It's no secret that current account imbalances exist around the world. In many cases, these imbalances may be benign and merely reflect market-driven differences in savings and investment, or differences in stages of development. In other cases, persistent global imbalances may be unsustainable and may threaten growth in the long run.
Thus, it's no surprise that addressing imbalances has been a key focus in recent G-20 discussions. Nor is it surprising that the World Bank and IMF are working with key partners such as the Organization for Economic Cooperation and Development (OECD), International Labor Organization (ILO), World Trade Organization (WTO), and United Nations Conference on Trade and Development (UNCTAD) to provide technical inputs to help coordinate economic policy among the G-20 members.
Despite a brief decline during the global financial crisis, current projections show that imbalances could widen again as the world economy recovers. In the most recent Economic Premise, the World Bank's research series on good practices and key policy findings, author Zia Qureshi explores the relationship between global imbalances and growth. In his note, "Rebalancing, Growth, and Development in a Multipolar Economy," Qureshi argues, "In a progressively multipolar world economy, the goals of global growth, rebalancing, and development are increasingly interlinked." He continues, "Looking ahead, developing countries will likely continue to lead growth in the global economy."
Indeed, the increasing role of developing countries in fueling global growth is precisely what Marcelo Giugale and I highlight in our recent book, The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World. In the near future, we can expect to see a switchover in the drivers of global growth, with developing countries emerging as the new locomotives of growth. To be sure, in 2010, developing countries and emerging markets contributed close to one half of global growth.
Against this background of global imbalances and the increasing economic power of developing countries, Qureshi highlights key policy recommendations that will ensure a win-win result for rebalancing and development. By investing in infrastructure in developing countries, ensuring consistent capital flows to emerging markets, pursuing financial sector reforms under the Basel III framework and supporting open trade, policy makers can better manage imbalances and augment development.
This blog was originally posted on the World Bank Institute Growth and Crisis website.
Basel iii is not perfect, but it is better than Basel ii. The framework improves consistency and establishes risk management principles that are unique.
Yes, we will have another crisis in the future, this is also for sure. It is simple: Passing laws against robbery and murder has not stopped people from robbing and murdering.
To ban or not to ban taking risks? More strict banking rules can destroy the economy. Banks will not be willing to lend. What is next? Unemployment, bankruptcies, no mortgages…
Banks are (and must be) in the business of taking risks. Sometimes governments force banks to lend to at-risk borrowers, and decisions are based on government intervention, not risk management. Is there a framework against that? Can we blame Basel iii?
We can increase the likelihood that banks can absorb losses under certain circumstances. This is all we can do.
George Lekatis
http://www.basel-iii-association.com