Hans Singer, Economic

Development, Crisis, Recovery and

the United NationsJomo Kwame Sundaram

United Nations Assistant Secretary General for Economic Development

28 October 2010

Singer’s Legacy:Well ahead of the

curve• UNICEF Report• Terms of trade• Soft loans, wild man• Food security• Kenya Report: pro-poor growth• Basic needs: global social

protection floor• Global imbalances & inequality• Global economic governance

1947 UNICEF Report• Importance of nutrition of children

and pregnant women • Importance of education • Social development important • Right balance between investments

for present and future generations

• MDGs: SG’s maternal and child health

‘Sensitive periods

in early brain

development

Binocular vision

0 1 2 3 7654

High

Low

Years

Habitual ways of respondingLanguage

Emotional controlSymbol

Peer social skillsRelative quantity

Central auditory system

Commodity Price Index, 20C

Source: Grilli and Yang (1988); Ocampo and Parra (2003).

Figure 1AGGREGATE REAL COMMODITY PRICE INDEX, EXCLUDING OIL (GYCPI)

30

50

70

90

110

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150

1900 1920 1940 1960 1980 2000

1900

=100

Manufactures’ Terms of Trade

Unit value of manufactures exported by developing countries relative to manufactures exported by developed countries

90

95

100

105

110

115

120

125

130

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2001

2002

2000

=100

Wild man of the UN!• SUNFED IDA: WB arm for soft loans

• For proposing soft loans for developing countries,

attacked by: • WB President Eugene Black • Senator Joseph McCarthy

Food insecurity• Abolition of World Food Council created

gap • Problem further accentuated by GATT

Agreement and WTO creation• Agricultural trade liberalization has

undermined food security lost capacities

• 2007-08 food price spikes- bio-fuels- futures as financial assets: post-subprime flight to safetyindexed trading

Global economic management

Original Bretton Woods proposals:• Global economic management by United

Nations (General Assembly, ECOSOC)• IMF to deal with financial, monetary, and

balance of payments disequilibria, with overriding objective of full employment, and many functions of world central bank

• World Bank to fund projects, not to be involved with macroeconomic policies

or structural adjustment

IMF• Not world’s central bank or lender

of last resort• Full employment no longer

consistent objective• Inflation targeting contrary to

Article IV, Section 1(i)• Capital account liberalization

promotion contrary to Article VI

World Bank• Programme lending – moved

away from projects• Structural adjustment programmes – failed to generate growth spurts

• Hard/soft issues: WDC/NYC IMF/WB

IMF/WB governance• Based on principle of ‘one dollar,

one vote’• So, financially powerful countries

control BWIs, refuse to allow major capital increase

• So far, inadequate voice, share reform

• Appointment of heads of WB, IMF NOT on merit, open competition

BWI-UN relations• Singer anomaly: WB President and IMF

MD address ECOSOC • But SG no voice at BWIs’ annual meetings• Partly rectified since 2002 Monterrey

consensus• Singer proposed:

– the Bank and Fund might well be requested to submit an annual report to the General Assembly and ECOSOC to explain what attention they have paid to the resolutions of the GA and ECOSOC, in accordance with their Terms of Agreement

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Crisis financial impacts on developing countries• Despite non-involvement in sub-prime debacle:

Emerging stock markets collapse greater Reversal of capital flows, FDI also down Spreads rise, much higher borrowing costs

• But financial positions stronger than during Asian + LA crises (more foreign reserves, better fiscal balances)But reserves rapidly evaporating with export collapse; fiscal space also disappearing

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Trade impacts• Exports decline all developing countries

• Terms of trade primary exporters

• Trade surpluses, reserves run down quickly

• But lower energy, food prices helped net food and oil importers

Stimulus lags delay recovery

0 2 4 6 8

3 month delay

Immediate andsustainedstimulus

efforts

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2009 2010 2011

Jobs recovery lags output recovery, 1991, 2001Duration of output recovery and job market recovery after the 1991 and

2001 US recessions (in months)

0

10

20

30

40

50

60

Output Job market recovery

1991 2001

Major Challenges•Lower commodity prices •Reduced export demand•Domestic demand down too•Employment, incomes, demand lower•Trade surpluses smaller, deficits bigger•Short-term capital inflows reversal•Less FDI•Stock markets’ negative wealth effect•Bank lending growth down; higher costs•Domestic private investments down

