Development Blogs.com

Russia and Ukraine have many things in common in the current financial crisis and economic downturn.  As Russia is watching the capital run out of the country ($50 billion last month alone), politicians in Ukraine are bickering about that check from the IMF.  These days, whether its Russia or Ukraine, everyone wants and needs every last million. But there is one thing that sets apart Russia and Ukraine - its not the financial crisis itself but the coverage of it.  Simply put, the state-dominated Russian media presents a much more limited view of the ongoing economies woes than media in Ukraine.  How so and what are the implications? - Marc Schleifer and I talk about it in more detail in our recent op-ed in the Moscow Times. There is just one comment there, but it is quite...

This is a joint posting with David Wheeler and Robin Kraft When countries in Latin America or Africa descend into crisis, economists in Washington take a harsh view. Governments are forced to reduce spending in return for IMF rescue packages and in some instances, countries are even put on a cash-only budget. In the United States, we have a very different approach designed to minimize hardship of any kind -- the bailout. General Motors and its American competitors, Ford and Chrysler, are currently asking for a bailout -- the second request in 2008. The first was quietly and quickly met with a cash infusion of $25 billion. But this second request has not been so easy -- it has led to a heated discussion about jobs, the importance of having a homegrown auto sector...

The U.S. rescue package is (rightly) focused on shoring up our domestic financial markets, ground zero in the global credit crisis. Even if this effort is successful, the United States and other global financial leaders cannot ignore the impact on emerging markets. As the crisis has now spread to Latin America, Asia, and elsewhere, we need to ensure that all available tools are used so that the downturn doesn't eventually boomerang back to us. This makes the participation of China, India, Brazil, and others at the upcoming financial summit this weekend not just good optics, but substantively critical. Jim Harmon makes this point nicely in today's Washington Post and warns that trade finance is also drying up, which will soon begin to freeze global commerce. Harmon,...

Last Wednesday the U.S. Federal Reserve Board announced that it had provided temporary liquidity swaps of $30 billion each with Brazil, Korea, Mexico, and Singapore, thereby significantly expanding the circle of countries that the Fed works with in this manner. This is a very welcome move. Since the beginning of the financial crisis, the Fed has made such currency swaps available to central banks in high-income economies, to help them shore up the value of their currencies as depositors and investors flee to dollar-denominated accounts. Why does this matter? The financial crisis has resulted in a sudden, unprecedented demand for dollars. As a result, many other currencies have faced sharp and sudden devaluations. In Brazil and Mexico, the speed and magnitude of these...

Ukraine has just been promised $16.5 billion from the IMF to prevent its financial system from collapsing. Hungary will also receive a rescue package of yet unspecified value. The value of Polish zloty has fallen around 17 percent against the dollar over the past week, and more than 10 percent against the euro. As stock exchanges plummet, currencies collapse, and economists cut once-hot growth forecasts, these are the new hard times for the countries in Central and Eastern Europe – even those like Poland that until recently seemed relatively immune to the global financial crisis. But it’s not just the economies of those countries that warrant closer scrutiny. The fallout of the crisis may be as big or greater in the political arena. Ukraine, for one, is not a pretty picture and...

Much sooner than we expected a week ago, the multilaterals (or International Financial Institutions -- IFIs) must be ready to step in with emergency lending. The Inter-American Development Bank (IDB) in collaboration with Andean Development Corporation (CAF) and the Fund for Latin American Reserves (FLAR) announced yesterday a new $9.3 billion facility to help Latin American countries withstand the turmoil in financial markets. The global crisis that began in the United States has already taken its toll in the region in the form of sharp unexpected depreciations, tumbling equity markets and bankrupticies. The new facility is very different from past emergency lending. Three characteristics stand out: it will channel liquidity to the private sector through the...

Though today's financial crisis began in the world's richest nation, there is good reason to worry about how it will affect the world's poor. A recent series of posts explores the implications. The contagions of freeze-up and slowdown will spread through many channels: trade, investment, migration, and more. In particular, as governments pour trillions of dollars and euros of aid into their banks, it will be unsurprising if their spending on aid for poor countries--currently about $80 billion/year--falls. (See Saturday's story in the Washington Post.) After each previous financial crisis in a donor country since 1970, the country's aid has declined. "Every" in this case refers to four instances: Japan after its real estate and stock bubble burst in 1990; and Finland, Norway, and...

I was in the Hague earlier this week, participating in an anti-corruption conference, and was able to follow the financial crisis by checking in whenever possible with CNN and BBC on TV and the Wall Street Journal and the International Herald Tribune - all that was easily available around me.  It may not have been much, but enough.  The coverage was certainly extensive, with much time and column space devoted to discussions on problems, solutions, finger-pointing, and other related issues. One thing that was hard not to notice while in Europe is that the media there spent a considerable amount of time covering their own financial issues, just as in the US much focus is on domestic implications of the crisis as well. A few days before that, however, I was watching a Russian...

