Brookings: Topics - Group of 20

U.S.-China Study Group on G-20 Reform

Thu, 07 Mar 2013 14:34:00 -0500

The China Institutes of Contemporary International Relations, the Center for American Progress, and the Stanley Foundation formed a study group in late 2011 to evaluate the role of the G-20 in the U.S.-China bilateral relationship and the influence of the relationship on the G-20 and to propose recommendations that could improve the efficacy of this important body. The Chinese and American experts listed below held two conferences over the course of 2012, in Santa Monica, in February and in Beijing in October. At the end of these meetings, participants in the group agreed to 20 recommendations.

Read the U.S.-China Study Group's recommendations » (PDF)

Participants in the G-20 Study Group

Tim Adams, Managing Director, The Lindsey Group and former Sherpa and Undersecretary of the Treasury under President George W. Bush

Sabina Dewan, Director of Globalization and International Development, Center for American Progress

DU Yanjun, Director of the Department of International Exchanges, China Institutes of Contemporary International Relations (CICIR)

Elizabeth Economy, C.V. Starr Senior Fellow and Director for Asia Studies, Council on Foreign Relations

Matthew Goodman, Simon Chair in Political Economy, Center for Strategic and International Studies and former Director for International Economics in the Obama White House

Nina Hachigian, Senior Fellow, Center for American Progress

Adam Hersh, Economist, Center for American Progress

HUANG Ying, Associate Professor, the CICIR Institute of World Economic Studies

Bruce Jones, Senior Fellow and Director of the Managing Global Order (MGO) project at the Brookings Institution and Director of the Center on International Cooperation at New York University

LI Zheng, Assistant Professor, the CICIR Institute of American Studies

LIN Hongyu, Director of the Department of International Politics at the China University of International Relations

LIU Bo, Deputy Director of the Department of International Exchanges, CICIR

Stewart Patrick, Senior Fellow and Director, International Institutions and Global Governance Program, Council on Foreign Relations

Keith Porter, Director of Policy and Outreach, the Stanley Foundation

QIAN Liwei, Associate Professor, the CICIR Institute of American Studies

David Shorr, Program Officer, the Stanley Foundation

Randy Schriver, Armitage International

WANG Wenfeng, Deputy Director of the CICIR Institute of American Studies

YUAN Peng, Assistant President, CICIR and Director of the CICIR Institute of American Studies

ZHAI Kun, Director of the CICIR Institute of World Political Studies

ZHANG Wenzong, Assistant Professor, the CICIR Institute of American Studies

ZHU Feng, Deputy Director, Center for International & Strategic Studies, Peking University

ZHU Liqun, Vice President, China Foreign Affairs University

Publication: Center for American Progress, China Institutes of Contemporary International Relations and The Stanley Foundation

Image Source: © Kevin Lamarque / Reuters

Financial Regionalism

Domenico Lombardi and Masahiro Kawai — Thu, 30 Aug 2012 15:21:00 -0400

Regionalism has become an important feature of the global trading system. More than 500 notifications of bilateral and plurilateral free trade agreements were made between the end of World War II and early 2012, most of them in the past two decades.

Financial regionalism has also increasingly gained prominence, albeit only more recently. In June this year, for example, leaders of the Group of Twenty advanced and developing economies (G20) meeting in Los Cabos, Mexico, underscored “the importance of effective global and regional [financial] safety nets” and, along the same lines, the main policy committee of the IMF has regularly stated the importance for the IMF “to cooperate . . . with regional financial arrangements.”

While there is a substantial stream of academic contributions on trade regionalism, our understanding of financial regionalism is quite limited, despite its potentially far-ranging implications in shaping the international financial architecture. This is true in Europe—where the recently proposed European Stability Mechanism is intended to be a currency union lending arrangement to provide direct assistance to sovereigns—and elsewhere.

In Latin America, the Andean countries successfully established the Latin American Reserve Fund (FLAR), which has been very active in providing balance of payments financing to its members for more than three decades. And, of course, in Asia, the Association of Southeast Asian Nations (ASEAN) + 3—that is, the 10 ASEAN countries plus China, Korea, and Japan—created the Chiang Mai Initiative in the aftermath of the 1997–98 Asian financial crisis. The Chiang Mai Initiative was multilateralized by consolidating a network of bilateral swap agreements into a single swap contract in March 2010, and a regional surveillance unit, called the ASEAN + 3 Macroeconomic Research Office, has been operating in Singapore since 2011.

Complementing broader integration

These regional financial arrangements are somewhat different and range from government financing and foreign exchange reserve pooling to currency swap arrangements. What is common to all these initiatives, despite their intrinsic diversity, is that they were all born of broader efforts to promote regional integration as well as macroeconomic and financial stability.

The most obvious case is Europe where, soon after World War II, the interdependence of that region’s economies led to the establishment of the European Payments Union, a precursor of the more advanced regional framework that culminated with the introduction of the currency union in 1999.

Latin America boasts the oldest, although less well-known, tradition of regional integration efforts among the developing economies, which also date as far back as the 1950s. Aiming to create a regional common market for goods and services, policymakers in Latin America have succeeded in establishing clearing arrangements for intraregional payments, two development banks, and FLAR. The latter includes a small, cozy membership of seven small and medium-sized economies with strong cultural ties and a broad set of common interests. Indeed, FLAR provides a direct testimony to the potential of (sub)regional arrangements to provide greater ownership to those members who would otherwise struggle to be heard in the global, 188-member IMF.

It is exactly this idea of enhanced regional ownership that prompted the ASEAN + 3 countries to establish the Chiang Mai Initiative in May 2000. Disappointed by the response of the international community at the time of the Asian financial crisis, the 13 countries decided to reduce their dependence on the IMF.

Established soon after Japan’s proposal to create an Asian monetary fund was opposed by the United States and the IMF, the Chiang Mai Initiative complements a broader range of integration efforts aimed at stepping up trade and financial linkages in east Asia. Such efforts comprise the Asian Bond Markets Initiative and the Asian Bond Fund programs to develop local currency–denominated bond markets, including the launch of the Credit Guarantee and Investment Facility, which is intended to promote the issuance of corporate bonds within the region.

A move toward an ASEAN + 3 or ASEAN + 6 (ASEAN + 3 enlarged to include Australia, India, and New Zealand) free trade agreement to forge a larger market for goods, services, and investment is another potentially significant move. Along similar lines, the establishment of an Asian Financial Stability Dialogue has been proposed, as well as an Asian currency basket index to gauge the individual movements of currencies in the region relative to a regional average.

Managing regional spillovers

As the Chiang Mai Initiative illustrates, the membership of regional financial arrangements is heterogeneous in terms of the size of members. China (including Hong Kong SAR) and Japan account for 64 percent of ASEAN + 3 financial contributions, reflecting the large weights of their economies.

While their size makes such countries unlikely borrowers, their quota proportion highlights an important function of regional financial arrangements as a device to manage regional spillovers and the impact of problems from outside the region. Disruptions to intraregional trade and investment flows emanating from problems in smaller economies can be managed through a regional arrangement to preserve the overall stability of the region.

Not surprisingly, smaller members of FLAR have benefited considerably from the fund, but it has safeguarded the larger economies as well. Colombia, for instance, has indirectly gained from the repeated support provided by FLAR to Ecuador, because of their important trade relationship.

