The Great Recession of 2008-2009 triggered the
enactment of expansionary policies in both developed
and developing countries to combat the sharp decline
in aggregate demand across the world.2
Key
international institutions, ranging from the IMF to the
OECD, all became Keynesians and urged national
policy-makers to adopt and sustain fiscal interventions
and historically low policy interest rates throughout
2009 to stave off a depression. The verdict seems to be
that expansionary policies staved off a depression, but
could not avoid rather deleterious unemployment
outcomes in developed countries and at least a
transient increase in poverty in many developing
countries.3

Derivatives are financial contracts which, as the
name suggests, are arrived at by relying on the
market values of stock prices, exchange rates,
interest rates, or commodity prices. These financial
instruments, much in use today as risk management
tools in financial markets, have grown greatly since
1971-72 when exchange rates started floating and
interest rates began to be adjusted at more
frequently. Earlier than that, derivative trading was
common in commodities, to deal with price
volatility, begun by the Chicago Board of Trade in
1875.

In December 2009 the Basel Committee on Banking
Supervision issued a consultative document setting out
proposals for strengthening regulation of banks’ capital
and liquidity (widely referred to as Basel 3) in the light of
lessons from recent experience, especially the current
financial crisis, with the goal of improving the resilience
of the financial system (BCBS, 2009). In the case of
capital, the proposals build on the framework of Basel 2
as set out in the 2006 draft (BCBS, 2006).

The first of the six chapters of the 2002 Monterrey Consensus on Financing for Development is on domestic resource mobilization (DRM). This brief reviews the reasons for the importance of DRM and argues that for a number of reasons, DRM should receive much greater emphasis in current development strategies and at the 2008 Doha Review Conference on Financing for Development. After defining DRM, the brief surveys the reasons for its fundamental importance for growth and development, examines the tradeoffs between domestic and external resource mobilization, considers the implications of the latest international financial crisis, and concludes with some observations on next steps to enhance DRM.