The ongoing financial meltdown has raised voices lamenting the failure of market economy and prophesying its end as a viable system for achieving prosperity. But there is nothing failing about the basic market principles or their capacity to deliver economic growth: property rights, price mechanism, efficient contract enforcement, or fair competition remain as valid tools for development as ever. Instead, what the current crisis illustrates is the failure to provide appropriate regulatory and institutional incentives that would responsibly guide the behavior of market actors. While overregulation is harmful to the economy, regulation per se is not the same as excessive interference of governments in markets. In fact, it is the very essence of how markets are defined in the first place....

The Moscow Times reported on Thursday that Russian PM Vladimir Putin lays the fault for the ongoing global financial crisis squarely at the feet of the US.  Not particularly surprising.  After all, plenty of people are doing the same - blaming the bankers who made risky loans, the borrowers who took out those loans, the financial sector for chopping up and selling the loans, regulators for dropping the ball.  But Putin adds a new twist, arguing that the crisis undermines American ”claims to world leadership.” Putin’s MO is usually to blame the West - it scores points with the domestic audience - and he seems to love any chance to rub a country’s nose in its troubles, as well as to make the not-so-subtle assertion that maybe it’s time for a...

We often hear about the fall out from financial crises.  Those who are hurt line up at the door around the block.  Yet, we rarely hear about the winners.    Accompanying the Russian market’s 50% nosedive this year, are news that companies are actually pouring money and buying up their stocks at prices as low as they were 2 or 3 years ago.  Who are the winners of such actions? Traditionally, under such conditions, it would be shareholders - a stock buyback would be a smart investment for companies with plenty of cash on hand. As always, there are good and bad sides to everything.  For those with the money, it might be the age of opportunity; while for those without - its a grim future of struggling financial markets, especially in emerging markets where declines have been...

I have been following the lively exchanges begun by Liliana Rojas-Suarez’s post on the development impacts of the U.S. financial crisis, especially Michael Clemens's provocative post and Nora Lustig’s thoughtful reply. I agree with Nora that there can be short-run but irreversible welfare consequences from these big financial meltdowns. A doubling of poverty, even if only for a year or two, has an impact on infant and child mortality, on schooling rates, and other welfare variables that have long-run consequences. I once calculated that the elasticity of mortality rates with respect to real rice prices (in Sri Lanka and Bangladesh) is about 0.1; that is, if rice prices rise by 10 percent, the mortality rate rises by 1 percent. It’s not hard to...

I think the behavior of both public officials and private sector managers over the past decade is at direct odds with our message to the developing world regarding transparency and accountability. For example, my research shows that influence peddling is a serious impediment to growth in Africa, and that the development community needs to devise solutions that recognize and overcome such problems. But we lecture governments in the developing world on these topics, they are observing that the people running Fannie Mae, Freddie Mac, and businesses like AIG have not been held to even the minimum standards of accountability. Government officials in this country have also ignored the warnings of such distinguished economists such as Larry Summers and Ed Gramlich, instead...

I am afraid I disagree rather strongly with Michael Clemens argument that the current financial crisis will matter little to long term growth and thus to global poverty. Michael is correct when he notes that there are crises whose effect is short- lived. But there are also plenty of crises whose negative impact lasts for years before they are reversed (if they ever are). The so-called Tequila crisis in Mexico in the mid-nineties was, as Michael notes, short-lived. But the Latin America debt crisis of the 1980s has had lasting effects on living standards and human capital. Between 1983 and 1988 real wages in Mexico and many other Latin American countries cumulatively fell by between 40 and 50 percent. In many instances real wages did not recover until 10 or...

A colleague and I were talking about corporate governance promotion this morning. We were lamenting the difficulties that could lie ahead as skepticism over Wall Street’s recent collapse spreads through emerging markets. Surely the failure of financial markets and investors to adequately appraise risk detracts from the arguments we make about the role corporate governance plays in encouraging investment, we asked ourselves. However, an alternative scenario quickly came to the mind; the importance of sound corporate governance is now going to be more vital for than ever. The financial crisis has not only tightened up available funds on global financial markets but also has caused shrinkage in bank lending (traditionally the first port of call for local companies seeking finance in...

While many in Kazakhstan and abroad are wondering whether a large financial crisis is in store for this oil-rich giant, others are hoping that this could be a window of opportunity to bring about reform that embodies transparency, inclusiveness, rule of law and accountability, all key elements in ensuring long-term stability and prosperity. Some have praised Kazakhstan as a rock of stability and a regional leader in economic growth, however its current troubling developments point to the danger of the contrary. Recent political and economic trends in Kazakhstan have disappointed many well-wishing international observers, who view the country as having significantly drifted away from openness and transparency and embraced strong-armed tactics in the political arena as well as the economy....