Indeed, such intraregional externalities can be managed more efficiently by a sovereign financial intermediary with regional scope. For instance, FLAR has a higher rating than any of its individual members, enabling the institution to borrow from financial markets at lower costs and to redirect such resources toward regional priorities.

However, reflecting a typical feature of regional financial arrangements, the Chiang Mai Initiative has only limited capacity to formulate and enforce policy conditionality associated with crisis lending and, thus, is designed to accompany an IMF program. This has been codified in the “IMF link,” whereby any drawing above a certain threshold requires a concurrent IMF program. The threshold, initially set at 10 percent of the maximum borrowing limit, has now been increased to 30 percent and is targeted to rise to 40 percent by 2014. This loosening in the IMF link can mitigate one of the reasons why the Chiang Mai Initiative has never been activated: its binding IMF link and the reluctance of members to borrow from the IMF.

Gaining perspective

Most likely, any further weakening of the IMF link will depend on the concurrent strengthening of the economic surveillance capabilities supported by the new unit, the ASEAN + 3 Macroeconomic Research Office (AMRO).

AMRO will have to prove that it can distance itself enough from its members to exercise the authoritativeness—not just the authority—to independently appraise the economic policies of its members. This challenge is symptomatic of regional financial arrangements in general and even of the IMF itself.

In the case of the European Stability Mechanism (ESM), this function is performed by the European Commission and European Central Bank, with the IMF also involved. FLAR does not carry out surveillance, nor does it have any peer-review forum in which members’ economic policies are appraised. However, the ASEAN + 3 Economic Review and Policy Dialogue in Asia, which should, in fact, serve as a surveillance vehicle, has so far functioned more as a forum for exchanging information rather than as a peer-review or due diligence framework where policies are assessed and, if needed, amended.

Indeed, lack of distance between such regional bodies and their respective members typically prevents the former from designing policy conditionality in the event of crisis lending and, subsequently, from monitoring compliance with it.

Under the ESM framework, a link with the IMF is strongly encouraged although not necessarily required. FLAR, however, lends without policy conditionality. In so doing, its members have de facto accorded super-senior status to FLAR, as they have always honored their obligations to the reserve fund, even while defaulting to their commercial creditors or falling into arrears with the IMF.

A case in point is Peru in the 1980s, when the country borrowed from both the IMF and FLAR, but went off-track with the IMF-supported program. FLAR provided a financial backstop following a phase of turbulence with the international community. Upon taking office in 1985, the administration of President Alan Garcia announced that Peru would limit its external debt service payments to 10 percent of its foreign receipts. The country started to accumulate arrears with the IMF but kept current on its repayment obligations vis-à-vis FLAR. Finally, when the administration of President Alberto Fujimori took office in 1990, Peru cleared its arrears and normalized its relationship with the IMF, after which it secured a series of programs throughout the 1990s.

FLAR can thus provide liquidity support to its members, work to complement IMF support in normal times, as well as substitute for it in more difficult times. For the last to be feasible, however, the adverse shock should be limited to a small enough subregion and the demand for regional financial arrangement funds should occur in sequence and not simultaneously. That said, a lack of conditionality may postpone the policy adjustment needed to secure the support of the broader international community in the form of additional lending and/or debt restructuring.

Spelling out who does what

Clarifying the respective roles and responsibilities of regional arrangements and the IMF may not be easy, let alone clarifying how experience from one regional financial arrangement may apply to another.

First, a shared understanding of an evolving degree of division of labor is needed. When a small-scale crisis occurs in one or two small countries, a regional financial arrangement tends to be better positioned to provide crisis lending, without involving the IMF. However, with systemic or region-wide shocks, regional arrangements and the IMF may have to join forces, given individual regions’ interconnectedness with the global economy and their limited lending firepower.

In their infancy, regional financial arrangements may find it hard to formulate policy conditionality and monitor its implementation by themselves, in which case such roles may have to be assumed by the IMF, with the regional funds providing input for formulating conditionality. However, as the capacity of a regional fund—such as the Chiang Mai Initiative and AMRO in the case of Asia—improves significantly over time, it may lead crisis management, including liquidity provision and conditionality formulation and implementation, with more limited support from the IMF.

Second, there has to be a shared understanding of areas where competition between regional arrangements and the IMF may be healthy, even beneficial, and areas where competition might be detrimental.

Competition in information provision, forecasts, research, and the formulation, socialization, and dissemination of best practices is certainly beneficial. However, competition in setting conditionality is unhealthy, because it can undermine collective stabilization efforts. For instance, if different frameworks for private sector involvement were to be applied concurrently, there could be chaos in international capital markets.

So far cooperation has worked on an ad hoc basis, but this pragmatic approach, while maximizing flexibility, could escalate the risk of coordination failure in the midst of a crisis and of subsequent systemic spillovers into the global financial system. Europe is a prime example.

That said, it is difficult to devise a process similar to that in the international trading system, codified by Article XXIV of the World Trade Organization (WTO). This Article, in theory, empowers the WTO to assess the consistency of any bilateral or plurilateral arrangement with the multilateral trade system.

Yet, if one were to conceive of the IMF assuming an analogous role, then its governance structure would have to be reformed significantly to give it the needed legitimacy to discharge this potentially controversial function. The G20 could perhaps do it, having already introduced some basic principles in 2011, but it lacks universality since so many countries are left out of the process; that is, while the EU is a member, only one ASEAN country (Indonesia) belongs to the G20, and not a single member of Latin America’s FLAR does.

We need to deepen our understanding of this new evolving regional dimension to the international financial architecture and of the ways in which it could contribute to financial stability, because financial regionalism, like trade regionalism, is almost surely here to stay.

Authors

Domenico Lombardi
Masahiro Kawai

Publication: Finance and Development (International Monetary Fund)

Image Source: Ali Jarekji / Reuters

The Group of Twenty: Origins, Prospects and Challenges for Global Governance

Homi Kharas and Domenico Lombardi — Thu, 02 Aug 2012 00:00:00 -0400

At the height of the global financial and economic crisis of 2008–09, the Group of Twenty was elevated to country leaders’ level and acknowledged itself as the “premier forum for ... international economic cooperation.”

This self-acknowledgment reflected the long-felt need to institutionalize the dialogue between the advanced and emerging economies in a more effective setting. However, the ad hoc nature of the G-20 and the extent to which an informal and self-selected club of nations can provide a stable framework for facilitating global cooperation has been questioned.

Against this backdrop, the study traces the G-20’s historical evolution, situates the dynamics of its institutional arrangements, and reviews the emerging literature on G-20 reform. Building on this analysis, the study then assesses the expansion of the G-20’s scope to global development and appraises the Group’s evolution in the broader context of the current global governance framework.

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Isolation and Stalemate in the World Economy

Domenico Lombardi — Thu, 12 Jul 2012 16:31:00 -0400

Editor's Note: This article was originally published in the July 2012 edition of Longitude, a monthly Italian publication on world affairs.

Another G-20 summit has come and gone but the world economy and the euro area in particular are doing no better. There are, in fact, visible signs of a slowdown in the emerging economies, economic recovery has stalled in the United States, and, of course, the eurozone crisis has worsened further with one of its systemic economies, Spain, currently seeking official assistance for its troubled financial sector.