IMF fiscal adjustments IMF April 2010 target debt/GDP ratios: Benchmarks:• Developed countries, 60% debt/GDP

ratio – median pre-crisis ratio • Developing economies, 40% debt/GDP

ratio – no explanation how figure derived

Average fiscal adjustments: • 8.7% of GDP for developed countries • 2.7% of GDP for developing economies21

Conventional framework• ‘A …budget deficit in excess of 1-2% of

GDP is evidence of…policy failure’ (Williamson 1990)

• ‘Developing economies should focus on containing inflation and ... adopt credible fiscal adjustment plans to boost confidence

in macroeconomic policies’ (GMR2010)• Maintaining macroeconomic stability to

ensure confidence remains priority for all countries (GMR 2010, p. 82)

22

IMF on debt implications

• GMR 2010: 67 low income countries • Debt vulnerability:

–Low 20–Moderate 24–High 15–Debt distress 8 (12%)

• Yet recommends: fiscal consolidation for ALL countries

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IMF: growth-based vs contractionary fiscal consolidation (1996)1996 IMF study of 74 cases in 20

industrialized countries during 1970-95:• Strong global economic growth helps

achieve successful consolidation• Weak global growth reduces chances

that consolidation will cut debt-to-GDP ratio

• Fiscal retrenchments + loose monetary policy offset recessionary impacts

Fiscal consolidation contractionary

• Fiscal consolidation typically contractionary • Little empirical support that fiscal austerity

stimulates economic activity in short term• 2 yrs after fiscal consolidation of 1% of GDP:

- reduces real GDP by ~ 0.5% after 2 yrs- increases unemployment rate by ~ 0.3%

• Even for likely sovereign debt-default risk countries, results not expansionary – output falls by ~0.4% over 2 years

Impact of 1% GDP fiscal consolidation contractionary

Spending cut impact matters

Composition matters• Largest contractionary effect

from public investment cuts

• Even with transfer cuts, no strong evidence of expansionary effects – results

statistically insignificant

Conditions matter• Without complementary policies, -

ve impact of fiscal consolidation much larger

• Larger -ve impact due to sudden reversal, premature, contractionary fiscal consolidation

• Synchronized consolidation by large economies even worse

Fiscal consolidation logic!

• Fiscal consolidation after sustainable recovery assured

• East Asian recovery strongest EA should fiscally consolidate

• G7-US economies fiscally consolidating now weaken EA recovery, ability to be new locomotive for world recovery cause new downturn 30

EMEs’ fiscal rules restrict space

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Need for fiscal space• Macroeconomic policies should not

be driven by fear of outliers• Most developed countries have fiscal

space – no inflationary pressure• Debt sustainability OK, but specific

debt- GDP targets arbitrarily determined

• Fiscal policy typically residual, development not prioritized

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Crisis should lead to reform• A crisis foretold• International financial architecture: non-system?• Ideology: deregulation, self-regulation,

inadequate and inappropriate regulation• Financial globalization: growth, stability?• Capital account liberalization vs IMF Article 6• Policy: market-led? Pro- or counter-cyclical?• Finance’s inflation fetish? Public sector deficit?• Reserve currency Unsustainable global

imbalances • International cooperation: G7 G20, UN?

Lost Bretton Woods moment?

Bretton Woods, 1944: United Nations conference on monetary + financial affairs

• 15 years after 1929 Depression• Middle of WW2• US initiative vs UK Treasury stance• 44 countries (28 developing countries; 19 LA)• UN system: IMF, IBRD, ITO• Clear emphasis on sustaining growth, job

creation, post-war reconstruction, post-colonial development, not just monetary + financial stability

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System reform agenda

• Lack of reserve currency system unsustainable global imbalances

• Financial deregulation- deregulation, self-regulation- inadequate + inappropriate regulation

• Capital account liberalization vs Art. 6• International financial architecture:

non- system since 1971 end of BW• Policy coherence: Align IMF, WB

with UN development agenda, IADGs

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Thank youPlease visit UN-DESA esa.un.org and G24 www.g24.org websites

• Research papers• Policy briefs• Other documents

Acknowledgements: UN-DESA, G24