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Hans Singer,
Economic Development,
Crisis, Recovery and
the United Nations
Jomo Kwame Sundaram
United Nations Assistant Se...
Singer’s Legacy:
Well ahead of the curve
• UNICEF Report
• Terms of trade
• Soft loans, wild man
• Food security
• Kenya R...
1947 UNICEF Report
• Importance of nutrition of children
and pregnant women
• Importance of education
• Social development...
‘Sensitive periods in early
brain development
Binocular vision
0 1 2 3 7654
High
Low
Habitual ways of responding
Language
...
Commodity Price Index, 20C
Figure 1
AGGREGATE REAL COMMODITY PRICE INDEX, EXCLUDING OIL (GYCPI)
30
50
70
90
110
130
150
19...
Manufactures’ Terms of Trade
Unit value of manufactures exported by developing countries
relative to manufactures exported...
Wild man of the UN!
• SUNFED  IDA:
WB arm for soft loans
• For proposing soft loans for
developing countries,
attacked by...
Food insecurity
• Abolition of World Food Council created gap
• Problem further accentuated by GATT
Agreement and WTO crea...
Global economic management
Original Bretton Woods proposals:
• Global economic management by United
Nations (General Assem...
IMF
• Not world’s central bank or lender of
last resort
• Full employment no longer consistent
objective
• Inflation targe...
World Bank
• Programme lending – moved
away from projects
• Structural adjustment
programmes – failed to
generate growth s...
IMF/WB governance
• Based on principle of ‘one dollar, one
vote’
• So, financially powerful countries
control BWIs, refuse...
BWI-UN relations
• Singer anomaly: WB President and IMF MD
address ECOSOC
• But SG no voice at BWIs’ annual meetings
• Par...
14
Crisis financial impacts on
developing countries
• Despite non-involvement in sub-prime debacle:
 Emerging stock marke...
15
Trade impacts
• Exports decline 
all developing countries
• Terms of trade  primary exporters
• Trade surpluses,
rese...
Stimulus lags delay recovery
0 2 4 6 8
3 month delay
Immediate and
sustained
stimulus
efforts
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Jobs recovery lags output
recovery, 1991, 2001Duration of output recovery and job market recovery after the 1991 and
2001 ...
Major Challenges
• Lower commodity prices
• Reduced export demand
• Domestic demand down too
• Employment, incomes, demand...
IMF fiscal adjustments
IMF April 2010 target debt/GDP ratios:
Benchmarks:
• Developed countries, 60% debt/GDP ratio
– medi...
Conventional framework
• ‘A …budget deficit in excess of 1-2% of GDP is
evidence of…policy failure’ (Williamson 1990)
• ‘D...
IMF on debt implications
• GMR 2010: 67 low income countries
• Debt vulnerability:
–Low 20
–Moderate 24
–High 15
–Debt dis...
IMF: growth-based vs contractionary
fiscal consolidation (1996)
1996 IMF study of 74 cases in 20
industrialized countries ...
Fiscal consolidation
contractionary
• Fiscal consolidation typically contractionary
• Little empirical support that fiscal...
Impact of 1% GDP fiscal
consolidation contractionary
Spending cut impact matters
Composition matters
• Largest contractionary effect
from public investment cuts
• Even with transfer cuts, no
strong evide...
Conditions matter
• Without complementary policies, -ve
impact of fiscal consolidation much
larger
• Larger -ve impact due...
Fiscal consolidation logic!
• Fiscal consolidation after sustainable
recovery assured
• East Asian recovery strongest
 EA...
EMEs’ fiscal rules restrict space
31
Need for fiscal space
• Macroeconomic policies should not be
driven by fear of outliers
• Most developed countries have fi...
Crisis should lead to reform
• A crisis foretold
• International financial architecture: non-system?
• Ideology: deregulat...
Lost Bretton Woods moment?
Bretton Woods, 1944: United Nations
conference on monetary + financial affairs
• 15 years after...
System reform agenda
• Lack of reserve currency system 
unsustainable global imbalances
• Financial deregulation
- deregu...
37
Thank you
Please visit UN-DESA esa.un.org and
G24 www.g24.org websites
• Research papers
• Policy briefs
• Other docume...
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IDS Hans Singer Memorial Lecture 28 Oct 2010

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Hans Singer Memorial Lecture 'The Future of the United Nations'
Speaker: Jomo Kwame Sunduram, United Nations Assistant Secretary-General for Economic Development
Part of the Sussex Development Lecture series organised by the Institute of Development Studies, UK.

