From now on, there will be need to be a more nuanced relationship between public and private sectors to sustain growth, and regional sources of growth will become more diversified. These are two of the conclusions of MIGA's discussion panel on the post crisis outlook held on October 4 in Istanbul.
A panel of international experts, including the Colombian Minister of Finance Mr. Oscar Ivan Zuluage, MIGA's Executive Vice-President Izumi Kobayashi, and Nick Rouse, Managing Director of Frontier Markets Fund Managers, agreed on some aspects of the vision going forward, but had differing views on others.
Taking on a more proactive, energetic role, public authorities worldwide have played a large role in limiting the downside of last year's financial crisis, they agreed. In Eastern Europe and Central Asia, the International Financial Institutions Initiative (in which MIGA participated) to support recapitalization of these countries' banks drew mention as one example of this type of successful multilateral intervention.
Concerning the new relationship between the public and private sectors, Mme. Stephane Pallez, Deputy CFO of France Telecom (who comes from a distinguished public sector career as a senior official in France's Treasury), made the point that what little growth we now have in industrialized countries is largely due to crisis response packages, and government spending will continue to be an important component of growth for some time.
Rory MacFarquhar, Managing Director of Goldman Sachs in Moscow, underlined that the challenge going forward for all governments will be to ensure their support to growth is fiscally sustainable going forward and doesn't lead to inflation-inducing budget deficits.
Mr. Hideichiro Hamanaka, Advisor to Sumitomo, stressed that although foreign direct investment flows have declined significantly compared to their high-water mark of 2007, all countries need to maintain an "FDI-friendly" environment and avoid "FDI nationalism", constraining outward investment. And trade flows will obviously shift away from the pre-crisis poles of the US-China axis, to a more complex fabric of regional trade flows.
Particularly as concerns the poorest countries, Nick Rouse underlined that these have in many ways been better sheltered in this crisis than in past crises, and there continue to be very exciting investment opportunities, in Africa in particular.
But all agreed that perceptions of risk—political risk in particular—have increased significantly over the past 18 months and could constrain investments into emerging economies.
In essence, then: the decline of state intervention has been reversed in this crisis; but the challenge going forward will be to ensure that such intervention is efficient, effective and fiscally sustainable.
The medium-term objective must be to return to private-sector led growth. Developing countries are expected maintain the very considerable progress made over the last decade toward sound macro-economic management, which has stood them in good stead in this crisis. And the most attractive investment opportunities continue to be found in developing countries, but risk mitigation will be needed to provide comfort to investors.
- For more on the Multilateral Investment Guarantee Agency, please visit www.miga.org.
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