By: Lex Rieffel

Lex Rieffel — Mon, 27 Apr 2009 02:22:11 +0000

From my perspective, Mr. Kumar underestimates the ability of the IMF to evaluate its shortcomings and take meaningful steps to overcome them. I challenge him to find another international organization that approaches the IMF in this regard. My appreciation of this aspect of the IMF, however, should not be viewed a blanket approval of all the IMF does. Far from it, as I have spelled out in a Brookings Policy Brief last fall: http://www.brookings.edu/papers/2008/10_global_governance_rieffel.aspx
Also, quite a few of the perceived shortcomings of the IMF are really the result of constraints or requirements emanating from its major shareholders despite the objections of the staff and management. Finally, Mr. Kumar seems totally unrealistic about what the Obama Administration is able to do sensibly. Not even half of the new foreign policy/financial policy team has been confirmed by the Senate. Rushing to judgement prematurely will benefit no one.

By: Lincoln Feng

Lincoln Feng — Thu, 23 Apr 2009 03:22:32 +0000

This is a sober analysis of the G20 meeting and should be commended, though many people may feel either uncomfortable or offended. If some people including those with vested interests are unable to face the reality rationally and still like to spin around and to rap them in glory irrespective their real success or failure, and are unhappy with a somewhat truer description, let it be. History will move forward and leave those unwilling to move behind.
A few comments on some points in the article.
The two mentioned clear winners, IMF and China, and G2. As the author suggested, it reflected both reality and compromises. China, the world third largest economy and a leader of emerging economies, still with a respectful, though much lower than otherwise, growth prospect, along with other emerging economies, will prove a real hope and much needed stimulus to possible and doubtful speedy world recovery. The emergence of China reflects the beginning of the rise of not only China but the emerging economies as a whole, with China as a representative of the group. An implication of this is that any new arrangement of world economic governance has to take this group into account to be meaningful.
The boost of funding to IMF is a welcome step, but it is likely to be a temporary gap-filling measure. It reflected a compromise based on the uncomfortable, current reality. The existing main world economic governing institutions are largely a product of the post war era with some changes like moving away from the golden standard. It reflected the dominance of the US as the world economic powerhouse and its main allies of the west half of Europe. Although the US is undoubtedly still world largest economy, its role in the expansion of the world economy has changed significantly and irreversibly (only in some aspects for this), such as from a credit country to a debt, its declining shares in world economy and its growth. The world is at a crossroad with a need to reform its governance, economic chiefly. But it may be uncomfortably and unsubtly diplomatic for new comers to the table to ask themselves very directly for greater responsibility without the willingness of existing leaders. It was much easier to prop up the role of still dominated by old powers but somewhat more neutral organisations such as the IMF as an alternative. This gave rise to the boost of IMF funding. But as the author asked, has the IMF done a good job in detecting or preventing crisis in the last two decades or so? And will it be suddenly capable of changing its way and doing a good job? Probably no one knows. That is why it was a temporary compromise, but a good one perhaps. Hope IMF will not disappoint its limited time left in its current form.
G2, as I said, is a reflection of the current reality. One is the leader of old powers and the other a leader of emerging economies. The shift of the relative strengths is likely to have a long term implications for global economic affairs. Let’s hope that the development over the coming decades well after the current crisis will be a good one and benefit all members, at the table or not.
Now the author’s disappointment about the greatest weakness of the G20 meeting. First the existing world governing bodies are unlikely to be capable to lift the world out of the current recession, even though IMF will have much more funding power. They are not designed for this big but a much smaller role. Hence it would be unrealistic to hope them to play such roles. Just think that IMF funding, though respectful, is far from what might be needed were the world in a prolonged recession. More countries would be likely to be in trouble and in need of funding, not to mention those countries that may be able to fund themselves albeit with unwelcome large deficit with long term budgetary and economic consequences. As a result, it was not too bad and probably a good outcome of the meeting that they have not been mandated with new roles, especially considering their past performances.
Fresh ideas, they are definitely and badly needed. This does not necessarily need to be related to the world economic governing institutions. Yes, there is a need to reform them or establish new ones for better effectiveness in detecting, warning and preventing possible problems and under some circumstances to deal with them. But it is the more pressing issue to lift the world out of the current abyss that would require more urgent attentions and fresh ideas to deal with. In this respect, the world needs to extend existing Keynesian approach. The US, UK, and possibly some other European countries, need to fix the problems with their banks in a clever way. The key is to restore credit flows to normal levels with as little costs as possible. Some conventional rules or regulations may need relaxed temporarily to accommodate achieving this, before they are strengthened to prevent possible future similar problems. Some countries, mainly the US, need to fix other related problems, such as problematic mortgages and foreclosures. Some of these problems are temporary in nature and could be solved if circumstances change. For example, when people have suddenly lost their jobs they may face mortgage problems now. But if the recovery is underway and they go back to work again, those problems may go away. They need to temporary reliefs. But there are risks that some among them may not be able to find jobs even when the economy is fully recovered and some foreclosures will be inevitable. It will be a difficult job to identify who are likely to be in which category. But aggregately, there can be a rationale for the government to step in do something about some of the problems.
Other countries and including the US may need other fiscal and monetary measures to boost demand and lower financing costs. Most have taken measures already. Although it is preferable for these actions to be coordinated and done simultaneous, countries have different circumstances and it is difficult to have a common standard, like a fixed ratio to GDP. That would be unproductive and unhelpful and costly for the world as a whole with a differential impact. So coordinated actions but differential measures with different magnitudes will be the right approach. This point, I think was one of the main reasons that G20 members had different views and priorities for that meeting. Of course, there were other politics too.
It will not be easy to get the world out of the current quasi depressional recession very speedily, but at the same time by no means it has to continue to be a prolonged recession and be very costly to do that. I concur with the author that the leaders need to look for fresh ideas and insights. It is also time for bearcats to fulfil their roles, even though it might mean everyone has to learn new ways of doing their business. Let’s hope that will happen soon and world welfares will be enhanced as a result.

Comments on: Dragon conquers G20 summit

By: Lex Rieffel

By: Lincoln Feng