Working Papers | G-24

International Climate Policy

12th January 2008 Abstract


The Instability and Inequities of the Global Reserve System

12th December 2007 Abstract

This paper argues that the current global reserve system is inherently unstable due to the use of a national currency as the major international reserve currency, and the high demand for “self-insurance” by developing countries. The latter is due to the mix of highly pro-cyclical capital flows and the limited room to maneuver that developing countries have to manage counter-cyclical macroeconomic policies. Both features imply that the system is also inequitable. An important insight of the paper is that such inequities feed into the instability of current arrangements. Any meaningful reform of the system must therefore address these two interlinked features.


IMF Voting Reform: Need, Opportunity and Options

10th December 2007 Abstract

The IMF’s economically-weighted voting system gives rise to a major asymmetry of political power, both directly and indirectly, and to serious systemic inertia. The increasing financial pressure on the Fund, a credible “walk-away” threat by “emerging market” economies, and the potential for effective domestic pressure in developed countries together provide an important opportunity for change.


The Right to Development in a Climate Constrained World

13th November 2007 Abstract

This paper argues that an emergency climate program is needed, that such a program is only possible if the international climate policy impasse is broken, and that this impasse arises from the inherent – but surmountable – conflict between the climate crisis and the development crisis. It argues that the best way to break this impasse is, perhaps counter-intuitively, by expanding the climate protection agenda to include the protection of developmental equity. To that end, the Greenhouse Development Rights (GDRs) framework is designed to hold global warming below 2°C while, with equal deliberateness, safeguarding the right of all people everywhere to reach a dignified level of sustainable human development. We present in this paper an exposition of the GDRs framework and indicative quantification of its implications.


Aid for Trade: Cool Aid or Kool-Aid?

10th November 2007 Abstract

Aid for Trade has been postulated as a complement to trade reforms, including within the context of WTO negotiations, helping developing countries to implement commitments, in coping with adjustment to policy shocks, or generating supply-side capacities. Aid for trade is also seen as making a useful contribution to achieving the MDGs, in particular under Goal 8. In the recent WTO context, aid for trade may be seen as helping to overcome developing countries’ concerns about the cost of implementation as well as some past negative experiences of trade reforms, so that any new conditionalities would be viewed with some trepidation.

A sharp stepping up of funds seems to be needed, according to OECD, but a key question is whether these will indeed be new funds, as promised at recent G8 meetings, or simply a redistribution of existing funds? The question also arises whether aid for trade only refers to ODA or also to loans, special and differential treatment and technical assistance. The possibility of new conditionalities is of some concern to the developing countries, and some authors have said that aid for trade should not be subject to the usual macroeconomic or political conditionality. There is general agreement on the need for aid effectiveness and some indications of the relative importance of support for trade-related infrastructure. Most organizations have taken a fairly wide view of the kinds of activity that would be covered by aid for trade, but OECD seems to be opposed to the use of ODA to help countries cope with the major macroeconomic and microeconomic adjustments associated with trade reforms, which it considers should continue to be supported by World Bank-IMF activities. A number of donors favour general budget support, allowing the developing countries to determine their own needs and priorities, but an aid for trade programme may tie them to much more specific projects. Some have argued that the private sector should not only be consulted on what might be covered but even be direct beneficiaries. While LDCs would undoubtedly benefit, many of the world’s poor are in other low-income countries that may expect to have to rely to an increasing extent on assistance targeted to specific projects favouring the poor or other particular interests of donors.


IMF Contingency Financing for Middle-Income Countries with Access to Private Capital Markets

10th October 2007 Abstract

In order to assess the proposal of the IMF to create a Reserve Augmentation Line (RAL), this paper first reviews the conditions that led to the loss of IMF control over balance of payments financing, and how private capital flows increased the liquidity requirements for system stability. It then reviews how the IMF responded to these problems, before assessing whether the RAL represents a sufficient improvement to the Contingent Credit Line (CCL), the unused predecessor to the RAL, in providing signals that will reduce the probability of crisis for countries implementing it, as well as conditions to convince countries to actually use it.

The main argument of the paper is that, despite the fact that the RAL constitutes some improvements over the CCL, it also still exhibits limitations in providing the kind of rapid support that member states might expect, thereby limiting the possible success of the RAL in acting as a “seal of approval”, as well as convincing countries to actually use it. Apart from the limited extent of improvement of the drawbacks of the CCL, there are still several unresolved issues regarding the RAL, as with any draft proposal, that need to be addressed in order for the RAL to be successful.