Against this backdrop, a few days ago at the Los Cabos Summit, 37 countries pledged $456 billion to the IMF. Pledging countries include those from the EU for $240 billion, and other advanced and emerging economies for the remaining $216 billion.

It is almost more remarkable, however, to see who is not on the list. For the first time in history, the US has not participated in this collective effort, forfeiting an important opportunity to exert political leadership among the systemic economies.

US disengagement has also created problems for China: for its own $43million pledge, as opposed to the $100 million initially requested by the IMF, China had to overcome domestic opposition to the fact that a still fundamentally poor country should contribute when the Fund’s biggest shareholder had pulled out.

In the end, emerging economies bolstered the efforts to strengthen the IMF’s financial capacity, but not before garnering assurances that their quota and their relative voting power in the organization will be further increased.

Already, on the basis of the latest reform package approved by the IMF Board of Governors in December 2010, due to be ratified by the membership over the coming months, China will become the third largest shareholder, with 6% of the voting power, while the other BRICs will feature among the top ten shareholders.

With these new pledges, the emerging economies will manage to secure amore favorable outcome by the end of the current round of IMF quota negotiations, scheduled to conclude by early 2014.

To this purpose, the communiqué unambiguously states that G-20 leaders “are committed to completing the comprehensive review of the quota formula, to address deficiencies and weaknesses in the current quota formula by January 2013, and to complete the next general review of quotas by January 2014.”

The message is then made even clearer: “the distribution of quotas based on the formula should better reflect the relative weights of IMF members in the world economy, which have changed substantially in view of strong GDP growth in dynamic emerging markets and developing countries.”

As a result of these pledges, the IMF’s lending capacity will increase to approximately $800 billion. As high as that may seem, it won’t make the IMF a systemic lender to the eurozone, or put it in a position to offer credible, precautionary arrangements, as was the case at the height of the international financial crisis.

At that time, the IMF played an important, stabilizing role vis-à-vis Colombia, Mexico, and Poland, through its uncapped, crisis-prevention flexible credit line (FCL). Indeed, following news of their precautionary programs, market spreads narrowed in these countries.

To suggest that Italy and Spain represent analogous situations is an unfair comparison, however, even if they qualified for an FCL, which is very unlikely. With FCL-supported countries such as those mentioned above, the IMF boasted the financial resources to stabilize the countries’ rollover needs, had their economies been cut off from markets.

For the larger eurozone sovereigns, the Fund today is not in a similar position. At least $400 billion would be required for a credible two-year arrangement for Spain; Italy would require close to $750 billion. Together they would exhaust the capabilities of both the IMF and the European rescue fund.

Then why hasn’t the G-20 stepped up to the plate, as it did – to great effect – at the height of the international financial crisis in 2009? The answer is that since then, two forces have been at work, leading to the political paralysis of what had been hailed early on by its leaders as their premier forum for international economic consultations.

The first is the internal dynamic of the eurozone in the management of its crisis, which exerts a disruptive effect on the dynamic of the G-20 as a whole. Germany has managed to establish the principle that the European countries must express a common position in international fora, which, inevitably, tends to reflect Germany’s own position.

Harmless on the surface, in reality this principle deprives Italy, France, and Spain, the three members of the eurozone that belong to the G-20 together with Germany, of the leverage that would derive from forming coalitions with important members of the group in support of their own positions, which differ more and more from those of the Germans.

Subscribing to the principle of a common position does not allow these countries to engage other systemic members of the G-20. By preventing conflict from materializing openly in the discussion, Germany, with the tacit support of the systemic countries of the eurozone, has prevented the possibility of a mediation within theG-20, while ensuring that its own position remains intact.

The isolation of Germany in the G-20 has therefore translated into the isolation of the eurozone. But, then, if G-20 members do not agree on the European position – and there is no scope for negotiations – how can they be expected to support the eurozone?

This has, indeed, been the dilemma of the US, which has constantly advocated a more balanced approach resting on credible medium-term consolidation in the context of growth-enhancing measures. Speaking of which, this brings us to the second factor hampering a more constructive G-20 dynamic. The Obama administration has taken a strategic pause vis-à-vis the G-20 since December 2010, reflecting growing unease with China.

In some circles in Washington the idea has taken hold that, in response to the unprecedented openness of the present administration, China has done little or nothing to reciprocate by initiating a change in its economic policy stance.

The importance of export-led growth has remained fundamentally unchanged. The barriers to access by foreign firms posed by the public procurement framework have also remained unchanged, despite pressures from the WTO and the US in this regard. Finally, the exchange rate with the dollar, which in Washington is considered the litmus test for a new course in Chinese economic policy, continues to be determined by monetary authorities’ interventions.

It is not a coincidence that the ratification of the IMF reform package has not yet been presented to Congress, and it probably will not be presented until after presidential elections later this year. Which means that the very administration initially creating the political premise for the approval of the package has in fact blocked its approval within the previously agreed timeframe of October of this year.

All in all, given the current status of play and the little efforts the eurozone has made to elicit international support, the latter bears an even greater responsibility to rise to the occasion at the forthcoming EU summit at the end of June. If expectations for a decisive move to counter the crisis fade again, we will all have to tighten our belts for months to come.

Authors

Domenico Lombardi

Publication: Longitude

Image Source: Andres Stapff / Reuters

The Global Partnership for Effective Development Cooperation

Homi Kharas — Thu, 21 Jun 2012 14:51:00 -0400

INTRODUCTION

These are important times for how the world manages the annual flow of around $200 billion in development cooperation assistance to developing countries. A number of changes in global international development cooperation are in the offing: within a one month span, development issues will be taken up by the G-20 at the Leaders’ Summit at Los Cabos, by the United Nations at its Rio+20 Summit, and by Jim Kim upon taking over as the first ever development professional to become president of the World Bank. The key issues on the table are implementation of the Millennium Development Goals, building consensus on a new set of post-2015 Sustainable Development Goals, implementing a New Deal on fragile states, and closer integration of environmental, security, trade, investment and development agendas.

There is now an opportunity to establish a new paradigm and governance structure for coordinating the many state and non-state actors engaged in development cooperation. A new Global Partnership for Effective Development Cooperation is taking shape, backstopped by the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) and the United Nations Development Program (UNDP). Establishing this partnership was one of the key outcomes of the Busan High Level Forum on Aid Effectiveness held in December 2011.

On June 28-29, 2012, the Working Party on Aid Effectiveness, a DAC-supported international partnership for aid effectiveness, will hold a plenary meeting in Paris which should conclude with three consequential outcomes: (i) it will bring into being a new Global Partnership for Effective Development Cooperation with a governance structure that truly reflects the multi-stakeholder nature of development today; (ii) it will dissolve itself, marking one of the first times that a multilateral structure is actually replaced by a more suitable mechanism; and (iii) it will adopt a set of indicators for monitoring global progress towards more effective development cooperation.

Already, the outlines of the new partnership are becoming clear, thanks to a transparent process of meetings and dialogue. There is much to be encouraged about, but as with most efforts for institutional change, the devil is in the details. At first glance, while the Global Partnership promises to deliver substantial and significant improvements in governance, its proposed new monitoring indicators are still rooted in the past and do not reflect the new style of development cooperation that is expected in the next decade. This policy paper explores the approach to building indicators and suggests improvements to ensure better development cooperation.

