United Nations Trade and Development Report

English
Frequency
Annual
ISSN: 
2225-3262 (online)
http://dx.doi.org/10.18356/2e290808-en
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The Trade and Development Report (TDR), launched in 1981, is issued every year for the annual session of the Trade and Development Board. The Report analyses current economic trends and major policy issues of international concern, and makes suggestions for addressing these issues at various levels.
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Trade and Development Report 2015

Trade and Development Report 2015

Making the International Financial Architecture Work for Trade and Development You do not have access to this content

English
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Author(s):
UNCTAD
15 Dec 2015
Pages:
220
ISBN:
9789210573610 (PDF)
http://dx.doi.org/10.18356/8795f600-en

Hide / Show Abstract

The Trade and Development Report (TDR), launched in 1981, is issued every year for the annual session of the Trade and Development Board. The Report analyses current economic trends and major policy issues of international concern, and makes suggestions for addressing these issues at various levels.
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  • Explanatory notes
  • Abbreviations
  • Overview
    Money makes the world go round, or so the song goes. It can also send it spinning out of control, as witnessed during the 2008 global financial crisis. In response to the soaring economic and social costs that followed, the international community called for a new financial songbook. Gordon Brown, chief conductor of the G20 choir at the time, placed the blame firmly on inadequately regulated financial institutions that had become less “stewards of people’s money” and more “speculators with people’s futures”; what was needed, he insisted, was new global rules underpinned by shared global values. Shortly after, the leaders of the BRIC countries, at their first summit in the Russian Federation, called for more democratic international financial institutions, along with a stable, predictable and more diversified international monetary system. The United Nations General Assembly added its universal voice with a blueprint for reforming the international financial system, noting, in particular, as an urgent priority, “comprehensive and fast-tracked reform of the IMF”.
  • Current trends and challenges in the world economy
  • Have commodity markets de-financialized?
    Financialization of commodity markets refers to the observation that commodities have become an asset class for portfolio investors, just like equities and bonds. While the debate on financialization is ongoing, a significant body of analysis suggests that commodity price dynamics have changed substantially since the early 2000s, and that these changes have been associated with a sizeable increase in financial investors’positions on commodity markets, as well as with changes in the composition of these positions (TDRs 2009 and 2011; UNCTAD, 2011).
  • Financialization and its macroeconomic discontents
    The growing influence of financial markets and institutions, known as “financialization”, affects how wealth is produced and distributed (UNCTAD, 2011). Consequently, the increasing integration of developing and transition economies (DTEs) into the global financial system, and the acceleration of capital flows into these countries since the turn of the millennium, have fuelled discussion about the links between openness, financial deepening and economic development. Increasing financial integration has the potential to enhance access to external financing for development. However, this chapter argues that there has been only a weak link between the integration of most DTEs into global financial markets and their longterm development. This link has experienced further strains in recent years due to overabundant liquidity generated by central banks in developed countries. While several DTEs have exhibited strong growth and current account surpluses (or lower deficits) over the past decade, accumulating, in aggregate, considerable external reserve assets, their greater openness to increasingly large and volatile international capital flows, especially short-term speculative flows, has exposed them to the risks of financial boom-and-bust cycles. This chapter details the implications of such risks from a macroeconomic perspective.
  • Systemic challenges in the international monetary system
    The tensions and troubles in today’s global economy emerge from the interaction between weak effective demand and persistent financial instability. The global financial crisis in 2008 was a reminder of the economic and social damage that such an interaction can generate. Much of the subsequent reform effort has concentrated on repairing bank balance sheets, strengthening regulatory frameworks and improving the resilience of financial institutions to shocks through actions at the national and international levels. This is an ongoing process (see chapter IV of this Report). But the success of such efforts is closely related to global macroeconomic forces whose current weakness stems partly from the malfunctioning of the existing international monetary system (IMS).
  • Financial regulatory reform after the crisis
    In the aftermath of the 2008-2009 global financial crisis, political leaders acknowledged that there were serious shortcomings in the way financial markets and institutions had been regulated. This was amply demonstrated by the failure of large private banks to manage risk, the unchecked expansion of a shadow banking system and the excessive reward schemes common throughout the entire financial sector. Initially, they showed a willingness for fundamental reform of the system aimed at making it more stable, less prone to crises and more resilient to shocks, as well as to orient it more towards supporting the real economy and economic development. They also recognized the need to accommodate the interests and concerns of the larger developing economies in the design of any subsequent reform agenda. Thus in late 2008, the G8 was replaced by the G20, which includes the larger developing countries, as the most relevant forum for international coordination and decision-making. Some of these countries were also given membership in the Financial Stability Board (FSB), which succeeded the Financial Stability Forum (FSF) to coordinate the activities of various financial standard-setting bodies and to take charge of monitoring implementation of the financial reforms agreed by the G20 countries.
  • External debt and debt crises: Growing vulnerabilities and new challenges
    The preceding chapters analysed the major weaknesses in the existing international monetary and financial system, which limit its ability to promote and maintain global economic stability. They also constrain the efforts of policymakers, in developed and developing countries alike, to achieve more inclusive and sustainable growth paths. At the macroeconomic level, the current system has failed to substantially reduce volatility in financial markets and to correct persistent global imbalances. In addition to the often high social and economic costs to individual countries, this has also led to the continued accumulation of large external debts. At the microeconomic level, as discussed in the previous chapter, regulation has failed to curb the high risk-taking and procyclical behaviour of various financial institutions, which was at the root of the 2008-2009 global financial crisis. Thus the risk of future financial and debt crises persists.
  • Long-term international finance for development: Challenges and possibilities
    A concern that has emerged repeatedly in the previous chapters is the apparent inability of the current global monetary and financial systems to make available long-term finance for growth and development. This chapter considers some of the possible strategies for ensuring the provision of such finance. The focus is on the financing of productive capital formation, including for infrastructure, which helps, directly and indirectly, to accelerate growth and structural change. This effectively requires challenging the rationale underlying private financial flows that are driven by short-term profits and rents, and strengthening mechanisms for mobilizing and allocating both domestic and external finance for value creation and development over a longer time horizon. While domestic resources (both private and public) are likely to remain the most important (TDRs 2008 and 2013), international finance can play an important role when domestic funding is not available or is insufficient, particularly when a country is in need of foreign exchange to import capital goods and production inputs beyond what it earns through its exports of goods and services.
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