Published in: Education
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IDS Hans Singer Memorial Lecture 28 Oct 2010

  1. 1. Hans Singer, Economic Development, Crisis, Recovery and the United Nations Jomo Kwame Sundaram United Nations Assistant Secretary General for Economic Development 28 October 2010
  2. 2. Singer’s Legacy: Well ahead of the curve • UNICEF Report • Terms of trade • Soft loans, wild man • Food security • Kenya Report: pro-poor growth • Basic needs: global social protection floor • Global imbalances & inequality • Global economic governance
  3. 3. 1947 UNICEF Report • Importance of nutrition of children and pregnant women • Importance of education • Social development important • Right balance between investments for present and future generations • MDGs: SG’s maternal and child health
  4. 4. ‘Sensitive periods in early brain development Binocular vision 0 1 2 3 7654 High Low Habitual ways of responding Language Emotional control Symbol Peer social skills Relative quantity Central auditory system
  5. 5. Commodity Price Index, 20C Figure 1 AGGREGATE REAL COMMODITY PRICE INDEX, EXCLUDING OIL (GYCPI) 30 50 70 90 110 130 150 1900 1920 1940 1960 1980 2000 1900=100
  6. 6. Manufactures’ Terms of Trade Unit value of manufactures exported by developing countries relative to manufactures exported by developed countries 90 95 100 105 110 115 120 125 130 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2001 2002
  7. 7. Wild man of the UN! • SUNFED  IDA: WB arm for soft loans • For proposing soft loans for developing countries, attacked by: • WB President Eugene Black • Senator Joseph McCarthy
  8. 8. Food insecurity • Abolition of World Food Council created gap • Problem further accentuated by GATT Agreement and WTO creation • Agricultural trade liberalization has undermined food security  lost capacities • 2007-08 food price spikes - bio-fuels - futures as financial assets: post-subprime flight to safety indexed trading
  9. 9. Global economic management Original Bretton Woods proposals: • Global economic management by United Nations (General Assembly, ECOSOC) • IMF to deal with financial, monetary, and balance of payments disequilibria, with overriding objective of full employment, and many functions of world central bank • World Bank to fund projects, not to be involved with macroeconomic policies or structural adjustment
  10. 10. IMF • Not world’s central bank or lender of last resort • Full employment no longer consistent objective • Inflation targeting contrary to Article IV, Section 1(i) • Capital account liberalization promotion contrary to Article VI
  11. 11. World Bank • Programme lending – moved away from projects • Structural adjustment programmes – failed to generate growth spurts • Hard/soft issues: WDC/NYC  IMF/WB
  12. 12. IMF/WB governance • Based on principle of ‘one dollar, one vote’ • So, financially powerful countries control BWIs, refuse to allow major capital increase • So far, inadequate voice, share reform • Appointment of heads of WB, IMF NOT on merit, open competition
  13. 13. BWI-UN relations • Singer anomaly: WB President and IMF MD address ECOSOC • But SG no voice at BWIs’ annual meetings • Partly rectified since 2002 Monterrey consensus • Singer proposed: –the Bank and Fund might well be requested to submit an annual report to the General Assembly and ECOSOC to explain what attention they have paid to the resolutions of the GA and ECOSOC, in accordance with their Terms of Agreement
  14. 14. 14 Crisis financial impacts on developing countries • Despite non-involvement in sub-prime debacle:  Emerging stock markets collapse greater  Reversal of capital flows, FDI also down  Spreads rise, much higher borrowing costs • But financial positions stronger than during Asian + LA crises (more foreign reserves, better fiscal balances) But reserves rapidly evaporating with export collapse; fiscal space also disappearing
  15. 15. 15 Trade impacts • Exports decline  all developing countries • Terms of trade  primary exporters • Trade surpluses, reserves run down quickly • But lower energy, food prices helped net food and oil importers
  16. 16. Stimulus lags delay recovery 0 2 4 6 8 3 month delay Immediate and sustained stimulus efforts Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
  17. 17. Jobs recovery lags output recovery, 1991, 2001Duration of output recovery and job market recovery after the 1991 and 2001 US recessions (in months) 0 10 20 30 40 50 60 Output Job market recovery 1991 2001