Aid for Trade: Cool Aid or Kool-Aid?

28th September 2007 Abstract


Regional Arrangements to Support Growth and Macro-Policy Coordination in MERCOSUR

10th September 2007 Abstract

The main goal of the paper is to discuss the problem of macroeconomic policy coordination in MERCOSUR and how it could contribute to sustaining growth. In the first part, the paper reviews the macroeconomic situation of MERCOSUR, emphasizing the role of the developments that followed the regime change in Brazil in 1999 and in other member countries afterwards. The analysis suggests that the worst consequences of the crises have been overcome and MERCOSUR will probably enter a new stage in which intra-regional trade will resume the positive trend that it showed before the crises. However, for this new stage to consolidate, it is crucial that Brazil increases its growth rate significantly. The second part analyses the characteristics of macroeconomic fluctuations in the region. The paper focuses on three dimensions that are key to designing a framework for macroeconomic policy coordination. The first is cyclical movements within countries and the co-movements between MERCOSUR members. The study allows us to distinguish between the effects of common (i.e. regional) and idiosyncratic shocks. The second dimension is price and quantity dynamics and the interactions between the activity level and the real exchange rate. The third has to do with those financial market failures that contribute to creating and amplifying the shocks that impinge on the region. The last section addresses what member countries can do to support growth, macro-policy coordination, and financial integration. It is suggested that for macroeconomic coordination to progress, it is crucial to identify how the incentives to coordinate can be strengthened in order to avoid coordination failures that are similar to those that followed the post-1999 crises and that had a deleterious effect on intra-regional trade. From the study of cyclical movements, prices and financial failures, it follows that the strategy for the implementation of the coordination framework should be able to work under conditions of excess volatility; must take into account that the international financial architecture is far from developing-country friendly; and, must emphasize the role of institution-building at the regional level.


Special Drawing Rights and the Reform of the Global Reserve System

12th August 2007 Abstract

The current global reserve system has three fundamental flaws: first, a deflationary bias as the burden of adjustment falls on deficit countries; second, inherent instabilities associated with the use of a national currency as the major reserve asset; third, growing inequities associated with resource transfers to reserve currency issuing countries, enhanced by the high demand for foreign exchange reserves by developing countries, due to pro-cyclical capital flows and inadequate “collective insurance”. Instead, the system should counter-cyclically issue Special Drawing Rights (SDRs) (to also finance IMF facilities), ensure “development” SDR allocations, and create a complementary network of regional reserve funds.


The Potential Impact of the Aid for Trade Initiative

10th April 2007 Abstract

The Aid for Trade initiative was revolutionary in the acceptance by international consensus of a role for the World Trade Organization (WTO) in aid and of the limitations of trade. The general case for aid for trade is that while trade can be a tool for development, countries need infrastructure, institutions, technical capacity, investment, etc., in order to trade, and in particular to respond to new liberalization under the WTO. The case for WTO-related Aid for Trade (AfT) is that although many in developing countries will gain from a WTO settlement, there are costs to some developing countries and some have little to gain from multilateral trade liberalization. The first responses proposed to the WTO dilemma were trade measures, more or better preferences. But this would not work for countries with exports that are either highly dependent on preferences or whose other exports are already relatively free from barriers. And preferences were increasingly being challenged by the non-preferred countries and by those who feared that they obstruct multilateral liberalization.


Does Trade Openness Favour or Hinder Industrialization and Development?

