Posts Tagged ‘Finance’

Global Finance – Doha: What Chance of Success?

1 December, 2008

World economic turmoil sets the scene for the UN Conference on Financing for Development in Doha (29 November to 2 December), the most important conference on this topic since the UN’s conference in Monterrey back in 2002. Go here for UN updates.

The last quarter of 2008 has seen a lot of talk-talk on development finance. The long-awaited High Level Forum on aid effectiveness was held in Accra in September as well as the UN’s high level event on the MDGs in New York. Calling an event ‘high-level’ lets the international community claim that progress has been made – just by getting senior people together in one place.

What will Doha bring? Can it make headway against the very strong currents now running through the global financial system? Will rich country donors be able to afford aid? On this and other issues see my WIDER Angle article with George Mavrotas – Development Finance: New Opportunities for Doha. We explore the topic further in our new UNU-WIDER book Development Finance in the Global Economy: The Road Ahead (Palgrave).

Finns for a Flight Tax

7 November, 2008

To finance the purchase of drugs to combat the main killer diseases in poor countries, France introduced a levy (an ‘international solidarity fee’) on air tickets back in 2006 (go here). Could Finland be next? 87 per cent of Finns back a levy of 1-4 euros on airtickets, according to KEPA, Finland’s service centre for development co-operation, as reported in Helsingin Sanomat. Among the young (15 to 24-year-old respondents) support is overwhelming: 93 per cent. KEPA reckons that this could generate 16 million euros a year – quite a modest sum, but then if every European country introduced the levy it would add up.

The airlines are hostile – they live on thin margins. But the levy is one euro per passenger when flying (economy class) within Europe and four euros on intercontinental flights. This will hardly deter most people from flying (less than the cost of the sandwich that a lot of airlines now charge for). The proposal has generated support elsewhere in Scandinavia (Norway, for instance).

The air ticket tax is one of the few proposals for innovative finance that has taken off (excuse the pun). The other is an International Finance Facility for child vaccination (IFFm) which originated with the UK’s HM Treasury (IFFm is a pilot for a much larger IFF that is designed to mobilize more aid through the sale of IFF bonds).

The pros and cons of the different innovative finance mechanisms – including the Tobin tax – were reviewed in a UNU-WIDER study undertaken for the UN General Assembly (go here). Interest in innovative finance waxes and wanes alongside traditional official (aid) flows and private capital flows – which are much larger (on development finance go here). Maybe next year’s meeting on a ‘New Bretton Woods’ (or whatever it is called) might make progress. In the meantime we have the UN’s Financing for Development meeting in Doha, 29 November to 2 December. More on Doha soon.


Coping with Global Inflation

29 September, 2008

Our readers don’t need reminding that Inflation has been on the rise globally (although the present financial crisis could knock that on the head). The poor are being hit hard by rising food prices – the price of rice in Asia has doubled, causing real distress in countries without effective social protection. Africa is scrambling to respond.

Macro-economists in central banks and finance ministries are worried people. Today looks alarmingly like 1979-81: inflation pushed up by the second oil price spike and recession looming. That combination of inflation and recession – stagflation – is the worst scenario for policymakers. Inflation requires demand restraint, recession requires demand expansion – and policy-makers have a difficult time in choosing which direction to go down. The early 1980s are a warning of what can happen. Real interest rates (the interest rate minus the inflation rate) turned from negative to positive – pushing up the real cost of borrowing for firms already hit by weakening sales. Eventually the oil price collapsed, bringing inflation down with it, but also distress for over-borrowed oil producers such as Mexico and Nigeria. That then set the stage for the debt crisis that took a full decade to work itself out, with massive social fall out, and poverty spiking higher (the 1980s were Latin America’s “lost development decade”).

So what should today’s policy-makers do? The Centre for Development Policy and Research at SOAS has a new Development Viewpoint out on global inflation. The author, Terry McKinley, argues that they must be clear on the causes, otherwise the response could make the situation worse. Since the sources of recent oil and food inflation are ‘globalised’, developing countries cannot hope to maintain low domestic inflation by the standard practice of raising domestic interest rates, argues Terry. Such a misguided “monetarist response” would only heighten the risks of recession, he concludes. Go here for the paper, a timely contribution to the present debate — and a warning from the past.

Property Refuses to Dance

29 August, 2008

Talking of politics trying to cope with capitalism’s erratic moves (see our last post), UK Chancellor Alistair Darling has come up with another wheeze to try and save Britain’s collapsing property market — now on the floor after a speculative frenzy to the tune of easy credit. Repossessions are dramatically up, not least in Manchester, a city often labeled as the ‘UK’s debt capital’.

First, the Chancellor tried to encourage the banks to clear up their own mess — with a bit of public money. Interesting isn’t it how (private) banking crises always try and turn themselves into (public) fiscal crises? And in both rich and poor countries, too (see Jay Rosengard on East Asia hereWillem Buiter’s blog, and Managing a Bank-Specific crisis: A UK perspective from the Bank of England, no less).

Now, the Chancellor is going to help local authorities and housing associations buy up unsold properties and help people facing repossession with mortgage rescue schemes. We leave it to our readers to figure out whether this is good or bad social policy (it’s good for the banks since the schemes reduce their bad debts: that fiscal connection again). It certainly reflects the political battering the government is taking. Today’s Times — with a nice photo of the ‘Chimney Pot’ regeneration in Salford — sums it all up:

“This latest strategy highlights the increasing influence of Vince Cable, the Liberal Democrats’ Treasury spokesman, a man as deft at articulating the concerns of Middle Britain as he is at the paso doble in the ballroom”.

Meanwhile, the UK property market seems unable to get to its feet. Dance on.