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The Emerging Economy Challenge: an Optimistic View

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Economy on steroids (2000-07, cumulative household debt increase by $7tln, mortgage $5tln) ... UK. 3.5. 1.14. 5.88. Germany. 5.48. 1.77. 6.02. Japan. 18.34 ... – PowerPoint PPT presentation

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Title: The Emerging Economy Challenge: an Optimistic View


1
The Emerging Economy Challenge an Optimistic View
  • Reforming the Bretton Woods Institutions
  • Danish Institute for International Studies
    (DIIS), Danish Ministry of Foreign Affairs
  • Copenhagen, Denmark
  • September 2009
  • Aniket Bhushan
  • Finance for Growth
  • The North South Institute

2
Outline
  • What went wrong this time?
  • How do we situate Emerging Economies (EE)?
    Where do they stand in relation to advanced?
  • Their crisis experience take-away(s), lessons?
  • Preconditions for policy change?
  • Three loci of change monetary system ( IMF
    role) conditionality broad policy mix

3
What went wrong this time?
  • Nothing
  • Chronicling continuation (long-trend income
    polarization, middle class wage stagnation debt
    dependence)
  • Economy on steroids (2000-07, cumulative
    household debt increase by 7tln, mortgage 5tln)

4
What went wrong this time?
  • Sharp growth in financial sector profitability
  • Curious in context of high competition
  • Profitability implies lads must be doing
    something right
  • Dancing till the music plays
  • Explosive growth in derivatives markets
  • Leverage, high opacity, breeding unknown
    unknowns, unforeseen correlations
  • Insurance v. gambling

5
What went wrong this time EE lens (not much new)
  • Urgency of reform, already made apparent by Asian
    (1997)
  • Inadequacy of BWI framework
  • Workaround strategies

6
Situating Emerging Economies
  • Decoupling?

7
Situating Emerging Economies
  • Over 35yrs, 20-26 gap down to 4-10

8
Situating Emerging Economies
  • Emerging G20 catch-up and crisis experience
  • Still ways to go on DFD

9
Situating Emerging Economies Sharp rise, hard
fall
10
Key EE take-away (s)
  • Workaround worked, but cannot count on steroids
  • Carpe diem opportunity to play pro-active role
  • Managing going out stake in external financial
    sys increasing rapidly

11
Take-away, lessons?
  • Well if EE were better prepared, are there any
    lessons
  • Calibrated liberalization, gradual
  • Strong ownership of process
  • Cap a/c lib not same as trade
  • Asian crisis, cause for pause
  • State as absorber v. multiplier of shock
  • Informal sub-grouping (BRIC Summit)

12
BWI Implication
  • Bottom-line
  • Addressing precautionary r. accumulation
    (insurance)
  • Longer-term diversification of global demand
    (drivers and composition)

13
(No Transcript)
14
Conditions for policy change
  • Structural shifts (and amplifiers)
  • Economic, Geopolitical
  • Political capital
  • Will, momentum, anti-incumbency, palatable-ness
  • Perceived alternatives
  • i.e. doesnt have to be new but new mix of
    old/new
  • Windows of opportunities
  • i.e. vacuum can be window or crisis can be too
    short

15
Potential loci of Change
  • Monetary system and role of IMF
  • Conditionality
  • Broad policy-mix (countercyclical, industrial)
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