16th March 2007 Abstract

The purpose of this study is to examine whether free trade helps or hinders industrialization and development. The author argues that there is neither a theoretical justification nor historical and empirical evidence to support what he refers to as “trade liberalization hypothesis”(TLH). The theory behind TLH is the doctrine of comparative cost advantage which can not be used as a guide to caching up and achieving dynamic comparative advantage which is a policy-based effort. Almost all successful industrializers went through a long period of selective infant industry protection before subjecting their industries to trade liberalization gradually. The forced trade liberalization imposed on the third world during the colonial era led to their de-industrialization, specialization in primary commodities and underdevelopment. On the basis of empirical study of a sample of developing countries which have undertaken trade liberalization during the last quarter of a century and the case study of Mexico, which has been the champion of liberalization, the author also concludes: that trade liberalization is essential when an industry reaches a certain level of maturity, provided it is undertaken selectively and gradually; that the way it is recommended by neo-liberals under the label of “Washington Consensus”, however, it is a recipe for destruction of the industries at their early stages of infancy, or development; that if through NAMA negotiations of the Doha Round, developing countries submit to developed countries to accept their proposed Swiss formula, with a low coefficient (10), and binding of their tariff lines at low levels, it would be at the cost of halting their industrialization process; that the low income countries and others at early stages of industrialization, in particular, will be trapped in production and exports of primary commodities, simple processing and at best assembly operation and/or other simple labour intensive industries.

Finally, as international trading rules are not conducive to industrialization and development, he argues for the need for a different framework of industrial and trade policies outlined elsewhere**. Such a framework, however, requires a radical change in international trade rules. Developing countries should not be worried, he emphasizes, to be “blamed” for defending their policy autonomy in order to enhance their development. *The author is a development economist, affiliated to the Institute of Economic Research,


East Asia’s Counterweight Strategy

10th March 2007 Abstract

This study seeks to explain the origin, process, and prospects of East Asia’s “counterweight” strategy in the arena of international finance, and its significant implications for global financial governance. Overall, this study addresses three key questions: (i) What motivated East Asia’s counterweight strategy and the emergence of Asian financial arrangements such as the Chiang Mai Initiative (CMI) and the Asian Bond Fund Initiative (ABFI)? (ii) What are the nature and purpose of the CMI and the ABFI? (iii) What would determine the future trajectory of the Asian financial cooperation and East Asia’s counterweight strategy? The central argument of the present study is that East Asian countries search for counterweight strategies that will enable them to avoid overdependence and loss of autonomy by developing regional alternatives even as they maintain collaborative relations with the G-7-centred global financial institutions (e.g. the IMF). Policy makers in East Asia are thus hedging their economic bets about the uncertain prospects of both the creation of regional institutions and the reform of global institutions. My findings also suggest that four key factors, such as regional economic conditions, geopolitical rivalry, the IMF reforms, and the United States and EU reactions would possibly shape the future development of East Asia’s counterweight strategy and Asian financial cooperation.


IMF Voting Reform: Need, Opportunity and Options

12th February 2007 Abstract


Beyond the IMF

10th February 2007 Abstract

A consensus has developed that the International Monetary Fund (IMF) is not fulfilling its role, prompting multiple proposals for reform. However, this paper argues that the focus on reform should be complemented with an exploration of alternatives outside the IMF which hold the potential to not only give developing countries greater bargaining leverage with the Fund but also, by increasing competition, spurring the institution to better performance. The paper argues that most of the IMF’s functions are being carried out in part through alternative institutional arrangements. It focuses in particular on the insurance role of the Fund and argues that developing countries are developing alternative insurance mechanisms, from a higher level of reserves, to regional coinsurance facilities to remittances as a counter-cyclical source of foreign exchange. The de facto exit of its clientele has been driven by the high political costs associated with Fund borrowing and now poses unprecedented challenges for the Fund, in particular pressures on its income. The paper argues for a rapid restructuring and significant cuts of the Fund’s administrative budget with the budget savings instead directed to lower the interest rates charged to borrowers.


Bridging the democratic deficit: Double majority decision making and the IMF

2nd February 2007 Abstract


East Asia’s Counterweight Strategy: Asian Financial Cooperation and Evolving International Monetary Order

12th January 2007 Abstract


Rethinking the Governance of the International Monetary Fund

12th December 2006 Abstract

This paper attempts to set out the principal issues that need to be resolved in formulating a proposal for quotas and voice reform in the IMF that could command broad support. Following John Rawls, we argue that “justice is the first virtue of social institutions,” and we use his theory of justice to provide a method for understanding what should be the case, in the context of voice and voting shares, before international institutions, such as the IMF, are to be justifiable to their members. The implementation of this process suggests, among other things, that a major revision of the quota formulas is long overdue, and leaving this unaddressed raises serious questions regarding the IMF’s governance which could develop into a core mission risk and jeopardize the relevance of the institution.