  18. 18. Major Challenges • Lower commodity prices • Reduced export demand • Domestic demand down too • Employment, incomes, demand lower • Trade surpluses smaller, deficits bigger • Short-term capital inflows reversal • Less FDI • Stock markets’ negative wealth effect • Bank lending growth down; higher costs • Domestic private investments down
  19. 19. IMF fiscal adjustments IMF April 2010 target debt/GDP ratios: Benchmarks: • Developed countries, 60% debt/GDP ratio – median pre-crisis ratio • Developing economies, 40% debt/GDP ratio – no explanation how figure derived Average fiscal adjustments: • 8.7% of GDP for developed countries • 2.7% of GDP for developing economies 21
  20. 20. Conventional framework • ‘A …budget deficit in excess of 1-2% of GDP is evidence of…policy failure’ (Williamson 1990) • ‘Developing economies should focus on containing inflation and ... adopt credible fiscal adjustment plans to boost confidence in macroeconomic policies’ (GMR2010) • Maintaining macroeconomic stability to ensure confidence remains priority for all countries (GMR 2010, p. 82) 22
  21. 21. IMF on debt implications • GMR 2010: 67 low income countries • Debt vulnerability: –Low 20 –Moderate 24 –High 15 –Debt distress 8 (12%) • Yet recommends: fiscal consolidation for ALL countries 23
  22. 22. IMF: growth-based vs contractionary fiscal consolidation (1996) 1996 IMF study of 74 cases in 20 industrialized countries during 1970-95: • Strong global economic growth helps achieve successful consolidation • Weak global growth reduces chances that consolidation will cut debt-to-GDP ratio • Fiscal retrenchments + loose monetary policy offset recessionary impacts
  23. 23. Fiscal consolidation contractionary • Fiscal consolidation typically contractionary • Little empirical support that fiscal austerity stimulates economic activity in short term • 2 yrs after fiscal consolidation of 1% of GDP: - reduces real GDP by ~ 0.5% after 2 yrs - increases unemployment rate by ~ 0.3% • Even for likely sovereign debt-default risk countries, results not expansionary – output falls by ~0.4% over 2 years
  24. 24. Impact of 1% GDP fiscal consolidation contractionary
  25. 25. Spending cut impact matters
  26. 26. Composition matters • Largest contractionary effect from public investment cuts • Even with transfer cuts, no strong evidence of expansionary effects – results statistically insignificant
  27. 27. Conditions matter • Without complementary policies, -ve impact of fiscal consolidation much larger • Larger -ve impact due to sudden reversal, premature, contractionary fiscal consolidation • Synchronized consolidation by large economies even worse
  28. 28. Fiscal consolidation logic! • Fiscal consolidation after sustainable recovery assured • East Asian recovery strongest  EA should fiscally consolidate • G7-US economies fiscally consolidating now  weaken EA recovery, ability to be new locomotive for world recovery  cause new downturn 30
  29. 29. EMEs’ fiscal rules restrict space 31
  30. 30. Need for fiscal space • Macroeconomic policies should not be driven by fear of outliers • Most developed countries have fiscal space – no inflationary pressure • Debt sustainability OK, but specific debt- GDP targets arbitrarily determined • Fiscal policy typically residual, development not prioritized
  31. 31. Crisis should lead to reform • A crisis foretold • International financial architecture: non-system? • Ideology: deregulation, self-regulation, inadequate and inappropriate regulation • Financial globalization: growth, stability? • Capital account liberalization vs IMF Article 6 • Policy: market-led? Pro- or counter-cyclical? • Finance’s inflation fetish? Public sector deficit? • Reserve currency  Unsustainable global imbalances • International cooperation: G7  G20, UN?
  32. 32. Lost Bretton Woods moment? Bretton Woods, 1944: United Nations conference on monetary + financial affairs • 15 years after 1929 Depression • Middle of WW2 • US initiative vs UK Treasury stance • 44 countries (28 developing countries; 19 LA) • UN system: IMF, IBRD, ITO • Clear emphasis on sustaining growth, job creation, post-war reconstruction, post- colonial development, not just monetary + financial stability
  33. 33. System reform agenda • Lack of reserve currency system  unsustainable global imbalances • Financial deregulation - deregulation, self-regulation - inadequate + inappropriate regulation • Capital account liberalization vs Art. 6 • International financial architecture: non- system since 1971 end of BW • Policy coherence: Align IMF, WB with UN development agenda, IADGs
  34. 34. 37 Thank you Please visit UN-DESA esa.un.org and G24 www.g24.org websites • Research papers • Policy briefs • Other documents Acknowledgements: UN-DESA, G24

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