International long-term private finance to developing countries has changed dramatically in the wake of the global financial crisis. Caught in “post-crisis blues”, as my World Bank colleagues Jeff Chelsky, Claire Morel and Mabruk Kabir called it in a recent Economic Premise, some traditional sources of long-term finance are strained, and alternatives have not been able to adequately compensate. Private financing of infrastructure has been particularly hurt.
The International Monetary Fund (IMF) is taking a new look at Sovereign Debt Restructuring. There are at least two major reasons for this: First, it is expected that official creditors play a unique role during sovereign debt crises, since lending of last resort becomes the only bridge over default and/or drastically forced adjustments when a country faces very restricted market access. Therefore it makes sense that a number of recent cases warrant an update on what has worked well or not. Second, particularly in light of the recent experiences of Argentina and Greece, the existing framework for sovereign debt restructurings has increasingly been seen as in need of fixing – perhaps even a revamping - if it is to facilitate more orderly processes and outcomes in the future.
Despite tremendous progress in poverty reduction over the last two decades, poverty still persists. Along with South Asia, Africa is a region where large numbers of people continue to live in extreme poverty. It is also a region where there is clearly room for higher foreign trade levels (see Chart). Given that trade can generate growth – and thus poverty reduction – focus on trade-related reforms (e.g. lower tariffs, better logistics, and trade facilitation) deserves to be a high priority of the region.
The Chinese economy has changed dramatically over the last three decades. While its per-capita income was only a third of that of Sub-Saharan Africa in 1978, it has now reached an upper-middle income status, lifting more than half a billion people out of poverty. The numbers are dramatic: per capita income has doubled for more than a billion people in just 12 years. What was once a primarily rural, agricultural economy has been transformed into an increasingly urban and diversified economic structure, with decentralization and market-based relations rising relative to the traditional government driven command-based economy.
If the global financial crisis -- and the events that led up to it -- have taught us anything, it is,“No complacency with asset price booms”. We know first hand the dire consequences of bubbles, so it is clear monetary policy makers can no longer passively observe the evolution of asset prices. If an economy is to pursue macroeconomic and financial stability, they should coordinate with financial supervisors – in an economic marriage of convenience – to ensure financial regulation and monetary policies are complementary, and implemented in an articulated way.
Spring in DC draws more than just tourists. Last week, government officials, policy makers, civil society representatives and other thought leaders converged to take stock of the global economy during the IMF-World Bank spring meetings. The tone in the hallways was optimistic, but cautious. Growth in advanced economies still remains tepid, weighed down by lingering effects of the global financial crisis, demographic challenges, as well as weakening innovation and productivity growth. At the same time, there are encouraging signs that developing countries are in good shape, thanks to fiscal buffers that helped them to weather the storm.
Nevertheless, we must be mindful of the work ahead: the IMF warned of a ‘3-speed recovery’, where emerging markets are growing rapidly, the United States is recovering faster than most other advanced industrial countries, but Europe continues to struggle. Where does this leave developing countries? At a meeting with the G24 – a group of developing countries - I had the privilege of discussing the prospects for growth, and policies needed to achieve productivity growth essential for eliminating extreme poverty and for creating shared prosperity.