Governance and Anti-Corruption Reforms in Developing Countries

10th November 2006 Abstract

International institutions and in particular the World Bank and the IMF are rightly giving a great deal of attention to issues of governance in developing countries, and particularly corruption. While they are right to believe that governance matters, governance in the most successful developing countries has often been starkly at variance with the good governance model. Even the most successful developing countries have suffered from significant corruption and other governance failures during the early stages of their development. This should not be interpreted to mean that corruption and the goals of good governance are not important. Pressure to reduce corruption and move towards good governance is both necessary and desirable but these ends cannot be achieved unless attention is also given to other governance capacities required for accelerating and sustaining growth. The very desirable goals of good governance may be neither necessary nor sufficient for accelerating and sustaining development. We identify a number of different structural drivers of corruption that operate because of the poor fiscal capacities and structurally weak property rights of developing countries. These imply that aggregate corruption is likely to be high in all developing countries, but successful countries have institutions and governance capabilities that enable them to “manage” the structural drivers in ways that allow economic development and in turn create the conditions for a sustained improvement in good governance. In contrast, other developing countries lack these institutions and capabilities and suffer from poor economic prospects and political instability to varying extents. The challenge for developing countries is to learn the right lessons from the international experience and identify reform agendas appropriate and feasible for their own circumstances. Even the most successful anti-corruption strategies are unlikely to result in dramatic across-the-board improvements in most developing countries. But if they are properly designed to attack the most damaging effects of particular types of corruption, they may still be very successful in accelerating economic development and improving the conditions of political viability. The current governance and anti-corruption agendas supported by international agencies do not achieve this. They do not identify the structural drivers of corruption, and they do not identify feasible responses to these drivers that are likely to improve development prospects in particular countries. More worryingly, by setting broad anti-corruption and good governance goals they may be doing damage by setting unachievable targets for developing countries and diverting attention from critical governance reforms.


IMF Policies for Financial Crises Prevention in Emerging Markets

12th October 2006 Abstract

In emerging markets, policies for preventing and managing financial crises should be understood following the standard open economy macroeconomics text treatment. This, however, will prevent us from fully comprehending how to deal with these crises. To deal with financial crises in emerging markets, this paper brings about more promising theoretical tools borrowed from the interdisciplinary field of optimal policy design. It also considers the possibility that more than one market failure may occur simultaneously. The theoretical tools discussed here should serve to improve existing prevention and management policies. Admittedly, the interdisciplinary field of optimal policy design is comparatively young, thus offering scarce empirical support for disentangling competing models. Given this inability to decide upon the best possible model, we should consider at least two constraints that policy makers will deal with in the real world of financial crises. First, given that policy makers make crucial choices between parsimonious and innovative measures, this paper recommends parsimony because of the uncertainty about the true model. Second, high political implementation costs will always be present, and these are positively correlated with supranational institutional requirements. Considering issues of both parsimony and political constraints, we argue that any attempt to internationally harmonize rules and codes must be done with caution. With this framework in mind, we review some of the recent proposals about emerging markets crisis prevention. From the point of view of emerging countries and creditor countries taken as a whole, and benevolent IFIs, we conclude that promoting GDP indexed sovereign bonds is the best available proposal for crises prevention. In this paper, we leave aside the debate of the political economy or governance reform issues of the IFIs.


IMF Policies for Financial Crises Preventions in Emerging Markets

10th October 2006 Abstract

In emerging markets, policies for preventing and managing financial crises should be understood following the standard open economy macroeconomics text treatment. This, however, will prevent us from fully comprehending how to deal with these crises. To deal with financial crises in emerging markets, this paper brings about more promising theoretical tools borrowed from the interdisciplinary field of optimal policy design. It also considers the possibility that more than one market failure may occur simultaneously. The theoretical tools discussed here should serve to improve existing prevention and management policies. Admittedly, the interdisciplinary field of optimal policy design is comparatively young, thus offering scarce empirical support for disentangling competing models. Given this inability to decide upon the best possible model, we should consider at least two constraints that policy makers will deal with in the real world of financial crises. First, given that policy makers make crucial choices between parsimonious and innovative measures, this paper recommends parsimony because of the uncertainty about the true model. Second, high political implementation costs will always be present, and these are positively correlated with supranational institutional requirements. Considering issues of both parsimony and political constraints, we argue that any attempt to internationally harmonize rules and codes must be done with caution. With this framework in mind, we review some of the recent proposals about emerging markets crisis prevention. From the point of view of emerging countries and creditor countries taken as a whole, and benevolent IFIs, we conclude that promoting GDP indexed sovereign bonds is the best available proposal for crises prevention. In this paper, we leave aside the debate of the political economy or governance reform issues of the IFIs


