The ongoing global financial systemic crisis and the “Bretton Woods II” processes under way in various fora seem likely to result in reformed national and global regimes for governance, stronger regulations in public interest, and their stricter enforcement. However, these will be incomplete and may not even be successful unless there are parallel efforts in the WTO and its ongoing Doha Round, in particular on “Trade in Financial Services,” where lacking data, negotiations are being conducted on faith and failed theory. A reformed global regime on finance will be incompatible with a trading system outcome of liberalised trade in financial services and capital movements. This is an area needing attention at the highest levels of developing-country governments.

The current financial crisis shows that pro-cyclical behavior is inherent to financial markets. Regulation reform needs to be comprehensive, to avoid regulatory arbitrage, and counter-cyclical, to manage the effects of boom-bust cycles. Policy makers now agree on implementing counter-cyclical regulation for financial regulation reform to improve capital, provisions, and liquidity requirements. The paper discusses different instruments that can be used in parallel, referring to the successful Spanish central bank use of counter-cyclical dynamic provisioning. Arguments in favor of implementing counter-cyclical regulation through rules, rather than discretion, as well as the trade-offs between stronger regulation and access to credit are highlighted

Climate change is an increasingly serious threat to lives and livelihoods in every part of the world. It is also a crisis for economic development, which has historically been synonymous with high-carbon growth. By now the earth’s atmosphere is filled, almost to its sustainable limit, primarily by the past emissions from today’s developed countries. It is essential, therefore, to make the transition to a new, low-carbon style of economic growth.

The efficient solution is to find the least-cost opportunities to reduce emissions, regardless of location. Responsibility for funding these reductions is a separate question; developed countries might be expected to pay a large share of total global costs, due to current ability to pay and to historical responsibility for creating the problem. What new institutions and mechanisms are needed to finance the least-cost global solution to the climate crisis?

According to recent UNFCCC estimates, two-thirds of the world’s greenhouse gas emission reduction potential through 2030 is located in developing countries. More than half of the opportunities to reduce carbon emissions in developing countries are in forestry, including reduction of emissions from deforestation and forest degradation (REDD). Separate funding and new institutions to address REDD measures could be a part of a new climate agreement.

More broadly, emission reduction in developing countries will require substantial investment in energy, transport, and other sectors; hundreds of billions of dollars per year will be needed to realize the full potential of emission reduction. One of the easiest ways to obtain financing for these investments may be the sale of offsets to developed countries – roughly speaking, expanding the opportunity created by the Clean Development Mechanism (CDM). The value of such opportunities depends both on the scope of a future trading system, and on the initial distribution of carbon allowances.

Adaptation to the unavoidable damages from climate change is an additional financial burden on developing countries, and cannot be addressed through carbon markets. Adaptation measures, however, may have more direct synergy with development plans, since they often involve improvements in infrastructure, public health, and disaster preparedness. Estimates of global adaptation needs are very uncertain, but may be in the tens of billions of US dollars annually.

Existing financial flows and institutions fall far short of what is needed. Climate funding available under the UNFCCC and the Kyoto Protocol is less than $10 billion per year, most of it provided through CDM; this funding has been heavily concentrated to date in China and a few other large emerging economies. Additional funding is provided by the World Bank’s Climate Investment Funds, which are likely to provide $1.5 billion per year for four years; and by 1 Senior Economist, Stockholm Environment Institute-US Center, e-mail Frank.Ackerman@sei-us.org. 2 bilateral aid from Japan, Norway, Germany, and others; the annual total of all multilateral and bilateral climate funding is less than $15 billion. This is too small, by more than an order of magnitude, to meet the needs for climate investments in developing countries.

Existing climate funding mechanisms and investment flows are not only dangerously small, thereby risking failure to address the problem before it is too late to solve it. They are also, in part, channeled through institutions such as the World Bank that stand outside the existing multilateral UNFCCC process; past World Bank aid has involved strict conditionality, requiring tight fiscal discipline and structural reforms in exchange for funding. Donor preferences frequently distort bilateral and some multilateral aid efforts; funding for climate investments could be weighted down by the reappearance of similar obstacles. Streamlined and improved institutional arrangements, such as a much-simplified replacement for CDM, will be needed to address the climate problem in a timely manner. Some observers have suggested the need for a new World Environment Organization (or World Environment and Development Organization) to manage international cooperation on climate and related issues.