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Authors

Homi Kharas

Image Source: © Edgard Garrido / Reuters

Euro Crisis Could Bring Down Global System

Domenico Lombardi — Wed, 20 Jun 2012 16:48:00 -0400

Leaders of the world’s largest economies met in Mexico this week for the G-20 summit, where talks about Europe’s fiscal crisis topped the agenda. European Union leaders offered a plan to integrate its banking sectors, which should help stimulate growth and lessen the cost of borrowing for EU countries. Senior Fellow Domenico Lombardi weighs in on the talks, saying the house is on fire and a solid plan to deal with the fundamental issues of the crisis is in order. If the euro area crisis is left unchecked, Lombardi says, it could bring down the entire global system.

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Euro Crisis Could Bring Down Global System

Authors

Domenico Lombardi

Financial Inclusion Around the World: Implications for Development and the G-20

Mon, 11 Jun 2012 14:30:00 -0400

Event Information

June 11, 2012
2:30 PM - 4:00 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

Access to financial services allows poor people to smooth their consumption and insure themselves against economic vulnerabilities. It enables poor people to save and borrow, allowing them to build assets, invest in education and entrepreneurial ventures, and try to improve their livelihoods. Financial inclusion particularly benefits disadvantaged groups such as women, youths and rural communities. For all these reasons, financial inclusion has gained prominence as a policy objective to reduce poverty and is a top agenda item for the upcoming G-20 Summit in Los Cabos, Mexico.

On June 11, Global Economy and Development at Brookings will host a discussion on the latest data on global financial inclusion and the policies around financial access that can help spur economic growth and development. Leora Klapper, lead economist at the World Bank, will present findings from the Global Findex — the first public database that comprehensively measures how people in 148 countries save, borrow, make payments and manage risk. After the presentation, panelists will discuss the implications of the data and the policies required to improve financial access across the world. Brookings Senior Fellow Mwangi Kimenyi, director of the Africa Growth Initiative, will moderate the discussion.

After the discussion, participants will take audience questions.

Participants

Panelists

Leora Klapper

Lead Economist, Finance & Private Sector, Development Research Group

Asli Dermirgüç-Kunt

Chief Economist, Financial and Private Sector Network

Lewis B. Kaden

Vice-Chairman

Scott Morris

Deputy Assistant Secretary for International Development Policy and Debt

Peer Stein

Global Business Line Leader, Advisory Services/Access to Finance

The G-20 Los Cabos Summit 2012: Bolstering the World Economy Amid Growing Fears of Recession

Fri, 08 Jun 2012 14:48:00 -0400

Leaders will head to the G-20 Summit in Los Cabos, Mexico, among renewed serious concern about the world economy. The turmoil that started with the U.S. subprime mortgage crisis has resulted in now almost five years of ongoing instability. The emerging market economies fared much better than the advanced economies and pulled out of the crisis already in 2009, but the slowdown we are now facing in 2012 is again global, demonstrating the interdependence in the world economy. The emerging market economies have stronger underlying trend growth rates, but they remain vulnerable to a downturn in the advanced economies. The center of concern is now squarely on Europe, with a recession threatening most European countries, even those that had reasonably good performances so far. After an encouraging start in 2012, the U.S. economy, while not close to a recession, is also showing signs of a slowdown rather than the hoped for steady acceleration of growth. And the slowdown is spreading across the globe.

At a time like this it would be desirable and necessary that the G-20 show real initiative and cohesion. The essays in this collection look at the challenge from various angles. There is concern that the G-20 is losing its sense of purpose, that cohesion is decreasing rather than increasing, and that policy initiatives are reactive to events rather than proactive. Let us hope that at this moment of great difficulty, the G-20 will succeed in giving the world economy a new sense of direction and confidence. It is much needed.

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Image Source: Andrea Comas / Reuters

Perspectives on the Global Economy from G-20 Countries

Kemal Derviş and Homi Kharas — Tue, 05 Jun 2012 13:43:00 -0400

Recent reports on the global economy make for gloomy reading. The U.S. economy is weakening. Asian policymakers are worrying. European leaders are trying to move into full crisis-management mode. Against this backdrop, leaders from the G-20 countries are preparing for a summit meeting, which will be held in Los Cabos, Mexico from June 18-19.

Brookings, along with our academic and think tank partners, has just published the fourth edition of Think Tank 20 (New Challenges for the Global Economy, New Uncertainties for the G20) to stimulate much-needed debate in advance of the meeting. The Think Tank 20 series is a compendium of essays written by individuals from 17 of the G-20 countries and the European Union and is designed to frame, forecast and explain the stakes for each G-20 summit.

In the world economy, we see renewed fears of recession or slow growth, but this time the fears have spread beyond the United States and the eurozone to encompass almost all countries. Given the ongoing U.S. election campaign and the significance of U.S. political and economic health for the rest of the world, as well as the persistent and systemic woes within the eurozone, many of the contributors to this edition of the Think Tank 20 series focus their expertise on the significance of the political and economic debates in the U.S. and Europe, in their national, regional and global contexts.

Many of the 19 essays in this volume refer to the authors’ experience with sovereign debt and banking crises and adjustment in their own countries. These essays remind us that the problems being faced in Southern Europe are not entirely new, although they do have unique characteristics because of the distinctive institutional arrangements of the European Union. The essays remind us that there is much to learn from economic history but they also show how difficult it is to extrapolate from one experience to another. Nevertheless, the historical parallels offer insights that could be useful in the informal G-20 peer reviews that accompany each summit.

Some essays carry a warning that the long-term vision for how to build and implement a low-carbon, energy efficient growth model should not be derailed by the short-term needs to respond to the crisis. One of the core areas of comparative advantage of the G-20 is its ability to provide leaders with the space to reflect on the long-term issues faced by the global economy. They could profitably focus their discussions on growth and innovation projects, which are increasingly seen as necessary complements to the austerity programs already under consideration and that could over time lay the groundwork for a new growth model.

Several essays caution that at this moment there is a risk that individual countries may resort to beggar-thy-neighbor policies on exchange rates, monetary policy, regulatory arbitrage and other means to restore growth, even if the global implications for strong, stable and balanced growth are unfavorable. Staving off these pressures is one of the unsung achievements of the G-20 and if they can again succeed in getting agreement on the maxim “Do no harm to others” it would be a valuable contribution to the global desire for greater certainty and coherence in international policymaking.

The current policy debates in the G-20 countries reflect what we see as the big dilemma in globalization: how can national democratic processes and election campaigns lead to economic decision making that also takes into account increasing global interdependence? This dilemma underscores the potential value-added of the G-20 process. It should be much more than a formal summit. At its best, the G-20, along with the existing global and inclusive international institutions, would help bridge the gap between the national and global while engaging the world of academia, civil society and think tanks to tackle the globe’s most pressing issues. This Think Tank 20 series aspires to be a modest contribution to this grand effort.

Authors

Image Source: Toru Hanai / Reuters

Think Tank 20: New Challenges for the Global Economy, New Uncertainties for the G-20

Mon, 04 Jun 2012 11:41:00 -0400

INTRODUCTION

As G-20 leaders prepare for their seventh meeting in Los Cabos, Mexico, strengthened hopes are struggling against renewed fears in the world economy.