Economic and Monetary Integration in Africa

14th September 2006 Abstract

The ultimate goal of regional integration is to create a common economic space among the participating countries. Monetary and economic integration may evolve from trade links, as well as, historical and cultural ties. African sub-regions are pursuing economic and monetary co-operation at different speeds. However, African regional economic groupings do not, ex ante, satisfy the traditional OCA criteria. Until the various sub-regional arrangements are firmly established, the African Economic and Monetary Union cannot take-off effectively. More important is the need to nurture strong institutional framework, vibrant trade and financial markets integration that will support a common monetary policy. This paper undertakes a comparative analysis of the efforts made by African policy makers towards the achievement of economic and monetary union, it also appraises the challenges and prospects of achieving the objective. Overall, despite the non compliance to OCA criteria, available evidence seem to suggest that expanded trade, macroeconomic stability, sustained growth and fiscal prudence have become more entrenched in the zones where economic and monetary union arrangements have been formerly institutionalized in Africa.


The Governance of the IMF: The Need for Comprehensive Reform

13th September 2006 Abstract


Fiscal Space for Public Investment: Towards a Human Development Approach

13th September 2006 Abstract


The Impact of Remittances: Observations in Remitting and Receiving Countries

13th September 2006 Abstract


External Shocks: How can regional financial institutions help to reduce the volatility of Latin American economies?

12th September 2006 Abstract


Comparative Assessment of Developing Country Participation in the Governance of Global Economic Institutions

12th August 2006 Abstract


Basel 2 at mid-2006: prospects for implementation and other recent developments

4th July 2006 Abstract


Financial Policies

13th May 2006 Abstract


Internationally Agreed Principles for Corporate Governance and the Enron Case

13th May 2006 Abstract


Background Paper on Macroeconomic and Growth Policies

13th May 2006 Abstract


The Rise of China and India What’s in it for Africa?

13th May 2006 Abstract


Governance and Anti-Corruption Reforms in Developing Countries: Policies, Evidence and Ways Forward

13th May 2006 Abstract


Social Consequences of Globalization, ILO

12th May 2006 Abstract


Reforming the IMF’S Weighted Voting System

12th May 2006 Abstract


Macroeconomic and Growth Policies

12th May 2006 Abstract


The Role of the IMF in Debt Restructuring

10th May 2006 Abstract

In recent years the IMF has made efforts to build an improved “crisis prevention and resolution framework” that minimizes the size and frequency of bailouts, largely out of a concern with the possible moral hazard consequences of its interventions. This framework, however, which includes an emphasis on greater private sector involvement, the encouragement of the use of collective action clauses and a more effective enforcement of access limits to IMF lending has not generated an observable change in practice. The institution may be trying to achieve an almost impossible objective: imposing more stringent criteria to constrain its intervention capacity without recognizing that such an approach is ultimately inconsistent with the IMF’s intrinsically political nature. This is clearly evidenced in the cases of countries that have to restructure their debts. The failure of the SDRM project reflected, among other factors, the prevailing view in the United States administration that market forces should be relied on to find an “solution” in these situations almost on their own. But this has in practice meant that the IMF relinquishes its potential contribution to improving the result of sovereign debt restructurings. In fact, the IMF has frequently exerted pressure on the debtor and its views have often been biased in favour of the creditors’ interests. In particular, its lending into arrears policy (LIA) has been used as a means to induce debtor governments to “accommodate” to these interests. But by providing financing to the debtor through its LIA policy the Fund could potentially play a positive role in reducing the gap between the creditors’ “reservation price” and the country’s repayment capacity while, at the same time, making sure that the debt burden becomes sustainable. In this way, both debtor countries and its creditors would be better off. However, the Fund should not support “market-friendly” sovereign debt restructurings that are incompatible with sustainable debt paths and may represent a greater risk for its resources than more “coercive” alternatives. Indeed, the paradox is that “investor friendly” debt restructurings represent quite the opposite of a market outcome: they require active and often massive IMF interventions and the level of the resulting haircut is sub-optimally low.


