Monetary and trade conference: Participants debate benefits of globalization, durability of current economic recovery

AuthorElisa Diehl
PositionAssistant Editor, IMF Survey
Pages391-393

Page 391

Globalization-driven by technological forces that cannot be restrained or reversed--appears to be here to stay, raising questions about how, against this background, policy should be handled. Panelists at the Eighteenth Annual International Monetary and Trade Conference, sponsored by the Global Interdependence Center in Philadelphia on November 15, discussed the ramifications of globalization, focusing on the financial crises that have characterized the last dozen years of the twentieth century and the nascent recovery, as well as economic conditions and prospects in different regions of the world.

The goal of the conference series is to translate the ideas of decision makers, the media, the academic and business communities, and the interested public into practical suggestions for public policy.

Globalization: blessing or curse?

Globalization is both a blessing and a curse, said E. Gerald Corrigan, although the net effect is a distinct plus for the world economy despite the accompanying growing pains, which he said would be around for a long time. In the past 12 years, he noted, the world has experienced 12 bouts of financial instability, which have given rise to uneasiness that all is not well. Markets, he observed, are good at sorting things out until questions having to do with credit arise, such as "will people be paid?" These episodes of instability, Corrigan noted, made it clear why there have been calls for reform, which has been labeled "the new architecture." In his opinion, however, the focus should be on making existing arrangements work better-improving macroeconomic policies as well as risk- and debt-management policies, increasing disclosure, and instituting floating exchange rate regimes (not a panacea, in his view, but better than the alternatives). Progress in these areas is possible, he said, even over the short run, although he recognized that institution building was a tough, long-term problem in emerging markets. He wondered if these countries could sustain the political will to implement such reforms when they were still in the early stages of the fragile process of building democratic political institutions.

Economists say that each crisis is "a new breed of crisis," according to Carmen Reinhart, but she contended that all crises have similar characteristics. "Every 'respectable' crisis," she explained, "is preceded by a boom." On the eve of a crisis, a country has a budget surplus, low inflation, and a liberalized trade and capital account, but it also has weak, badly managed banks that are piling up short-term debt in foreign currencies.

Then, the boom is punctured. These conditions describe events in Chile in 1981 and Asia in 1997. The difference between earlier crises and more recent ones, she said, is how quickly the effects of the latter spread to other regions.

How can these crises be...

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