressing.

The G20 faces a few immediate priorities related to the IMF:  First, G20 leaders should agree to triple IMF resources from the current level of $250 billion to $750 billion to help meet the financing needs of developing countries. This is critical because the World Bank has estimated that these countries may face a shortfall of up to $700 billion in 2009 alone.  Second, G20 leaders should request that the IMF monitor and report transparently on the commitments and implementation of G20 national stimulus plans and efforts to repair their banking sectors. Third, G20 leaders should commit to a far-reaching reform of the IMF by 2010.

While this third step may seem like a lesser priority for leaders as they face a global recession, reform of the IMF must be accomplished in order to restore the legitimacy and effectiveness of the institution.  Reform would introduce the merit-based selection of the head of the IMF, irrespective of nationality, eliminate the veto of the U.S. in key decisions and would broaden the application of double-majority voting as a way to increase the role of smaller members. It would also substantially revise the rule of quota and vote distribution to reflect accurately and fairly the current and future economic weight of the members.

Reform would also transform the current IMF’s Board of Directors from a bureaucratic body to a high-level policy decision-making forum of ministers.  Many of these measures were proposed by a committee chaired by Trevor Manuel, Minister of Finance of South Africa, which comprised a distinguished cast of international experts. The G20 should endorse those recommendations in full.

Together, these three steps serve as a critical foundational action to ensure that the IMF can stand ready to fight the immediate crisis, as well as help prevent future crises from forming.

The impact of the financial crisis on developing countries underscores the need for the World Bank and the regional development banks to do even more—and immediately—to help prevent the worst effects of the crisis from seriously reversing long-term gains in economic and human development.

Shareholders of these development banks must replenish the capital base (especially urgent in the case of the Asian Development Bank) and make a commitment to replenish the resources for the banks’ soft-loan windows. And the World Bank and the regional development banks must make an even greater push to overcome traditional bureaucratic and policy barriers to ensure quick and efficient crisis response.

Longer term, the reform of the World Bank should tackle the merit-based selection of the World Bank president—without regard to nationality; a revamping of shareholdings and voting rights in the executive boards of the institution to give a greater voice to emerging market economies and to borrowers more generally; and an overhaul of the Bank’s operational modalities so it can react with less bureaucratic and time-consuming burdens to the legitimate needs of its borrowers.

These reforms of both the IMF and World Bank will require a readiness by the U.S. and Europeans to forgo long-standing prerogatives and strongly held positions, but action will help ensure early recovery from the current global financial crisis and the future capabilities of these institutions, which are needed to foster global financial stability and reduce global poverty.

Robert Zoellick, President of the World Bank, and a man who believes that 2009 will be a “dangerous year”, will be speaking on March 31st and has agreed to take questions from Reuters readers.

Zoellick has been outspoken during the current economic crisis predicting the first shrinking of the economy since the ’30s, warning that increased government spending will simply create a ‘sugar high‘ until banks’ toxic assets are dealt with properly, and urging a tougher stand against protectionism.

But the World Bank’s primary focus is on helping developing nations and alleviating  poverty. Earlier this month it published research showing that the spreading crisis will push 46 million more people into poverty in 2009 on top of 130-155 million pushed into poverty in 2008.

With the London summit of the Group of 20 nations on April 2nd fast approaching what do you want to know about the World Bank’s role in shoring up the world economy and helping poorer nations? Use the comments section below, or use the #askwb tag on Twitter, and I’ll get as many of your questions to Robert Zoeliick as possible.

UPDATE: This event has now taken place and you can view the questions we put to Robert Zoellick in the player below. We have no means to pass on any further questions to the World Bank but you are welcome to add your comments on the discussion thread below.