Sovereign credit ratings assigned by the major rating agencies (such as Fitch, Moody’s and Standard and Poor’s) play a major role in determining the government’s access to international capital markets. Although sovereign ratings relate to debt and creditworthiness of the central government, in effect they serve as a barometer of confidence and a ceiling for creditworthiness for the private sector as well. They influence the borrowing costs of private entities and in a wider sense overall investment flows. The sovereign rating is often a benchmark and sub-sovereign entities, such as companies and banks, rarely get a rating higher than the sovereign’s.
Last week I attended the Gaidar Forum in Moscow. Yegor Gaidar was an economist who became the architect of the Russian market economy as deputy prime minister of the Russian Federation in 1992. Like Leszek Balcerowitz in Poland and Vaclav Klaus in Czechoslovakia, Gaidar was a pioneer of the shock therapy: rapid liberalization of prices; opening up of borders to allow free international trade; and privatization of capital. Gaidar died in 2009 at an age of 53. In his memory the Gaidar Forum was organized for the first time in 2010. This was the fifth time the Russian Presidential Academy of National Economy and Public Administration organized this annual conference that brings together ministers, academics, and business people.
The following post is a part of a series that discusses 'mind and culture,' the theme of the World Bank’s upcoming World Development Report 2015.
When the former Mayor of Bogota, Antanas Mockus, began his first term in office, a major quality of life problem in the city was the awful traffic, aggravated by reckless driving and mass disobedience of traffic rules. The situation increased air pollution, reduced labor productivity, and created a sense that the city was dysfunctional. The traffic police were at the time notoriously corrupt: drivers had merely to bribe the police to avoid more substantial penalties for traffic violations. Mockus fired all the traffic police and in their place hired approximately 400 mimes. The mimes were trained to mock people’s traffic violations and to demonstrate better behavior. The mime demonstrations succeeded - traffic improved greatly and traffic fatalities declined 50% in the center city where the mimes operated. Traffic police were later reinstated after retraining, but already traffic flowed more smoothly. (See here)
Ylan Mui writes in the Washington Post about 'Why the World Shouldn't Fear the Taper,' which draws from Global Economic Prospects (GEP), launched earlier this week.
The Economist has a daily chart drawing from the GEP that illustrates output gaps in developing countries.
David Roodman has a new paper titled 'Armageddon or Adolescence? Making Sense of Microfinance's Recent Travails.'
- weekly round up
[All numbers cited in this essay are from the World Bank’s latest Global Economic Prospects. The analysis is mine.]
The economic prospect for the world in 2014 is best described as uneventful. It is a strange world we live in that this is the good news. After six years of turmoil marked by financial crises and long stretches of recession in several countries, it is indeed heartening that we are headed for uneventful times with a slow pick-up in global growth.
The world in 2013 grew by 2.4%. We are forecasting a growth of 3.2% in 2014. This is the point forecast. There is a lot that is happening around it, with some countries expected to make a strong recovery, some weak, and some actually slowing. And for each country there are bands of possibilities around their respective point forecasts.
For those of you who are not interested in soccer and for our young colleagues who are growing up with Messi and Ronaldo: Johan Cruijff was the best soccer player ever. At least according to his Dutch fans; skeptics can convince themselves here. As a player and coach he has won every conceivable prize for club teams, but he has become even more famous as an analyst. His judgments are so inscrutable for mere earthlings that his utterings are considered without exception as deep philosophical wisdoms. One of his more transparent quotes might give you already an impression: Soccer is simple, but it is difficult to play simple soccer. There must be deep insight also in Italians can't win the game against you, but you can lose the game against the Italians. People have collected over the years many more examples, but I want to discuss one of his more recent observations.
Martin Ravallion's NBER working paper titled 'The Idea of Antipoverty Policy' is now accessible online and provides a long view on how the narrative around poverty evolved from the 1800s til now.
America's war on poverty turned 50 this week and Nick Kristof has a column titled 'Progress in the War on Poverty.'
A Free Exchange post draws from a paper by the WB's Quy-Toan Do, Jishnu Das and others in the JED. Their research analyzes the tendency of academic research to focus excessively on the US and to under-study the developing world.
A New Year traditionally comes with upbeat thoughts. New resolutions will make life better. Past mistakes will not be repeated. And calamities are seldom predicted. These positive thoughts are not always justified, but they provide necessary energy during the first cold months of the year all the same.
At the beginning of 2014 some economic optimism actually seems defensible. Five years after the start of the global financial crisis, Europe is finally exiting their recession, albeit slowly and hesitantly. The U.S. economy is accelerating and so is growth of global production and trade. True, the BRICs are no longer as vibrant as they have been for a long time, but growth in China (a key concern of markets in recent days) is still expected to be three and a half times growth in high income countries.
Given the tradition of New Year’s optimism it is salient that the EBRD starts the New Year on a rather gloomy note with their new Transition Report. The title of this year’s report is "Stuck in transition?." But in the text they change the question mark into a firm exclamation mark, even as the report contains some suggestions of ways to escape the current impasse.
Much confusion has arisen in policy debates in India about whether or not growth has helped the poor; if yes, how much and over which time period; and whether growth is leaving certain social and religious groups behind. There remains deep skepticism on the part of NGOs and journalists that growth has been good for groups that were disadvantaged over long periods of time in the past.
Arvind Panagariya and I decided to investigate these claims – see here and here. We ask simple questions relating to the evolution of poverty in the post-reform era in India. How have poverty levels changed over the last few decades? We scrutinize changes across 6 different dimensions: (1) over time, (2) across states, (3) across rural and urban regions, (4) across social groups, (5) across religious groups, and (6) using different poverty lines. We find no basis whatsoever for claims that growth in India has left disadvantaged communities behind.
Nouriel Roubini has a Project Syndicate piece, 'Slow Growth and Short Tails,' which predicts faster growth for the world economy in 2014, but cautions that (the US aside) growth in most advanced economies will be tepid and emerging-market fragility could weigh down growth in the longer term --
Gallup World has a new study on inequality around the world.
The Joint Quantum Institute has a January 2 feature titled 'The Entrophy of Nations: Global Energy Inequality Lessens, But for How Long?' in which Victor Yakovenko's research looking at the parallels between nations and molecules is showcased and the case for renewable energy is bolstered.