The World Development Report 2006: Brief Review

3rd May 2006 Abstract


The Role of the IMF in Debt Restructurings: LIA Policy, Moral Hazard and Sustainability Concerns

17th April 2006 Abstract

In recent years the IMF has made efforts to build an improved “crisis prevention and resolution framework” that minimizes the size and frequency of bailouts, largely out of a concern with the possible moral hazard consequences of its interventions. This framework, however, which includes an emphasis on greater private sector involvement, the encouragement of the use of collective action clauses and a more effective enforcement of access limits to IMF lending has not generated an observable change in practice. The institution may be trying to achieve an almost impossible objective: imposing more stringent criteria to constrain its intervention capacity without recognizing that such an approach is ultimately inconsistent with the IMF’s intrinsically political nature. This is clearly evidenced in the cases of countries that have to restructure their debts. The failure of the SDRM project reflected, among other factors, the prevailing view in the US administration that market forces should be relied on to find an “solution” in these situations almost on their own. But this has in practice meant that the IMF relinquishes its potential contribution to improving the result of sovereign debt restructurings. In fact, the IMF has frequently exerted pressure on the debtor and its views have often been biased in favour of the creditors’ interests. In particular, its lending into arrears policy (LIA) has been used as a means to induce debtor governments to “accommodate” to these interests. But by providing financing to the debtor through its LIA policy the Fund could potentially play a positive role in reducing the gap between the creditors’ “reservation price” and the country’s repayment capacity while, at the same time, making sure that the debt burden becomes sustainable. In this way, both debtor countries and its creditors would be better off. However, the Fund should not support “market-friendly” sovereign debt restructurings that are incompatible with sustainable debt paths and may represent a greater risk for its resources than more “coercive” alternatives. Indeed, the paradox is that “investor friendly” debt restructurings represent quite the opposite of a market outcome: they require active and often massive IMF interventions and the level of the resulting haircut is suboptimally low.


Lead, Follow or Get Out of the Way? The Role of the EU in the Reform of the Bretton Woods Institutions

16th March 2006 Abstract

In the past several years, much has been written about the need for major governance reform of the Bretton Woods institutions whose representation structures are outdated and no longer accurately reflect the distribution of power in the global economy. Discussions in advance of the autumn IMF/World Bank annual meeting to be held in Singapore have been strongly focused on the issue of quota reallocation, with a well articulated US preference for a reallocation of votes towards some large emerging market countries at the expense of European representation. European member states are currently represented in ten different constituencies at the board of directors and account for a large number of executive directors. Thus, authors and policy makers writing on this topic have previously focused on the ‘problem’ of European representation and see a combination of European seats a ‘natural’ way to change representation in favour of developing countries.

European countries do not share this view, both because individual countries fear losing power in a single seat system, and because there is relatively limited appetite in Europe at present for coordination of development and financial policy. Despite this negative outlook, there are some European countries which may be natural ‘champions’ of rationalisation of European voice. Thus, this paper will examine both the positions of individual member states on the topic of European coordination by analysing internal and external pressures for embracing governance change, as well as identifying windows of policy opportunity that exist in the coming period to achieve change. It will suggest that the sequencing of US pressure for quota reallocation is poorly aligned with European priorities, and that waiting even a relatively short period of time (e.g. less than one year) would make it easier for a more substantial realignment of European representation and therefore global governance reform.


The IMF and the Adjustment of Global Imbalances

16th March 2006 Abstract

The paper discusses the trends of recent global imbalances and the financial flows that sustain them, as well as the associated risks with regard to international financial stability and worldwide economic growth. It considers the responsibilities of the IMF surveillance in their correction under Article IV of the Articles of Agreement.

The paper analyzes the likely impact of a potential dollar crisis on developing countries through a reduction of capital flows, increased interest rates and higher spreads on debt service and on their access to and cost of borrowing. The impact of a crisis on their export revenues is also considered. In this connection, the paper assesses the Fund’s likely response to a dollar crisis, and considers the Fund’s most constructive possible response consistent with its purposes.

The paper discusses the Fund’s potential role in dealing with global imbalances in the light of the Articles and of the Fund’s own history, particularly the precedent set by the Oil Facility of the mid-1970s. The paper suggests the establishment of a counter cyclical facility to deal with exogenous shocks to assist developing and emerging countries.