The stronger hopes are due primarily to the more rapid output and employment growth in the U.S. economy that have come in better than expected in late 2011. It now appears possible that GDP in the United States might grow at a rate close to 2.5 percent in 2012, compared to 1.7 percent in 2011. Moreover, for several months, job creation has exceeded new entries into the labor force, reducing unemployment to well below 9 percent for the first time since the employment plunge in 2009. While this is modest progress compared to the challenge ahead— it would take almost a decade to reduce unemployment to pre-crisis levels at the pace of recent months— it has triggered a significant stock market surge, reinforcing a positive dynamic in the U.S. economy.

There also is considerable uncertainty in the outlook for Europe with median forecasts suggesting another year of zero growth. The long awaited deep Greek private debt restructuring finally took place without the catastrophic effects that some who had argued against it had forecast. The European Central Bank provided ample medium-term liquidity to the banking system, calming markets and providing time for greater structural adjustments. A decision to augment the size of the eurozone’s financial firewall was finally taken in late March. The latter involves a temporary enlargement of the eurozone bailout system to €700 billion by setting up the new bailout fund, called European Stability Mechanism (ESM) with a permanent €500 billion in capacity, but allowing the €200 billion from the European Financial Stability Fund already committed to Greece, Ireland and Portugal, to be set aside and not be folded into the ESM as originally planned.

Growth in the emerging and developing countries has slowed, but still continues at a robust pace, with their internal growth dynamics playing an increased role compared to their exports to the advanced world.

A surge in oil prices at the start of the year, linked partly at least to political uncertainties surrounding Iran and security of supply in the Gulf, signaled a new danger in the early months of 2012. A massive surge in oil prices remains a short-term threat for the world economy, but at time of writing this threat seems to have moderated, notably because of the strong resolve of Saudi Arabia to stabilize prices, although this resolve would not be of much help if there were serious disruptions of supply routes.

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Less Agreement Than Meets the Eye

Homi Kharas — Fri, 25 May 2012 00:00:00 -0400

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Editor’s Note: For Campaign 2012, Bruce Jones, Thomas Wright and Jane Esberg wrote a policy brief proposing ideas for the next president on America’s role in the world. The following paper is a response to Jones, Wright and Esberg’s piece from Homi Kharas. Strobe Talbott and John-Michael Arnold also prepared a response arguing that political polarization in America is preventing the federal government from taking much-needed action on critical issues such as climate change and international security.

Bruce Jones, Jane Esberg, and Thomas Wright argue that the 2012 election is unlikely to have a major impact on the U.S.-led international order because the current administration’s position is driven not by ideology but by a realpolitik approach that recognizes two facts of life of the new world order: American reliance on the global economy and global reliance on American power. These facts are important drivers, but increasingly the U.S. position on foreign policy matters appears to have more to do with domestic politics and less with the issue at hand. Because Republicans and Democrats have quite different domestic political constituencies, the risk is that the elections will indeed generate important changes in how America relates to the rest of the world.

One red herring should be dismissed immediately. Although the political narratives strive to draw a contrast between the administration as accepting and managing America’s relative decline and a Republican rejection of decline and reassertion of American exceptionalism, there appears to be a middle ground between these two that best represents reality. The global economy and international financial system depend on the fact that the U.S. dollar is the unrivaled international reserve currency and global store of value, and the open global trading and foreign investment system is preserved by the unrivaled superiority of the U.S. military. Neither of these basic foundations of U.S. dominance is under serious challenge. America is, and will remain for decades, exceptional in these two regards. It is only in terms of less important indicators—such as the U.S. share of the global economy, of global manufacturing, and of global trade—that the United States is declining in relative terms. But that does not necessarily indicate a weakening of America’s global position. It could indicate a strengthening as more countries have a greater stake in the functioning of the global economic system and therefore depend more heavily on the foundations provided by the United States.

At the present juncture, a future administration will need to tackle two important issues: U.S. leadership of a new world order and the U.S. pivot toward Asia. In both matters, there do appear to be significant differences between the political parties that suggest the election outcome might have a more far-reaching impact on the world than suggested by Jones, Esberg, and Wright.

The international economic order is undergoing its most significant change since the Second World War. Historically, the main pillars to manage the global economy—the International Monetary Fund (IMF), the World Bank, the World Trade Organization, the Bank for International Settlements, and the Financial Stability Board—have been dominated by the financial and intellectual resources of the United States and its allies, particularly Europe. For most of this postwar period, the countries that make up the G7 accounted for at least two-thirds of global output, plus or minus a few percentage points when major events such as the 1970s oil price spikes temporarily upset the global equilibrium. G7 country banks and multinational corporations have also dominated global finance and trade. All these countries, as well as a number of smaller advanced economies, were committed to a market-based, open, globalized economy.

That dominance has shown signs of cracking since 2002. Last year marked the first time in the modern era that the G7 share of global output fell below one-half. Large, dynamic, emerging markets, mostly in Asia, but including Brazil, Mexico, and South Africa, have become important global players. These countries have focused on global rules that permit growth through a range of sometimes eclectic means rather than the current system that focuses on stability and common rules of the game for everyone. In view of the divergent objectives, management of the global economic system is under stress. The IMF has been unable to make progress in reducing global current account imbalances; the Doha Round of international trade talks has been stuck for a decade; proposed new banking regulations have placed a premium on stability; and almost no progress has been made on mitigating climate change.

In this environment, the United States, under the leadership of President George W. Bush, successfully brought together a new group of countries, the G20, as the self-appointed premier body for managing the global economy. There was considerable hope that the G20 would signal a reform of the international system to integrate emerging powers into the system of global governance. In practice, however, this effort is falling short. The emerging economies have taken a low profile in the G20. Reforms in other institutions like the IMF and the World Bank have proceeded at a glacial pace. And while the United States has a de facto veto on any global changes, it cannot achieve its goals without the support of its existing allies and new coalitions involving large emerging economies. Unfortunately for the United States, its traditional allies are growing weaker more rapidly than new alliances are being formed. That in turn is weakening the global reach of the United States.

International coalition building is an issue that divides Republicans and Democrats. The very phrase “global governance” is enough to trigger disgust among some of the Republican base. Senate Republicans denounced the IMF as a bailout machine that risks U.S. tax dollars for socialist ends. The IMF’s warnings against premature deficit reduction to avoid a double-dip recession are at odds with supply-side economic prescriptions. Republican candidates hold up Europe’s economy as an example of government excess. “Drill, baby, drill” would not advance the UN-sponsored global climate talks. In short, it is reasonable to think that the effort to reshape global institutions and achieve global agreements would look very different depending on the 2012 election outcome.

The election is also likely to affect the degree to which the United States pivots toward Asia. Republican candidates have expressed a far greater tilt toward the use of “hard” power in international affairs. That approach will complicate relationships with Asia and place the U.S.-China relationship, the most important single bilateral relationship in the world, on a different course. It may also imply that the focus of U.S. international engagement would continue to be on managing the legacy issues in the Middle East, rather than on turning toward Asia.

