The Great Debate

What to expect from the IMF, World Bank meetings

Ian Bremmer

Apr 14, 2011 11:39 EDT

By Ian Bremmer The opinions expressed are his own.

The IMF and World Bank meet this week at a delicate moment for the global economic recovery. First, the good news: Expectations for success won’t be tough to manage, because turmoil in the Arab world, the triple disaster in Japan, and Europe’s ongoing struggles have kept the meetings from grabbing much public attention. That’s a good thing, because as capital and liquidity return to the global economy and as emerging market powers begin to assert themselves with greater confidence on the international stage, the IMF and World Bank have lost some of their prominence.

In particular, the IMF is finding it increasingly difficult to play its traditional role of global surveillance body and lender of last resort, because multinational coordination is just not that effective these days. Newly enhanced voting leverage for leading emerging powers intended to better reflect the world’s true balance of power will only add to the institution’s dysfunction, as members increasingly disagree on whether and how to correct global imbalances. Expect to hear more calls from China, India, Brazil and Russia for an end to US and European dominance of these institutions, but don’t expect any “rebalancing” of rights and responsibilities to make international consensus any easier to achieve.

For example, in advance of the meetings, the IMF has produced a framework of policy options for countries now coping with large capital inflows. Several emerging states — including Brazil, South Korea, and Indonesia — have enacted capital controls in recent months. The IMF has endorsed the use of capital controls in cases where measures to strengthen banking systems and lower interest rates have already been adopted — a fundamental reversal of previous IMF policy.

Some emerging market governments have rejected the Fund’s new policy framework with arguments that the IMF should not dictate their range. The result will be animated discussion of the issue during the meetings, with little prospect that talk will lead to action. Meanwhile, the IMF’s endorsement of capital controls (as a measure of last resort) will provide political cover for some governments to use them as they see fit.

The IMF will also discuss setting up the surveillance mechanisms for global imbalances that were agreed at last fall’s G20 summit in Seoul, but here again there are deep disagreements. China, in particular, has no incentive to allow the IMF to evaluate the fairness of its currency policy — though Beijing knows that the Fund has no enforcement powers to act on what it finds.

In addition, the “internationalization” of the renminbi will likely be on the IMF agenda. China has taken some steps toward its stated goal of making the renminbi an international currency, but the near-term prospects for yuan convertibility are bleak, since such a move demands higher tolerance from Beijing for external influence on Chinese domestic economy than the leadership has ever permitted. China is allowing the yuan to appreciate gradually — in both nominal and real terms. This trend will likely continue. But Beijing will never commit to a clear timeframe for convertibility and will refuse to negotiate the currency’s value in international forums.

from The Great Debate UK:

Asia’s exchange rates set for centre stage

Jane Foley

Nov 12, 2009 09:16 EST

-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.

Awakening Africa’s sleeping agricultural giant

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:

An unhealthy privilege

J Saft

Sep 29, 2009 08:29 EDT

–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.

Migration statistics: our biggest weak spot

– 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.

World Bank’s Zoellick responds to bloggers

Reuters Staff

Apr 1, 2009 08:06 EDT

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.

What Asia needs from the G20 meeting

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.

Reform the IMF and World Bank

- 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.

Ask the World Bank President

Mark Jones

Mar 20, 2009 05:57 EDT

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.