Helmut Reisen - Mission Report for the OECD (London - Dec 2010)
1. MISSION REPORT
Person(s) travelling Helmut Reisen
Place(s) of mission London
Date(s) of mission 23.9.2010
External contribution to cost Accommodation Travel Other x or Total
of mission
Purpose of mission Attend a workshop jointly organized by Chatham House and
CIGI (Center for International Governance Innovation)
Search for Post-Crisis Growth Models and Policy Tools for
Macro-Coordination
2-3 December 2010, London
Contacts made (selection) Selective list:
3. Results of mission 1. Contacts intensified with British cabinet and Treasury
officials (Harold Freeman, Stephen Pickford), with
CIGI and Chatham House staff, and with Paul van den
Noord, Counsellor to Dep SG Padoan.
2. Introduced, in a spontaneous 20 minute presentation
(speaking notes available only), development aspects
into the issue of macroeconomic coordination.
Implications for ongoing DEV Better informal links to thought leaders in G20 affairs. Better
work entry contact to ECO. Better identification of DEV role in
analytical underpinnings of G20.
Chatham House, International Economics Programme, has
started a process to invite me as an Associate Fellow, which
should be of mutual benefit for both DEV and Chatham.
Tom Bernes (former IMF Evaluation Director) stressed at the start of the workshop that while the
G20 Framework for Sustainable Growth was essential, the analytical framework was found
lacking. The workshop aimed at one step twd a better underpinning of the benefits and limits of
macroeconomic coordination in the current post-crisis setting. (Throughout the workshop, the
concept of cooperation vs coordination remained somewhat blurred.)
Dr Andrew Warner (Reader, LSE), looking back at the Bretton-Woods period, produced some
noteworthy insights: the US has been running CA deficits since the breakdown of BW; but savings
have come down since the Reagan years; IMF surveillance has been weakened – on purpose (the
US never accepted to be surveilled by the IMF) – by outsourcing to the OECD/WP3 and BIS/G10.
Domenico Lombardi (Oxford U, Brookings) distinguished three phases of macroeconomic
cooperation : 1944-72, the ‘ gold standard’ of cooperation; 1972-2008, the low point of
cooperation; since 2008: G20, best hope for cooperation. The G20 gave surveillance into the
hands of heads of states, an important prerequisite for more legitimacy. (HR adds: and of
policy ownership, whence the IOs must remain a side cast to the G20 and a permanent G20
secretary should be rejected on these grounds).
Dr Pierre Siklos (WLU, Ontario ; CIGI) pointed to the similarity and popularity of BW1 and
BW2 : low inflation, good growth , low FX volatility. But he pointed to the obstacles of reinstalling
BW today: CB independence, role of Ems in a multipolar world, and a failure to commit to
coordination (“cooperation if necessary, coordination never!”). The location of accountability, the
necessary degree of transparency, and the degree of flexibility (vs sovereignty) remained unsettled
governance issues.
Dr Michael Devereux (UBC) After summarizing the evolution of macroeconomic
interdependence (from trade linkages to international business cycles to new crisis contagion
channels (CA deficits; financial openness; balance-sheets asymmetries), he drew lessons from
monetary policy: the need to merge central banking with macroprudential regulation, the need to
focus on the details of national balance sheets (Iceland; Ireland), while fiscal policy coordination
had lost importance as fiscal business-cycle channels have, and exchange rates had lost importance
as there was no serious evidence that they impact the current accounts of countries.
Paola Subacchi (Chatham) discussed incentives for cooperative behavior vs unilateral
intervention, as well as tensions between global goals (rebalancing) vs domestic goals (sustaining
growth). She also pointed to the divergence of EM goals – sustaining growth – vs OECD goals –
jobs, fiscal, exports. She presented a prisoner’s dilemma in which both deficit and surplus
countries choose to defect in a Nash equilibrium. The conclusion: global cooperation only works as
long as incentives remain aligned with domestic interests (i.e. not much space). Stephen Pickford
argued that this analysis implied a case for peer pressure and sanctions. He saw an arms race
between IOs in that respect, in order to remain G20 relevant.
Ralph Bryant (Brookings) discussed the requirements for a successful promotion of cross-border
4. cooperation. He reckoned that the G20 had made a good start with the Framework and Mutual
Assessment, and emphasized that the authority here should not be with the IOs, but with the
Framework Working Group. He echoed remarks earlier that the analytical foundations for macro
cooperation were not strong enough to overcome domestic interests (historic examples: smallpox
contagion). It was hence a priority to move to shared diagnosis to build incentives for cooperation.
Currently, even the best multi-country models (including the OECD’s) were not sufficiently
disaggregated to have each G20 country specified.
Paul van den Noord (OECD) presented analysis to show that fiscal consolidation did not suffice
to rebalance the world economy; and that structural reform and FX adjustment were necessary to
achieve balanced medium-term growth. I wonder, however, to what extent the interaction of public
debt levels/GDP and GDP growth has been calibrated in the underlying ECO (OECD Global)
model as, for example, to ignore threshold effects of high debt (as in Reinhart-Rogoff|) would
lower the impact of fiscal consolidation on macro outcomes. The model has also heroic
assumptions on potential output (which for the US it will be particularly difficult to assess).
Stephen Pickford (UK Treasury Dep Sherpa, just retired) argued that the IMF surveillance process
had limited traction as it was criticized for lack of ‘ evenhandedness’, as it was seen as the IMF
banging China for the US, and too weak to overcome the essential intra-G20 disagreements on
FX, unwinding of macro stimulus, and protectionist risks. The Multilateral Consultation Process
was conceived as a case of peer protection rather than peer review and too over-engineered by
putting in country plans. He also emphasized the need for policy ownership as a prerequisite for
effective surveillance.
Peter Draper (South African Institute for International Affairs) looked at the G20 Seoul Action
Plan from an African perspective. He distinguished between a mercantilist post-Seoul world with
US dollar depreciation, Chinese RMB undervaluation, and Eurozone breakup. The positive
alternative would be macro coordination, combined with a successful Doha round, and extension
of WTO purview to agricultural products important to Africa, such as cotton.
Helmut Reisen (OECD-DEV) discussed the need for global development cooperation in the
presence of new actors, above all China, and its implications for African policy choices and global
soft law redefinition and compliance. He argued that G20 Seoul had accelerated the deemphasizing
of the aid process in favour of a broad economic process to achieve the MDGs. He identified areas
for win-win cooperation between new and old and local actors, such as trilateral infrastructure
investment and South-South trade liberalization, while the global commons and exhaustible
resources remain challenging areas and backgrounds for multilateral cooperation.
