After four decades of agricultural-led development strategies in the postindependent Malawi, economic growth has been erratic and a large proportion of the population live below the poverty line and studies suggests that the poverty situation has worsened. Agricultural policies favoured large-scale (estate) production at the expense of smallholder farmers who account for more than 80 percent of households. Smallholder farmers face several constraints including landlessness and small land holdings and declining agricultural productivity. This study argues that past agricultural strategies have been less successful because they ignored the land question among smallholder farmers. We show that access to land via agricultural production is one of the important factors that can translate growth to poverty reduction. Hence, for agricultural based strategies to be pro-poor in Malawi, land redistribution or resettlement programme for the landless or near landless should be central and a pre-condition for the effectiveness of pro-poor growth strategies in agriculture.

The allocation of IBRD net income is the lens through which the burdensharing issue in the World Bank Group is viewed. The paper concludes that (1) the distribution of voting power does not reflect the contribution to IBRD equity made by its borrowing members as the share of retained earnings has risen while the share of paid-in capital has declined over the years; (2) the major shareholders have used their control rights to allocate portions of IBRD net income to serve their interests in ways that have been at the expense of the borrowing members and (3) a continuation of a stagnating loan portfolio in nominal terms and a declining one in inflation-adjusted terms is likely to constrain the Bank’s net income from lending operations and to render it increasingly dependent for its continuing profitability on its role as a financial trader and arbitrageur. In order to regain its competitiveness as an international development lending intermediary, it is important to review the pricing of loans and the conditions attached to them as well the restraints that have applied on the purposes for which the Bank lends.

This paper investigates the shortcomings of the “early warning systems” (EWS) that are currently being promoted with such vigor in the multilateral and academic community. It then advocates an integrated “trip wire-speed bump” regime to reduce financial risk and, as a consequence, to reduce the frequency and depth of financial crises in developing countries.

Specifically, this paper achieves four objectives.

First, it demonstrates that efforts to develop EWS for banking, currency and generalized financial crises in developing countries have largely failed. It argues that EWS have failed because they are based on faulty theoretical assumptions, not least that the mere provision of information can reduce financial turbulence in developing countries.

Second, the paper advances an approach to managing financial risks through trip wires and speed bumps. Trip wires are indicators of vulnerability that can illuminate the specific risks to which developing economies are exposed. Among the most significant of these vulnerabilities are the risk of large-scale currency depreciations, the risk that domestic and foreign investors and lenders may suddenly withdraw capital, the risk that locational and/or maturity mismatches will induce debt distress, the risk that non-transparent financial transactions will induce financial fragility, and the risk that a country will suffer the contagion effects of financial crises that originate elsewhere in the world or within particular sectors of their own economies. It argues that trip wires must be linked to policy responses that alter the context in which investors operate. In this connection, policymakers should link specific speed bumps that change behaviors to each type of trip wire.

Third, the paper argues that the proposal for a trip wire-speed bump regime is not intended as a means to prevent all financial instability and crises in developing countries. Indeed, such a goal is fanciful. But insofar as developing countries remain highly vulnerable to financial instability, it is critical that policymakers vigorously pursue avenues for reducing the financial risks to which their economies are exposed and for curtailing the destabilizing effects of unpredictable changes in international private capital flows.

Fourth, the paper responds to likely concerns about the response of investors, the IMF and powerful governments to the trip wire-speed bump approach. The paper also considers the issue of technical/institutional capacity to pursue this approach to policy. The paper concludes by arguing that the obstacles confronting the trip wire-speed bump approach are not insurmountable.

This study develops a proposal that has the potential to greatly improve the ability of developing countries to reduce their exposure to other countries' interest rate and exchange rate volatility and to lower their cost of raising capital abroad by borrowing in their own local currency. The key to achieving these goals is the creation of portfolio of emerging market local currency government debt securities that employs the risk management technique of diversification to generate a return-to-risk that competes favorably with other major capital market security indices. This study shows, based on data from the mid-90s through the end of 2000, that a portfolio of local currency debt can generate rates of return relative to risk that compete with that of major securities indices in international capital markets. It is noteworthy that this period includes several shocks to international capital markets including the crises in East Asian, Russia, the failure of Long Term Capital Management and Brazil. The study also provides an analysis of the implications of deploying such a policy for attracting capital to developing countries, the impact on the stability of their financial systems, their costs of borrowing and the implications for future developing of local capital markets.