Mobilizing international resources to foster development by LeeHarland


									  Mobilizing international
resources for development
                      Rogerio Studart
Executive Director for Brazil, Colombia, Dominican Republic,
Ecuador, Haiti, Panama, Phillipines, Suriname, and Trinidad
                   The World Bank Group
 Some principles behind Monterrey
• Additionality:
   – More resources for sustained inclusive development
     and poverty reduction, thus to meet the Millenium
     Development Goals;
   – net real resources transfers from developed to
     developing countries;
• Stability and enabling environment
   – To promote a fair and inclusive trade system
   – To promote orderly flows of capital to developing
   – To avoid uneven distribution, and especially, volatility
     of capital flows
• Trade: Sustainable growth of developing
  countries exports (which in turn would
  allow a sustainable increase of imports of
  essential goods for development);
• Capital flows: Orderly and even
  expansion of net capital flows to
  developing economies, which again lead
  to sustainable increase of imports
Stability and enabling environment
• Sound macroeconomic policies and
  appropriate rule of law in developing
  (assuming developed economies would
  also follow this principle);
• Enabling international economic
  environment, including fair trade system
  and stable and inclusive international
  financial architecture
What have we achieved?
                     Additionality I:
• Net exports from developing countries have
  increased fast, but

• For the great majority of developing countries it was partly a result of
  a hike of commodity prices, as a side-product of a rapid increase in
  demand in developed economies (and in secondary demand coming
  from those developing economies which supplied labor-intensive
  consumer goods to developed economies);

• For most developing economies, a significant part of such expansion
  ended up as accumulated reserves, or was used to repay debt

• In many developing economies this reserve accumulation led to
  exchange rate appreciation which stimulated demand (of the rich)
  rather than expansion of infrastructure, productive capacity or
  consumption of the poor
                    Additionality II
• Net capital flows have also increased but

   – North-South FDI has been directed to a limited number of
     developing countries, which
       • Happened to be the fastest growing ones, with expansion led by net
         exports, not always faring well when it come to the conventional
         “doing business” and other “investment climate” indicators
       • Therefore to developing economies that did not require more capital
         flows in order to finance their domestic investment

   – Other North-South financial flows went after arbitrage gains,
     created either by excessively high domestic interest rates
     (particularly if exchange rate appreciation was occurring) and
     where securities markets provided cyclical, speculative,
     investment opportunities
• Trade growth was only partly the result of trade liberalization; it was
  more the outcome significant and unsustainable disequilibria in
  world macro economy (consumption in the “North” and export-
  related infrastructure investment in the “South”);

• Financial flows have also been the result of the rapid and
  unsustainable increase in liquidity partly based on highly speculative
  expansion in the main developed financial markets (including the
  mortgage and consumer credit markets);

• Note: South-North flows went primarily to finance increasing public
  debts in the developed World, as a result of a clearly unsustainable
  macroeconomic policies. Only recently South-North and South-
  South FDI has increased (interestingly this phenomenon has been
  significantly criticized in multilateral fora).
                                        In sum…
•   Since Monterrey

     –   We moved very little towards a trade system which facilitated the sustainable increase of net
         exports for all the developing world

     –   We have failed to establish an international financial architecture that led to the sustainable
         increase of productive capital flows to the developing world, and allowed for expansion of
         financial fragility in developed countries markets (which ended up in the crisis we see now)

     –   Macroeconomic policies in the developed economies did not warrant a enabling international
         environment and did stimulate fragility (and instability) –in some countries those policies
         were clearly not sound and/or sustainable.

     –   In the developing world, many of us counted too much on globalization as an engine of
         growth and prosperity, underestimating
           •   the need to enhance domestic mechanisms of resources allocation,
           •   the necessity to invest in infrastructure and increase domestic markets (as engine of growth) and
           •   the advantages in fostering regional integration and South-South cooperation (again as engines of
               growth and development)
We need to dig in and get to
     Developed economies (I)
• Use all instruments available to avoid a
  deepening of the current financial crisis;
• Move on with the trade agenda, prioritizing
  developing economies’ access to markets and
• Reestablish sound macroeconomic policies (but
  cautiously…), with particularly attention to
  sustainable growth of demand (that would be
  good for the environment too, by the way).
       Developed economies (II)
• Commit to a rapid increase to ODA
• Fully support a widening of the role of Multilateral institutions,
  and keep your minds open and flexible
    – Institutions such as the IMF, the World Bank, the Asian Development
      Bank, the African Development Bank, Inter-American Bank, CAF etc;
      should be ready to use all their existing instruments (and to create new
      ones) to expand their support their developing economies in the years
      to come;
    – Promote a review of culture, business environment and conditionalities
    – Understand that more equitable Voice, Quota and Representation
      Structure is a matter of justice, but also a matter of efficiency (you serve
      the clients better and more promptly if your can hear them more)

• Work harder on the other parts of the international financial
  architecture, such as regulations, transparency and controls, in
  order to avoid another crisis is 5 years
     Developing economies (I)
• Sound macroeconomic policies important, but
  not enough: the challenge now is how to achieve
  sustained Inclusive growth (as Undersecretary
  Barbosa said yesterday)
• Expanding trade is good, but focus on
  expanding domestic markets through
  – social and economic inclusion (not to mention that
    this is a question of equity and justice too)
  – Infrastructure – for growth and for the poor
  – Regional integration
     Developing economies (II)
• Improving governance and business climate is
  good, but not enough
   – develop appropriate domestic financial architecture
     (or risk-sharing mechanisms, as mentioned by
     Professor Kahn yesterday)
   – Replicate and scale up experiences of developing
   – Be pragmatic (rather than dogmatic) and deal with
     risk-sharing problems with what you have in hand
• Create appropriate incentives to attract
  productive foreign capital, but be cautious of
  short-term, potentially destabilizing capital flows
Thank you, and good work
   and luck for us all.

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