Toward a robust globalisation

Manu and Chiddu are wasting time

In a famous speech exactly four years ago, Fed Chairman Bernanke represented the US as responding passively and benignly to the global “savings glut” which had developed following the East Asian crisis of 1997-98.

Even though most closely associated with Chairman Bernanke, this formulation is widely shared by respectable economists and commentators, such as Martin Wolf of the Financial Times, Professor Richard Portes of the London Business School and the Centre for Economic Policy Research, and Professor Max Corden of the University of Melbourne. The task of recycling these imbalances fell on the sophisticated financial systems of the advanced countries. In the event, for a variety of reasons, even they proved unequal to the burden placed upon them.

Not surprisingly, quite a different view is taken by the major current account surplus countries, notably China, but including Germany, Japan and, for a while, the major oil-exporting countries. Here, the finger is pointed squarely at the monetary policies followed by the US Federal Reserve

The G-20 is not the perfect vehicle for India to show leadership, but it is a start. India should grasp the opportunity being given to it and run with it. (via Suman Bery: Toward a robust globalisation).

Promising start.

The post laid out the position of the world economic structures and developments in the last few years, rather well - and the way Bretton Woods unravelled.

And then the last paragraph. Suman Bery suddenly, from nowhere comes out that India is being ‘given an opportunity’!

And makes out as though India(ns) should be grateful - and bless the benefactors. And, before they change their mind. Run with the bone that they have thrown at India!

Note the language …

This is the language of recipients, of pleading and impotence. Chidambaram says that ‘they’ will now “give greater representation and voice to developing countries” Manmohan Singh mirrors the sentiment when he says,”consultations were merely for the sake of form”.

The Developing World FTA

Instead of breaking heads with the WTO, the Developing World should declare a 100 country FTA. As Rajat Nag, of the ADB points out,

“East Asia already trades 55% of its output within the region. India’s trade with China, Japan and ASEAN (Association of Southeast Asian Nations) is increasing. That is the structural shift which will have to happen. Our forecasts are not based on any dramatic shift”

Put the Doha round in deep freeze, and turbo charge work on a FTA within the developing world. That can add another 2%-4% to economic growth - especially to the poorest countries.

The Third Global Reserve Currency

To this add the Third Global Reserve Currency option - and junk the Dollar and the Euro. With this, the World economy will have two strong drivers for economic growth - without dependence on the West. The world needs to move away from the Dollar-Euro duopoly to tri-polar currency regime.

This calls for leadership - intellectual and political. Does the developing world have it? Can India provide it?

Some more crumbs and bones - World Bank will lend a few billion to microbanks - NYTimes.com

The World Bank and the German government said Thursday that they hoped to inject as much as $600 million into microcredit banks, fledgling institutions in developing countries that are being starved of financing as the credit markets have tightened.

The effort highlights how even small banks in poor countries are getting caught in the financial crisis — and it offers them a chance to get public money to replace rapidly diminishing private capital. (via Microbanks Are Getting a Cash Infusion - NYTimes.com).

Under the plan, the World Bank would initially provide $150 million alongside an additional $130 million from the German government. Mr. Zoellick said the bank was soliciting contributions from other countries and agencies, and hoped to mobilize up to $600 million. That would be enough to help 150 to 200 microfinance banks in 40 developing countries.

Crumbs coming your way …

The US is throwing a few bones, our way, to keep us quiet. While they continue the flooding the world with these depreciating pieces of paper. India is losing 10% of its foreign currency reserves every year due to dollar devaluation. What we are getting from the IMF/WB duo is just 1% of this as debt.

And we have a few preening bureaucrats who think this calls for some self-congratulations!

Europe wants to stay relevant

Europe which has a major say in the IMF and World Bank, after the USA, obviously wants to increase its role - and decrease US importance. To gets its way, it has gone on a major diplomatic offensive - to the extent of restoring diplomatic ties with Cuba.

To placate the Third World, the duopoly and Europe may show some token resistance - and finally give the Third World some minuscule voting rights. The Third World must not waste time on reforming the IMF and World Bank - but instead focus on setting up a system to manage the Third reserve currency.

As an interim measure, to deal with the current liquidity problem, the US Fed, the IMF and World Bank should be pressured to part with some liquidity.

Why flog the IMF and World Bank dead horses.

Interview after G-20 Washington Summit

P.Chidambaram - They will give greater representation and voice to developing countries ... Now whether they will be ready through that I can’t say, they have set the ball rolling now and it would be difficult now to resist any governance reforms on the IMF.(via Moneycontrol >> News >> Economy >> G20 meet sees agreement on common accounting standards: FM)

Describing the G20 summit as “very successful”, Prime Minister Manmohan Singh … said that … There was one important significance which is clear that the balance of power is shifting increasingly in favour of emerging economies,

“We were previously also invited for the past couple of years for the G8 meetings. But consultations were merely for the sake of form. For the first time there was a genuine dialogue between many of the developed countries and the emerging economies,” he said. (via PM terms G20 meet as ‘very successful’)

Note the language …

This is the language of recipients, of pleading and impotence. Chidambaram says that ‘they’ will now “give greater representation and voice to developing countries” Manmohan Singh mirrors the sentiment when he says,”consultations were merely for the sake of form”.

The Developing World FTA

Instead of breaking heads with the WTO, the Developing World should declare a 100 country FTA. As Rajat Nag, of the ADB points out,

“East Asia already trades 55% of its output within the region. India’s trade with China, Japan and ASEAN (Association of Southeast Asian Nations) is increasing. That is the structural shift which will have to happen. Our forecasts are not based on any dramatic shift”

Put the Doha round in deep freeze, and turbo charge work on a FTA within the developing world. That can add another 2%-4% to economic growth - especially to the poorest countries.

The Third Global Reserve Currency

To this add the Third Global Reserve Currency option - and junk the Dollar and the Euro. With this, the World economy will have two strong drivers for economic growth - without dependence on the West. The world needs to move away from the Dollar-Euro duopoly to tri-polar currency regime.

This calls for leadership - intellectual and political. Does the developing world have it? Can India provide it?