Jones, Esberg, and Wright argue that the differences between the parties will be minor in shaping America’s international order strategy. But in terms of global governance, the geographic focus of attention, and the lens of security versus economic interests, there may be marked differences in approach.

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Authors

Homi Kharas

Image Source: © Lee Jae Won / Reuters

The G-20’s Development and Climate Goals: Innovations in Shipping

Thu, 24 May 2012 10:30:00 -0400

Event Information

May 24, 2012
10:30 AM - 12:00 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

In 2009, President Barack Obama and leaders of other developed countries committed to mobilizing $100 billion per year by 2020 to help developing countries confront climate change. However, in an era of fiscal austerity, it is clear that national contributions will need to be supplemented by innovative sources of finance to meet this goal. The World Bank and International Monetary Fund recently released a report on how the shipping industry could be one of these innovative sources of financing. The Mexican government is also expected to engage other governments on innovative, long-term sources of climate finance at the upcoming G-20 summit in June, offering a real opportunity for achieving this goal.

On May 24, Global Economy and Development at Brookings, Oxfam America, World Wildlife Fund and ActionAid will host a discussion on how mechanisms in the shipping industry can be designed to mobilize new public resources to help developing countries confront the climate crisis while reducing global greenhouse gas emissions. Panelists will include Ambassador Charles Rudolph Paul, Embassy of the Republic of the Marshall Islands to the United States of America; Michael Keen, deputy director of the Fiscal Affairs Department at the International Monetary Fund; Nigel Purvis, president and CEO of Climate Advisers; and Heather Coleman, senior policy advisor at Oxfam America. Brookings Senior Fellow Katherine Sierrawill moderate the discussion.

After the program, the panelists will take audience questions.

Audio

The G-20’s Development and Climate Goals

Transcript

Uncorrected Transcript (.pdf)

Event Materials

20120524_shipping_innovations_transcript_uncorrected

Participants

Panelists

Katherine Sierra

Ambassador Charles Rudolph Paul

Nigel Purvis

Michael Keen

Deputy Director, Fiscal Affairs Department

Heather Coleman

Oxfam America

Kim Appointment May Spur Changes at the World Bank

Eswar Prasad — Fri, 20 Apr 2012 09:48:00 -0400

The World Bank has a new president, but many questions remain about whether the selection process was indeed transparent, open and merit-based, as promised by the leaders of the Group of 20 economies.

Whatever the flaws in the process, the outcome may prove to be good for the bank’s future.

The preordained selection of the U.S. nominee, Jim Yong Kim, perpetuates the advanced economies’ dominance of the top jobs at the major international financial institutions.

This tradition has become untenable and unjustifiable. The predetermined success of Dr. Kim’s nomination reflects how global governance continues to lag behind shifting economic realities. Emerging market economies are increasingly dominant in global trade, finance and output, but the advanced economies continue to maintain their positions of privilege at the helm of major international financial institutions.

The old guard, which comprises the major advanced economies that once dominated the global economic landscape, will not give up its privileges without a fight. Changes in the structure of global governance will require more forceful and coordinated actions by emerging markets.

Such coordination has proven easier in the context of fighting for larger voting shares at the international financial institutions; in this case there is a common purpose as all emerging markets have something to gain.

When it comes to competition for specific jobs, emerging market countries have so far allowed individual ambitions to prevail over their collective interests. These countries will need to become more unified in terms of their objectives and strategy, rather than just complain about the existing structure, in order to effect significant changes in global governance.

Yet despite all the legitimate complaints about the World Bank selection process, a closer look reveals a far more open process than in the past.

When the top job at the International Monetary Fund opened up last year, European leaders immediately laid claim to putting one of their own at the helm. This was roundly and suitably criticized.

The United States has taken a different approach by simply putting forward the candidate it deemed best for the World Bank’s top job and letting him be judged on his merits. There has been no statement by any U.S. administration official that Dr. Kim should get the job simply because he is American.

There were two other credible and well-qualified candidates who got to make a case for themselves: Ngozi Okonjo-Iweala, the Nigerian finance minister and former World Bank managing director, and José Antonio Ocampo, the former Colombian finance minister and U.N. official.

In a major departure from past practice, Dr. Kim was chosen by a majority vote of the 25-member World Bank board, rather than by an artificial “consensus.”

The fact that the vote was stacked in favor of the U.S. nominee, given the nearly automatic support from other major advanced economies, is a matter of realpolitik rather than unfairness. If the emerging markets want to change the structure of power at global institutions, they will have to start wielding their growing economic clout more strategically and with unity of purpose.

Meanwhile, the Obama administration should at least be congratulated for its courage and vision in reaching beyond the typical slate of candidates — current or former government officials, typically with backgrounds in economics or diplomacy. If in fact this nomination was a fait accompli, then the United States has in some respects made it easier for the rest of the world to accept.

Dr. Kim’s impressive credentials as an expert on health and development issues, as well as his leadership experience at a major U.S. university, put him in a good position to initiate a much-needed reorientation of the World Bank’s role in global development.

The institution continues to lend to fast-growing middle-income countries like China and India that do not really need the relatively modest sums of money it has to offer. Instead, the bank should focus on its expertise in creating and implementing delivery systems for health and other public services. In other words, its money and human resources would be better spent catalyzing and helping to scale up innovative solutions to basic development problems.

Dr. Kim is not an economist, and some critics have suggested that he lacks a deep understanding of macroeconomics and finance. This is hardly a disqualification in itself. The truth is that macroeconomists (myself included) have made only limited progress in understanding what drives growth. There remains a lot that we cannot explain, and our models are inadequate in accounting for most of the cross-country differences in growth. An open-minded approach to seeing what works and what doesn’t rather than being bound by any specific models or theories might actually be an advantage.

This is not to say that economists are superfluous. Analyzing data carefully and creating analytical frameworks to understand what the data are telling us are critical functions. But it is presumptuous to argue that a noneconomist cannot possibly understand basic economic concepts as well as an economist. After all, Christine Lagarde, a lawyer by training, seems to have done quite well as the finance minister of France and now as the head of the International Monetary Fund. In many developing economies, applying basic principles of economics effectively can generate far better outcomes than more sophisticated prescriptions.

More importantly, Dr. Kim seems to have the intellectual self-confidence to surround himself with competent people, including intellectual iconoclasts, who can ask tough questions and seek answers that are not bound by ideology but are largely pragmatic. For instance, while growth plays a huge part in the fight against poverty, Dr. Kim may be right that growth is not the panacea it is often made out to be. Indeed, even a country like China that has accomplished remarkable reductions in poverty thanks to sustained growth has come to realize that a growth-at-all-costs strategy has enormous costs, including social conflict and environmental degradation.

Dr. Kim’s willingness to openly question conventional wisdom about growth and its benefits implies that he will face significant resistance from the entrenched bureaucracy at the World Bank. His status as an outsider may prove to be his strength in reforming the institution and making it more responsive to its poorer member countries’ needs.

Given Dr. Kim’s credentials and his unconventional background, he may also be just the person to deliver some real change to the governance structure of the institution. This is where support of this U.S. administration, which has shown a positive attitude towards multilateralism, could be a considerable asset.

