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World Economic Situation and Prospects Devaluation

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World Economic Situation and Prospects  Devaluation Powered By Docstoc
					Global imbalances
and exchange rates
    Jomo Kwame Sundaram

       26 January 2010
Global imbalances grow
 USD bn


 1000
                                                                                      Latin America


                                                                                      Other industrialised
    800
                                                                                      Other Asia


                                                                                      China
    600
                                                                                      Japan


    400


                                                                                      Oil exporters

    200




          0

                                                               .



  -200



  -400
                                                                                      United States



  -600




  -800
                                                                                       Euro Area



-1000                                                                                 Central and Eastern


                                                                                              2     Europe
              90 91   92 93   94 95   96 97   98 99   00 01   02 03   04 05   06 07
World trade collapse
                           12    10.9
                                               9.2
                                        7.7
                            8                         6.6
Annual percentage change




                                                                                       4.1
                            4
                                                             2.4

                                                                                       0.5
                            0
                                 2004   2005   2006   2007   2008   2009    2010

                            -4


                            -8


                           -12                                                     3
                                                                    -11.1
South exports fall more
         (volume index, 1998 = 100)
280

260               Developing and other non-OECD
                          country exports
240

220

200                             World trade

180

160

140                        OECD country exports

120

100
20 11




20 11




20 11
20 1
20 3
20 5
20 7

00 9


20 1
20 3
20 5

20 7

00 9


20 1

20 3
20 5
20 7

00 9


      1
    M
    M
    M
    M
    M



    M
    M
    M
    M

    M


    M
    M

    M
    M
    M


    M
   6M




   7M




   8M
  06
  06
  06
  06
  06



  07
  07
  07
  07

  07


  08
  08

  08
  08
  08


  09
20
Mineral prices fell more
Imbalances narrow
              600                                              United States

              400

                                                               Japan
              200
Billion US$




                0
                                                               European Union
              -200


              -400
                                                               Developing
                                                               countries (excl
              -600                                             China) and EiT

              -800                                             China
                                                                         6
                     2004   2005   2006   2007   2008   2009
ST real interest rates
                         Short-term real interest rates of major economies (%)

 4

 3
 2
                                                                                                                                                                        Japan
 1                                                                                                                                                                      U.S.
 0
                                                                                                                          Negative                                      Euro
                                                                                                                           Rates                                        Area
-1
-2
              2000M7
     2000M1


                       2001M1
                                2001M7
                                         2002M1
                                                  2002M7
                                                           2003M1
                                                                    2003M7
                                                                             2004M1
                                                                                      2004M7
                                                                                               2005M1
                                                                                                        2005M7
                                                                                                                 2006M1
                                                                                                                           2006M7
                                                                                                                                    2007M1
                                                                                                                                             2007M7
                                                                                                                                                      2008M1
                                                                                                                                                               2008M7
                                                                                                                                                                         7
US Fed LT rates
     Yields of U.S. T-Bonds and Corporate Bonds %(1978-2007)

 20                                                   persistenly
 18                                                   falling long-term
 16                                                   rates
 14
 12
 10
  8
  6
  4
  2
  0
1/31/1978 6/30/1982 11/30/1986 4/30/1991 9/30/1995 2/29/2000 7/31/2004


         BAA corporate bond        AAA corproate bond        10-year T-bond
                                                                       8
      Easy liquidity
                        Measurement of Traditional Liquidity
                            Indicator in Major Economies
                    (as a percentage of total GDP of U.S., Japan and Euro Area)


      12
      10
       8
(%)




       6
       4
       2
       0
           2000Q1

                      2000Q3

                               2001Q1

                                        2001Q3

                                                 2002Q1

                                                          2002Q3

                                                                   2003Q1

                                                                            2003Q3

                                                                                     2004Q1

                                                                                              2004Q3

                                                                                                       2005Q1

                                                                                                                2005Q3

                                                                                                                         2006Q1

                                                                                                                                  2006Q3

                                                                                                                                           2007Q1

                                                                                                                                                    2007Q3

                                                                                                                                                             2008Q1
                                                                                 9
                                   Base Money+Reserve                                         Reserve                         Base Money
       Net transfer of financial resources
          from South to North

                          200

                            0
Billions of US dollars




                          -200

                          -400

                          -600

                          -800

                         -1000


                           Developing economies      Africa      Eastern and Southern Asia         Western Asia   Latin America
                                           Source: UN World Economic Situation and Prospects 2008 (forthcoming)
Net capital importers
                    Capital Importers
                         Turkey    Greece
    Others                 3%        3% Italy   Australia
                                          3%
     20%                                            3%
                                                            U.K.
                                                             9%




                                                                   Spain
                                                                    9%



             U.S.
             50%                                                   11
      Capital inflows contract

             750
$ Billions




             500




             250




               0
                   2005   2006   2007   2008   2009*
Bretton Woods vs Keynes
•   Dollar-gold parity ($35/oz.)
•   Permanent US current account deficit possible
•   Seigneurage income
•   Vietnam  Run on Eurodollars  1971
•   End of BW system 
•   ‘Non-system’: IMF Interim Committee
•   Rise of Japan  Plaza 2  endaka
•   Drucker: X border flows; K acct liberalization
•   Rise of China  exchange rates, SWF
EA miracle + X rates
 • EP con EP: ISI + EOI; scale
   economies
 • Undervalued X rates since postwar
   Japan
 • SEA mid-80s devaluations + endaka
 • Unlike NEA, SEA FDI-dependent
 • Finance dominant, oppose $
      appreciation post-1995 end of
      endaka  1997-98 crisis
China boom + X rates
•   1994 RMB ‘devaluation’
•   Contract manufacturing: learning by doing
•   End of TVEs boom  scale economies
•   Productivity gains + Lewisian L market 
       consumer price deflation + high growth
•   China super-competitive
•   Big overall trade surplus
        reserves accumulation from mid-2000s
•   $3trn USD assets, including >$1trn US T bonds
•   China cannot afford massive $ depreciation
•   Japanese endaka  end of Japanese miracle
Self-protection
 • 1990s’ LA, EA crises 
     accumulate reserves
 - no lender of last resort
 - onerous IMF conditionalities
 • No insurance element
Crisis + reserves
Financial positions stronger than during
  Asian + LA crises (more foreign
  reserves, ‘better’ fiscal balances)
But reserves rapidly evaporated with
  export collapse; fiscal space also
  diminished
• IMF late ‘09 paper (Blanchard, et al.):
Reserve accumulation did not help in
  crisis                                17
Thank you
Please visit
IDEAs www.networkideas.org
UN-DESA esa.un.org and
G24 www.g24.org websites
•Research papers
•Policy briefs
•Other documents             18

				
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