Finally, it is worth remembering that success in international environmental cooperation is a real possibility, as shown by the example of the Montreal Protocol for reduction of ozone-depleting substances (ODSs). A number of lessons can be learned from the success of the Montreal Protocol: it paid nearly all the net costs of compliance for developing countries; its governance structure put developed and developing countries on an equal footing, requiring agreement from both groups for all decisions; it successfully addressed concerns about trade distortions; and it set a threshold for per capita emissions, above which developing countries “graduated” into responsibility for meeting the developed-country standards. With this cooperative structure in place, the parties to the Montreal Protocol moved rapidly toward reduction of ODSs, finding that costs were lower and benefits were higher than had been anticipated in advance. Could the same turn out to be true for the reduction of greenhouse gases?

The international financial crisis is spreading. Most governments are searching for means to protect themselves and some are using "unconventional tools" of monetary and financial policy, alongside more "conventional" ones. Should policies to control international capital flows be a part of the government "toolkit" in these difficult times? This essay answers: YES. It describes the economic arguments for and against using capital controls, prudential regulations and other "capital management techniques" to manage international financial flows, presents empirical evidence on their impacts, and describes the variety of policies that many countries have successfully applied to enhance macroeconomic and financial stability, create policy space, and achieve other national development goals.

The dramatic world food price spikes in 2007-08 were largely a result of speculative activity in global commodity markets, enabled by earlier financial deregulation measures and the flight from Wall Street. Despite the recent fall in agricultural prices in world trade, the food crisis has exacerbated in many developing countries where food prices remain high and even continue to increase. The financial crisis increases food insecurity by constraining fiscal policies and food imports in balance of payments constrained developing countries, causing exchange rate devaluation through capital flight, and adversely affecting employment and incomes, thereby reducing the ability to purchase food.

Facing the deepest financial crisis since the Great Depression, governments and monetary authorities around the world have acted swiftly and forcefully to coordinate their policy responses. Yet, traditional macroeconomic remedies, such as looser monetary policy, are weakened in a global credit crunch and situations of excess capacity in many industrialized countries. Fiscal stimulus packages which are being advocated as a complement to monetary policy are also likely to be ineffective: on the one hand, many emerging countries may not be in the position to afford counter-cyclical policies due to their lack of fiscal space or constraints on foreign exchanges. On the other hand, industrialized countries may face the issue of Ricardian Equivalence (i.e., government deficits are anticipated by individuals who increase their saving because they realize that borrowing today has to be repaid later).

As the crisis now becomes a self-fulfilling prophecy, there is a major risk of global deflation. Drawing from lessons of history, this note discusses possible steps for avoiding a long, protracted recession. It proposes a bold new recovery plan for global development that would make fiscal stimulus packages work by channeling funding from developed countries to projects and programs that release bottlenecks to growth in developing countries. Such a facility would provide business opportunities for industrialized economies and stimulate both their domestic demand and exports. For countries with large foreign exchange reserves, it would be a mechanism to restore stability in global trade and manage their surpluses in the most efficient way possible. For poor countries, it would provide the much needed resources for domestic or regional projects that meet the market test—i.e. those projects with good returns

Much higher food prices are putting the health and lives of the world’s poorest at severe risk. This paper proposes a mechanism to compensate for the effects of higher import prices on the poor, which can be implemented immediately. Help against hunger must be without conditions. Historical experience suggests that in order to avoid undue conditionality creeping in, any meaningful compensation mechanism must be based at the UN, rather than the Bretton Woods institutions or any other organization dominated by the North. Finally, to emulate a successful feature of the Marshall Plan, self-monitoring by recipients preparing and implementing anti-hunger programs is proposed.