If Dr. Kim can create alliances with emerging markets, then he could — with U.S. support — shake up a power structure that leaves advanced economies, and Europe in particular, with disproportionate power in setting the institution’s agenda. And this is a change that’s essential for the World Bank to maintain legitimacy in the eyes of developing economies as an institution that cares more about their interests than in carrying out the agendas of advanced economies.

The World Bank also needs to use the leverage it has in poor countries more aggressively to improve domestic public institutions and take a stand against corruption. This is no easy task, but the institution must clearly be seen to be serving its true constituents, the poor and economically underprivileged in developing economies, rather than the elites who often siphon away many of the benefits of growth.

But ultimately the World Bank’s legitimacy will also be determined by how it manages its own governance rather than just prescribing reforms to its member countries. Dr. Kim needs to set in motion changes to the Bank’s governance structure that give developing countries a greater say in setting the institution’s agenda and make the process of choosing his successor quite different from the one he just experienced.

He also needs to articulate and implement a clear vision of how the World Bank can improve its role in outcomes that really matter to the poor around the world.

If Dr. Kim can accomplish these objectives, he could turn out to be the tonic that the institution needs to reinvigorate itself and do some real and lasting good.

Authors

Eswar Prasad

Publication: The New York Times

The Eurozone Needs a Seat at the IMF Table

Domenico Lombardi and Jim O'Neill — Tue, 17 Apr 2012 13:57:00 -0400

When finance ministers convene in Washington in a few days’ time to attend the G-20 and the IMF spring meetings, eyes will be on more than the cherry blossoms.

These meetings will in fact take place on the heels of recent developments in the European response to the crisis and amid renewed fears about the health of the peripheral economies. Eurozone countries have signed on to the fiscal compact, accepting further, more stringent obligations in the conduct of their fiscal policy, as well as the jurisdiction of the European Court of Justice for cases of non compliance. They have also agreed to establish a permanent rescue mechanism, the European Stability Mechanism. Like the temporary rescue fund (the European Financial Stability Fund), the ESM is expected to work very closely with the IMF through joint lending programs, to an extent never before seen at the institution, where such close collaboration has been unheard of.

Yet, there is an underlying tension in the relationship between the euro area and the IMF that these recent treaties just widen. Since the introduction of the single currency, the conduct of domestic monetary policy has been fully delegated to the ECB; however, the realm of international monetary relations remains a grey area, with responsibility opaquely attributed to the ECB and the eurozone group of finance ministers. As a result of this significant gap in the institutional design of the single currency, euro area member countries maintain their country-based—as opposed to a euro area-based—representation on the IMF’s executive board, the institution’s main policymaking organ, despite the increasing integration among eurozone countries in all other related policy domains.

This tension may escalate now due to some potentially-adverse developments in IMF reform. The 2010 governance reform package, which aims to shift 6 percent of the voting power to underrepresented economies, is most unlikely to be ratified this year. The United States, the largest shareholder with power to veto, may do so no earlier than next year and only after the next Presidential campaign. This could mean a failure to ratify the agreement by the previously-determined October deadline, which would put into serious question whether western Europe will indeed give up two seats by the forthcoming board election early this fall, as had been decided in the context of the overall package to strengthen the voice of emerging members. Euro area countries would, in essence, be able to hide behind the US and postpone a much-needed consolidation of their representation, one that would be more in line with their own regional policies.

But all hope is not lost. Germany, France, and Italy may yet provide a burst of leadership by unilaterally establishing their own joint representation, as early as this fall, through some transitional arrangements; this would signal an endurable commitment to the Euro. Mario Monti, Italian prime minister, has all the credentials to take this initiative forward with his peers in France and Germany. They would set up a “core” multi-country seat around which all euro area members would be included by the following board election in the fall of 2014. By including countries, as opposed to European institutions, in the seat, the move would be in line with the fund’s legal framework and would reassure national political leaders in Europe.

At the same time, moreover, the move would signal a long-overdue shift towards a proactive strategy vis-à-vis IMF governance reforms whereby Europe could finally break with the current “wait-and-delay” tactic, precisely at a moment when it needs powerful allies within the fund membership in order to erect a credible global firewall. France, Germany, and Italy would together help set the right tone for ongoing G-20 and IMF negotiations, where many non-European shareholders are expected to contribute to a sizable increase in the IMF’s financial capacity. This would, as well, jumpstart the forthcoming round of negotiations on the redistribution of the voting rights that will have to be finalized by January 2014, with Europe, this time, no longer in a defensive mode.

Authors

Domenico Lombardi
Jim O'Neill

Publication: FT.com

Another False Dawn or Reason for Optimism?

Karim Foda and Eswar Prasad — Mon, 16 Apr 2012 00:00:00 -0400

Editor’s note: This commentary is based on research and analysis from the April 2012 update of Tracking Indexes for the Global Economic Recovery (TIGER) interactive map, which appears on the Financial Times Web site.

View the Brookings version of the interactive map »

The world economy is showing scattered signs of vigor but remains on life support, mostly provided by accommodative central banks. Concerns about spillover from a worsening of the European debt crisis and slowing growth in key emerging markets are putting a damper on consumer and business confidence. Equity markets are pulling back from a robust performance in the first quarter of this year as the sobering reality of a continued anemic recovery dampens investors’ optimism.

There are some positive signs in the latest update of the Brookings Institution-FT Tracking Indices for the Global Economic Recovery (TIGER), but also much to worry about as the world economy continues to meander with no clear sense of direction.

In advanced economies, there is considerable uncertainty about what room is left for aggressive policy responses to counteract weak demand and, in any case, whether those measures will get much traction. With fiscal policy already in a tight spot and monetary policy out on a limb in these economies, the room to boost domestic demand is limited.

The eurozone debt crisis, which has eased temporarily due to massive intervention by the European Central Bank (ECB) as well as promises of fiscal discipline and structural reforms in the distressed economies, remains the major source of global risk. Many European economies are being forced to restructure their public finances even as they venture to undertake massive structural reforms. This is stifling growth, worsening debt to GDP ratios in the short run, and generating an unsustainable political situation at the domestic and pan-European levels.

Political uncertainties are also increasing concerns about whether nimble and concerted policy responses will be forthcoming if economic prospects were to deteriorate. Many countries, including the US and France, are heading into election season while China’s leadership transition has hit some roadbumps. There is a serious risk of nationalistic sentiments being whipped up and giving rise to protectionist pressures that could hurt trade flows and add to macroeconomic uncertainty.

The US recovery is gradually firming up but remains fragile. Output growth has been modest at best but the unemployment rate continues to drop and employment growth has begun to pick up, even if haltingly and at a pace that still leaves total employment below its pre-crisis level. Equity markets turned in a good performance in the first quarter of the year while credit growth has picked up, helping to give consumer and business confidence a small but noticeable boost.

Europe remains the flashpoint for problems that could derail the global economic recovery. Many of the distressed European economies are mired in negative growth, others including France are at the edge of recession, and even the mighty German economy appears to be stumbling.

There is a growing sense that Europe has the capacity to summon just enough political will to pull back each time from the brink of a full-blown crisis but without ever reaching a decisive resolution. The severity of market tests of policymakers’ resolve is likely to increase and could force a denouement sooner than anticipated.

The burden of sustaining world growth is taking a toll on emerging market economies, whose growth momentum has weakened and led to a significant markdown of their growth expectations for 2012.

