Thursday, January 29, 2009

Financial crisis and the developing countries

Great debate about developing countries, global financial system, and financial crisis on VoxEU website ahead of G20 meeting.

Rodrik writes:

There is just possibly a silver lining for developing nations in the present crisis, and it is that they may well emerge collectively with a much bigger say in the institutions that govern economic globalisation. Once the dust settles, China, India, Brazil, South Korea, and a handful of other “emerging” nations will be able to exercise greater influence in the way that multilateral economic institutions are run. And they will be in a better position to push for reforms that reflect their interests.

In trade, the present round of global trade negotiations has already demonstrated that if rich nations want developing nations to play ball, they will need to let them shape the rules of the game.

He also talks about Tobin tax on global foreign currency transactions so that revenue generated from this source could be used in the promotion of global public goods (development assistance, vaccines for tropical diseases, and in green technologies). Great idea! But, wouldn’t it reduce G8’s and IFI’s clout on the developing world? Is it politically feasible?

The idea about giving ‘policy space’ to developing countries in WTO agreements is essential if Doha Round is to pass in the coming days. It was precisely because of this shortcoming that the last WTO negotiation failed after India and other developing countries demanded SSMs facility amidst global food crisis.

I think donors and IFIs should also focus on harmonizing foreign aid allocation and assistance to developing countries so that competing donor interests do not collide and doubling of projects is avoided.

Here is Subramanina on ‘policy space’ for developing countries:

Dani’s view is that these openness levels can be maintained by a bargain around “policy space.” Developing countries would then use this space to figure out the best development policies. In return, industrial countries would be allowed to use this space to push for some kind of global harmonization of tax and regulatory policies that would help buy off middle class anxieties about globalization that might otherwise lead to outright protectionism.

Nancy Birdsall’s take on the issue:

Dani’s agenda – a global trade regime allowing for “policy space”, a climate change agreement that is just as well as enforceable, credible deployment of the proceeds of a Tobin tax, an IMF with the resources to respond to crises – none of these has any legs if the developing countries have minimal influence at the international financial institutions. And one thing is clear to me: Those institutions will not only enjoy fundamental governance reforms until and unless the developing countries collectively assert themselves to get it done.

Duncan Green adds more:

Policy space is a two-way street. [President Obama's] chief economic advisor Larry Summers has also been vocal of late on globalisation’s adverse impact on workers. It will not do much for good for developing countries to raise the spectre of protectionism each time such concerns are voiced. They should say no to trade protectionism straight and simple. But they should be willing to negotiate with advanced nations on avoiding regulatory races to the bottom in such areas as labour standards or tax competition.’

No comments:

Post a Comment