In order to reduce the risks and the deflationary impact on the international economy of a reduction is US aggregate demand, the paper proposes a coordinated approach to the management of the global economy and the correction of global imbalances by the largest 20 economies with the Fund’s technical support.


Global Imbalances and Fund Surveillance

16th March 2006 Abstract

Over its existence the IMF has been an instrument with multiple objectives. The main objectives have been (a) surveillance over countries’ economic policies; (b) occasional provision of financial resources for countries undergoing adjustment under a Fund-supported program; (c) technical assistance for structural reforms and for institution building; and (d) “certification” over some desirable actions by counties. Over the years, some of these activities became more important than others. In the 1980s and 1990s for example assistance for structural changes and for institution building became important. After the 1997-98 financial crisis, certification for desirable standard and codes and for provision of particular data became important. To remain “universal” and useful to all its members the Fund must continue to promote multiple objectives. It cannot become a one purpose institution.

The Fund is now criticized for its limited role with respect to global imbalances which have become very large in connection with a few major countries such as the United States, China, and Japan. Fund surveillance is still bilateral, i.e. directed at single countries. Thus critics are demanding a larger role in multinational surveillance. However, multilateral surveillance is not likely to be very successful because of technical, organizational, and political obstacles. Some changes would, however, make the Fund more effective: the quotas assigned to the countries could better reflect their current economic power; some expansion in multilateral surveillance work should be planned, possibly by bringing fresh blood into this activity from outside the Fund; the Management and the staff should be instructed to be much more focused or even blunt in their views on countries’ policies; the resources available to the Fund should be increased and the executive directors should be more independent from the countries that nominate them. It would however be a mistake to redirect on a large scale the resources of the institution toward an activity with a very slim chance of success.


External Openness and Employment: The Need for Coherent International and National Policies

16th March 2006 Abstract

After having briefly reviewed the recent experiences with trade liberalization the paper argues that the effects of financial liberalization on employment and incomes often carry great disturbances for economic and social development. Therefore, financial liberalization warrants at least as much attention as trade liberalization. The paper weights the potential benefits in terms of growth against the adverse effects of volatility and crises that are frequently associated with financial liberalization, and in particular with debt and portfolio flows. It is motivated by the concern expressed by the World Commission on the Social Dimension of Globalization that “[g]ains in the spheres of trade and FDI run the risk of being set back by financial instability and crisis” and draws the conclusion that volatility in international financial markets is currently perhaps one of the most harmful factors for enterprises and labour in developing countries. Hence, the paper suggests how greater policy coherency between international and national financial, economic and employment policies can give greater attention to employment and incomes.


Incidence of trade and subsidy policies on developing country welfare, exports and debt sustainability

13th March 2006 Abstract

The impacts of all merchandise trade distortions (including agricultural subsidies) globally are estimated using the latest versions of the GTAP database and the LINKAGE model of the global economy (projected to 2015). Results suggest that developing countries’ economies bear a disproportionate burden of current distortions, reducing their average income by 0.8 percent (and Sub-Saharan Africa’s by 1.1 percent) compared with 0.6 percent for high-income countries.

A huge 63 percent of those costs are due to agricultural market distortions, even though agriculture accounts for just 4 percent of global GDP. As much as 93 percent of the cost of those agricultural distortions is due to import barriers and only 2 percent to agricultural export subsidies and 5 percent to direct domestic subsidies to farmers – although within that, the cost of cotton policies is mostly due to domestic support programs. Half of the overall cost to developing countries is due to the region’s own policies, partly because they trade with each other fairly intensively and partly because their own trade barriers are higher than those of highincome countries. If all those trade-distorting measures were to be removed, the developing countries’ shares of global output as of 2015 would rise from 70 to 75 percent for primary agricultural goods, and of textiles and clothing from 62 to 65 percent. Developing countries’ shares of global exports would rise even more dramatically, especially in agriculture: from 47 to 62 percent in primary farm products and from 34 to 40 percent in processed farm products. That represents a rise in developing country exports of around $200 billion per year (in 2001 US dollars) – an increase of two-thirds compared with the baseline scenario for 2015 – and in exports of nonagricultural goods of $400 billion per year. This amounts to more than six times what was needed to service the foreign debt of all developing countries in 2003. Cotton exports alone would rise by more than $4 billion for developing countries as a whole, almost half of which would be enjoyed by Sub-Saharan Africa. Self-sufficiency in that year would be 102 instead of 100 percent for agricultural products, 121 instead of 118 percent for textiles and clothing, and for other manufactures it would be 100 instead of 101 percent.


