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Qcl 14-v3 [college canteen kitchen(5s)]-[banasthali university]_[beenu virmani]
Arvind Virmani (Views are Personal) -...
19
Arvind Virmani (Views are Personal)
Transcript of Arvind Virmani (Views are Personal) -...
Arvind Virmani
(Views are Personal)
20/5/2010(rev nov) Quota Reform & Governance 2
Introduction
Past(<2009), Present(2010), Future (2011+)
Major changes in World Economy
IMF Mandate(potential): Global Macro/ monetary oversight/management
Domestic vs. Global Governance
Democratic Principle, Sovereignty & Size
Openness: Trade, Financial flows
Actual relative to natural benchmark
Comparative advantage; Negative effect of excess
Demand/Borrowers Voice: Variablity
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Global Crisis: Medium term effects
Fiscal Crises in Developed countries
Economic growth constrained
Slower Growth of World GDP, Trade
Export oriented economies will loose
Growth/Development model
Domestic oriented (export neutral):
Speed up existing reform approach
Energy/Oil rich: Return to normal growth
Natural resource exporters
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1a Economic Size (GdpPpp)
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
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China Japan
India Germany
Russia Brazil
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1b Economic Size (GdpPpp)
10%
20%
30%
40%
50%
60%2
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India Japan Germany
Russia Brazil UK
France Italy
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Mandate: Macro-Financial Balance and Stability
“The Fund shall oversee the international monetary system in order to ensure its effective operation and shall over see the compliance of…” [Art IV, sec 3(a)]
Lessons of US/Global crisis
Real and Monetary/Financial are not separable (as imagined by Rational expectations orthodoxy/theory)
Macro Imbalances, Monetary-Financial spillovers
Imbalance: Excess relative to benchmark
Potential negative impact on global economy
Too much of a good thing is also bad for global stability
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Country vs Global Governance
Domestic GovernmentDemocratic principle: 1 person 1 vote
Global Economic Governance:
Partial surrender of Ec sovereignty
More autonomy => greater sacrifice
Economic size => Autonomy
Global RoleEconomic size (GdpPpp)
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GdpPpp as Predicter of Growth
There is a strong positive relationship between real GDP growth and initial ratio of PPPGDP to Market exchange rate GDP (Figure).
This is consistent with the catch-up / convergence hypothesis:
Initially less prosperous economies (i.e. those for which the PPPvaluation of GDP is relatively greater than market exchange rate GDP)tended to grow faster over the subsequent decade than initially moreprosperous economies.
GdpPpp is therefore a more forward looking measure :
Won’t be outdated by the time reforms are implemented!
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Gdp Ppp/$ Predicter of Growth
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Role of Financial Assets or Wealth?
Bryant: Linked to traditional monetary/ BOP mandate of IMF
Expanded financial mandate needed?
Direct measures (A,W) unavailable!
Gdp(mer) may capture indirectly?
Imperfect substitute for A, W!
May increase country autonomy?
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Openness in a Globalised World
Neutral Tax-subsidy regime
Level of trade (% of Gdp) depends on natural comparative advantage.
Trade/Gdp declines with econ size (t*)
Variations from benchmark (t*)
Trade (+)outlier: Potential (-) for World
No reward or penalty [unless due to tax, subsidy, XR distortion (-impractical)!]
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Openness: Post-Financial crisis
Financial openness (stock or flow) is even more problematic
Any difference in cross-border stocks /flows from neutral benchmark may be +/-ve factor for stability, depending on source and host country conditions.
Negative financial externalities need to be taxed not rewarded with higher quotas!