China seems to be engineering a soft landing for its economy, although this will not be a smooth process as the economy continues to be buffeted by domestic policy challenges and uncertainties in the global trade and financial environment. If growth were to slow sharply, China has room to respond with aggressive expansionary policies. This would secure short-term growth but could set back the long-term goal of rebalancing economic growth and making it less reliant on investment.

India has hit a rough patch, with industrial production growth hitting a wall at the end of 2011, output growth slowing sharply, and the current account deficit widening and leaving the economy vulnerable to capital flow reversals. Brazil, Russia, and most other emerging market economies have also experienced slowdowns in GDP growth, with industrial production growth taking a sizable hit.

Four years after the financial crisis drove the world economy to the brink of collapse, the pervasive sense of imminent doom has given way to cautious and nervous optimism. However, the global economic recovery is still sputtering due to a lack of robust demand, policy tools that are stretched to their limits and unable to muster much traction, and enormous risks posed by weak financial systems and political uncertainty.

Authors

Karim Foda
Eswar Prasad

Publication: Financial Times

April 2012 Update for TIGER: Tracking Indexes for Global Economic Recovery

Karim Foda and Eswar Prasad — Wed, 11 Apr 2012 16:21:00 -0400

Editor's Note: In collaboration with the Financial Times (FT), Eswar Prasad and Karim Foda of Brookings have developed a set of composite indexes which track the global economic recovery. The Financial Times has produced the Tracking Indexes for the Global Economic Recovery (TIGER) interactive map, which appears on the FT Web site.

The world economy is showing scattered signs of vigor but remains on life support.

The April 2012 Brookings Institution-FT Tracking Indices for the Global Economic Recovery (TIGER) reveals some positive signs, but also much to worry about as the world economy continues to meander with no clear sense of direction. The global economic recovery is still struggling due to a lack of robust demand and policy tools that are stretched to their limits and unable to muster much traction.

The updated interactive map below displays how fast individual G-20 economies are faring in global economic recovery. Underneath the map, links to updated key indicators display how fast those indicators are recovering for advanced economies, emerging markets and a composite total.

To view an interactive version of this map, please download Adobe Flash Player version 9.0 and a browser with javascript enabled.

Click on an individual country in the map to view charts for the main TIGER indexes for that country and charts for the indicators that make up the indexes, which are broken down by real activity, financial and confidence indicators.

As well as tracking country performance, the TIGER indexes also track the performance of key indicators across groups of advanced economies, emerging markets and a composite total. Click on the following links to view the updated charts for the following key indicators:

Real Activity Indicators

Financial Indicators

Confidence Indicators

For detailed information on the composition and construction of the indexes and a comprehensive description of the data and source information, please refer to the updated technical appendix.

Read the full analysis and commentary: Another False Dawn or Reason for Optimism?

Authors

Karim Foda
Eswar Prasad

The United States and India Are Natural Friends

Michael E. O'Hanlon — Thu, 05 Apr 2012 00:00:00 -0400

How to assess the 44th president of the United States in his dealings with the world’s largest democracy and one of the world’s two great rising powers of the 21st century? At the three-year mark in Barack Obama’s presidency, this seems a reasonable question to pose.

Brookings colleagues Martin Indyk, Ken Lieberthal and I have attempted to address this question in a new book about the Obama administration’s foreign policy to date that we call Bending History, after Obama’s favourite Martin Luther King, Jr quote.

In fairness, none of us is a specialist on South Asia. And in that vein, we do not impose any big prediction or recommendation upon the reader about Indian economic, domestic or foreign policy. But all of us understand the significance of India as a global player — a fast-growing economy, rising power, key actor throughout the Indian Ocean region and into the Middle East and East Asia too, a technology innovator, and a natural friend of the US even if our difficult history as nations has often postponed the proper realisation of that friendship.

Speaking just for myself, I would distil our book’s findings about the Obama administration’s foreign policy into a few key points. One, Obama has, on balance, had good instincts towards India, appreciating its growing importance and future potential and great assets and strengths. Also, like his two predecessors, he seeks a stronger U.S.-India partnership. That said, on balance, his administration has not been known for major initiatives towards India.

On the economic front, Obama has been stymied on the U.S. end by large budget deficits, recession, and high unemployment rates which have, among other things, complicated the pursuit of major new trade initiatives. Progress towards major new economic interactions on specific issues like fighter jet sales or nuclear energy cooperation has been less, or slower, than some had hoped.

In security terms, while Americans have appreciated India’s willingness to do more in Afghanistan, the nature of Pakistan’s objections to such an enhanced Indian role — and Pakistan’s ability to stoke the problems within Afghanistan should it so choose — have limited how far the US and India have been able to cooperate on this subject.

Obama made a good trip to India in November 2010, but his promise to seek a permanent UN Security Council seat for India, voiced during that visit, may not be actionable, because it begs the broader question of what other permanent members should be added to the Security Council — a highly contentious subject around the world, to put it mildly.

The administration’s “rebalancing” towards Asia in 2010 and especially 2011, as Obama sought to channel US energies and military attention away from the broader Middle East region, focussed less on the subcontinent than on the Western Pacific and East Asia regions.

Energy and climate change policy has continued to bedevil the Obama administration, especially in its dealings with the U.S. Congress. A silver lining is that this may, in fact, reduce the chance of clashes with countries like India, given the different views of the two countries on which nations should make the greatest efforts to reduce carbon emissions.

More positively, Obama has favoured the G-20 grouping of nations over the G-8 for addressing many key global issues — and this has naturally enhanced the role and importance of countries such as India, appropriately enough. At the operational level, there is greater quiet U.S.-India collaboration in military and civilian spheres in general.

Where does this leave us? It is not a bad record but it is certainly not a pathbreaking one either. That is too bad in one sense. Obama raised such high hopes in his campaign, at home and around the world, that one might have wished for more — and India and the U.S. are, in many ways, natural partners who could do so much more together. That said, the relationship has evolved gradually, without a huge role for government in either country. And perhaps the strong inherent attractions between the two countries make it less important that any one president in Washington or prime minister in New Delhi achieve a major breakthrough. We are gradually, and perhaps inexorably, headed for stronger ties — and that may be the best and most durable scenario of all, with improved ties and improved partnerships driven by the citizens of the two countries rather than their politicians.

Authors

Michael E. O'Hanlon

Publication: The Indian Express

Major Issues for the Mexico G-20 Summit

Thu, 05 Apr 2012 09:00:00 -0400

Event Information

April 5, 2012
9:00 AM - 3:00 PM EDT

Stein Room
The Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

On the April 5, 2012, the Global Economy and Development at the Brookings Institution and the Ministry of Foreign Affairs and Trade (MOFAT) of the Republic of Korea co-hosted a conference in Washington D.C. to consider the major issues, challenges and opportunities for the Mexico G-20 Summit. The upcoming Summit will be held in Los Cabos, Mexico on June 18-19, and presents a critical opportunity for the G-20 members to come together to discuss and address important international concerns. Discussions of the conference, therefore, revolved around the current economic climate, continuing items of the G-20 agenda and issues identified under the prerogative of the Mexican Presidency, as well as the way forward for the G-20 in Mexico and beyond.

Read the full summary »