Beyond the IMF

12th March 2006 Abstract


East Asia’s Growing Demand for Primary Commodities

10th February 2006 Abstract

This paper analyses the macroeconomic impact of East Asia’s growing demand for primary and industrial commodities in four Latin American countries – Brazil, Chile, Peru and Venezuela. The paper shows that whilst the export boom has contributed to improved external accounts in these countries, it has posed the challenge of how to manage the surpluses. Policy makers in the region have responded by pursuing prudent macroeconomic management policies. Venezuela is the only country that has increased public expenditure significantly, mainly in the social sectors. A striking finding is that in Peru, government revenues from the mining sectors are very small. A further finding is that public investment in the four countries has not increased in line with the increase in surpluses. However, foreign investors have demonstrated interest in investing in the extractive sectors in these countries. This paper concludes that Latin American countries benefiting from the ongoing upward trend in commodity prices should do more to increase investment, especially in the infrastructure sectors. They should also avoid excessive currency appreciation, which undermines the competitiveness of their manufactured exports, which are the ones that really create jobs and value added, and through export diversification contribute to reduced variability in the terms of trade.


A Stability and Social Investment Facility for High-Debt Countries

6th February 2006 Abstract

A number of high-debt emerging-market economies face structural, long-term debt problems that tend to keep their growth rates low, that impart an unequalizing bias to the growth process, that severely constrain social spending and human development, and that make them vulnerable to capital flow reversals. Unless the nature and pace of growth can be improved in these lower-middle income countries, the Millennium Development Goals (MDGs) are unlikely to be met either in many of these countries, or globally. These high-debt emerging-market economies face an impossible choice between draconian and never-ending fiscal austerity, or crisis and a “debt event.” Both “bitter pills" impose high social and economic costs.

This paper proposes the creation of a “Stability and Social Investment Facility” (SSF) to be housed either at the IMF or the World Bank. It would be a long-term facility to help high-debt emerging market countries cope with and ultimately overcome what will otherwise remain a chronic structural weakness. The SSF would be an instrument providing a steady and predictable source of long-term funds as well as a strong policy signal to help high-debt emerging-market economies reduce their debt burden without having to forgo vital pro-poor social expenditures and growth programs. For the facility to have a significant impact on debt and income dynamics in the eligible countries, we estimate it would need to lend $10-20 billion a year. The financial cost to the donor community would be the interest subsidy built into the SSF; were the subsidy 200 basis points, the cost in the first year would be $20 million for every $1 billion of lending.

The rationale for the subsidy element is its catalytic role in facilitating a strong commitment to both prudent macroeconomic policies and pro-poor growth policies. The lower interest cost of the SSF, even if modest, would make it financially and politically easier for governments in eligible countries to address their long-term social (MDG) objectives, while maintaining a sound fiscal stance.


Reforming the IMF: Back to the Drawing Board

10th November 2005 Abstract

A genuine reform of the IMF would require as much a redirection of its activities as improvements in its policies and operational modalities. There is no sound rationale for the Fund to be involved in development and trade policy, or in bailout operations in emerging market crises. It should focus on short-term counter-cyclical current account financing and policy surveillance. To be effective in crisis prevention it should help emerging markets to manage unsustainable capital inflows by promoting appropriate measures, including direct and indirect controls. It should also pay greater attention to destabilizing impulses originating from macroeconomic and financial policies in major industrial countries. Any reform designed to bring greater legitimacy would need to address shortcomings in its governance structure, but the Fund is unlikely to become a genuinely multilateral institution with equal rights and obligations for all its members, de facto as well as de jure, unless it ceases to depend on a few countries for resources and there is a clear separation between multilateral and bilateral arrangements in debt and finance.


International Monetary Fund Reform: An Overview of the Issues

23rd September 2005 Abstract


Economic Alternatives for Sub-Saharan Africa: ‘Poverty Traps’, MDG-Based Strategies And Accelerated Capital Accumulation

15th September 2005 Abstract


The Strategic Role of the IMF: Risks for Emerging Market Economies amid Increasingly Globalized Financial Markets

15th September 2005 Abstract