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Openness vs Contribution
Openness (Trade-GDP ratio)
Unrelated to global importance or impact
Global Aggregate Demand shortfall
Contribution to net demand
Critical to global recovery
Table of net contributions (below)
Abandon Antideluvian concepts
Net Contribution to World Demand
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Contribution
Country / Year=> 2006 2007 2008 2009 2009
Positive
Deficit countries -1263.9 -1352.7 -1508.9 -908.0 100.0%
United States -760.4 -701.4 -695.9 -373.9 41.2%
India -33.3 -45.2 -65.7 -58.9 6.5%
United Kingdom -76.5 -90.0 -70.9 -50.8 5.6%
Negative
Surplus Countries 1534.2 1759.1 1911.0 1280.9 100.0%
China,P.R.: Mainland 208.91 307.48 348.87 220.60 -17.2%
Germany 166.48 238.92 252.06 176.17 -13.8%
Russian Federation 125.53 111.27 154.69 90.80 -7.1%
Netherlands 56.95 69.26 70.13 66.46 -5.2%
Deficit on Current Account
Contribution to Global Demand (net)
Balance on goods and services ($bi)
Surplus on Current Account
Economic Reality vs. Quota Proposals
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Share in Rank in PTR (%) Rank Share
Country 2009 2009 2011+ 2011+ 2009 2007 2008 2009
United States 20.4 1 17.4 1 -0.54 3 162 -ve
China 12.6 2 6.4 3 1.14 1 1 1
Japan 6.0 3 6.5 2 -0.31 6 -ve -ve
India 5.1 4 2.8 8 0.29 2 2 2
Germany 4.0 5 5.6 4 -0.19 7 10 -ve
United Kingdom 3.1 6 4.2 5 -0.15 10 -ve -ve
France 3.0 7 4.2 6 -0.08 14 80 -ve
Russia 3.0 8 2.7 9 -0.24 4 3 -ve
Brazil 2.9 9 2.3 10 -0.01 5 4 -ve
Italy 2.5 10 3.2 7 -0.13 23 -ve -ve
Notes:
1/ Data are from Table A of the Statistical Appendix of the World Economic Outlook, October 2010.
2/ Based on data underlying Figure 1.2 (global indicators), World Economic Outlook, 2009 and earlier issues
China & India's rank remains 1 & 2 respectively (in 2008 & 2009), even if EMU (Euro area) is treated as a single economy.
Aggregate GDP share /1 Proposed quota share Contribution to Global Growth /2
Rank in
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Voice of potential borrowers!
G24 Secretariat: Technical Notes
Existing index of “variability” is a deeply flawed measure.
Does not capture the potential demand/ need for financing BOP problems
Better measure is needed to capture this
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CONCLUSION
Implications for IMF Quota Reform
Dis-satisfaction among global public opinion: The relative size/power of economies today is not captured by the existing formula
Unless fully taken into account, dissatisfaction will persist after January 2011. The gap will widen every year unless formula is modified
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References Propelling India from Socialist Stagnation to Global Power:
Growth Process, Vol. I (Policy Reform, Vol. II), Academic Foundation, New Delhi, 2006.
“A Tripolar World, India, China & US,” Lecture delivered at India Habitat Centre on May 18, 2005 ( http://www.icrier.org/public/TripolarWrld_IHC5.pdf ).
“Economic Performance, Power Potential and Global Governance: Towards a New International Order”, Working Paper No. 150, ICRIER, December 2004( www.icrier.org/wp150.pdf ).
“A Tripolar Century: USA, China and India,” Working Paper No. 160, ICRIER, March, 2005 ( www.icrier.org/wp160.pdf ).
“China’s Socialist Market Economy: Lessons Of Success”, ICRIER Occasional Policy Paper, April, 2005 ( http://www.icrier.org/China05_policy7.pdf ).
VIP2: A Simple Measure of Nations (Natural) Global Power, ICRIER Occasional Paper, July, 2005( http://www.icrier.org/vipp4.pdf ).
From Unipolar to Multipolar World: Multipolar Transition Paradox, Academic Foundation (2009) Global Power From The 18th To 21st Century: Power Potential (VIP2), Strategic
Assets & Actual Power (VIP), Working Paper No. 175, ICRIER, November 2005. http://www.icrier.org/WP175VIPP8.pdf
“Future Economic Contours of the Asia-Pacific and South Asian Region and Thier Impact on Global Security Architecture,” USI National Security Lecture, 2006, in National Security, Global Strategic Architecture and Information Security, National Security Series, 2006, KW Publishers Pvt Ltd, New Delhi, 2007.
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References World Economy, Geopolitics and Global Strategy: Indo-US Relations
in the 21st Century, Economic and Political Weekly, Vol. XLI No. 43-44, November 4-10, 2006, pp. 4601-4612 (http://www.epw.org.in/showArticles.php?root=2006&leaf=11&filename=10717
&filetype=pdf ). China’s Socialist Market Economy: Lessons Of Success, Working
Paper No. 178, ICRIER, December 2005.
“The Economic Foundations of National Power: From Multi polar to Tri-Polar World?” in V. R. Raghavan (Editor), Economic Growth & National Security, Centre for Security Analysis, Chennai, 2008.
Evolution of World economy and Global Power: From Unipolar to Tripolar World in Economic Diplomacy, Editor I. P. Khosla, KonarakPublishers, 2006.
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