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Afternoon with Joe—Thoughts on Risk and Foreign Direct Investment

Michael Strauss's picture

My thanks again go out to the World Bank InfoShop for the opportunity to hear and meet former World Bank Chief Economist—and, indeed, Nobel Laureate—Joseph Stiglitz, who came to speak yesterday about his new book, "Freefall: America, Free Markets, and the Sinking of the World Economy".  His trademark frank analysis was both refreshing and enlightening; especially interesting, if troubling, was his view that central bankers’ inflation-hawk instincts will increase the likelihood of a double-dip recession.Freefall

This was a very general presentation about some of the hubristic, anti-regulatory thinking that created the conditions for the recent crisis and the errors in countries’ responses to it.  Stiglitz also excoriated the failures of political will and the power of the strongly entrenched, well-represented interests currently standing in the way of true reform.  These are his views, of course—I make no claims to know enough about what “really” happened to be authoritative on the subject, other than to say that his arguments were persuasive and his examples illuminating.

One subject I was surprised to hear him discuss, however, was the role of interconnected global capital markets in financial crises.  This was a key issue raised after the Asian crisis in the late 1990s; less so for the current “great recession”—although Stiglitz’s tag line that this was a crisis “made in America” and exported around the world reflects a common conclusion of much recent analysis.  

Asia: the Ins and Outs of FDI

Izumi Kobayashi's picture

I recently returned from a visit to seven countries throughout Asia. Although I had visited some of them before, this was my first visit representing MIGA. During my trip, I recognized the value and potential of MIGA’s focus on south/south investment to investors in this region. Of course providing guarantees to support inward investment to Asia is very important to MIGA, especially guarantees for complex infrastructure projects. MIGA can add a lot of value to these types of projects – particularly when it comes to helping manage the environmental and social aspects of projects.  

However, even through this global economic crisis, many private sector companies in Asian middle income countries have become “investors” in other parts of the world. Investments from Asia reach many of the poorest and post-conflict countries. At the same time, risk-mitigation instruments such as political risk insurance are not well known. We see a role for MIGA in sharing experience and working with Asian export credit agencies and Eximbanks to bring Asian investors the risk mitigation tools they need to help continue expanding their investments.

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