14 October 2012, 10:39

Developed economies: why do they suffer crisis?

Developed economies: why do they suffer crisis?
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Mikhail Golovnin – Deputy Director of the Institute of Economics, Russian Academy of Sciences, about main problems of global financial system.

In the new economic environment with the crisis still lingering the IMF seems to be somehow softening its stance in its dealing with the governments applying for getting money from the IMF.

I think to some extent yes, because you see that the main problem countries now are advanced economies. And when the crisis is in emerging markets in developing countries of course the IMF can heavily persist on the conditions. Now the situation changed and of course there is a broader problem of reforming the international financial organizations in order to change the whole environment which led to this global financial and economic crisis, and also some financial reforms and reforms of international monetary system maybe too.

Which direction could the revision of the existing global financial system take?

I think the main part is more persistent, stronger financial regulation of different financial markets, both on national and on global level too. And I think this is the main task of international financial institutions now to create such a framework not only on the national but also on the supranational level. And from the point of view of reforms in the international monetary system, in my point of view this is not so evident because there are many talks on changing the role of US dollar and euro and so on. But anyway we can see from the data and from the main trends that the US dollar is still the dominant international currency. But there may be some reforms but I think in a longer term and they are not so acute now as the reforms of the financial sector.

How about the reforms of the banking sector?

I think this is the step in the right direction but only one of the steps, I mean these basal three requirements and so on – these are the steps towards the strengthening of financial regulation. But of course there should be other steps and also maybe to somehow regulate international capital flows which from my point of view to a large extent influenced these global imbalances which are often mentioned as one of the problems of global monetary system.

It seems that in Europe we are witnessing an emerging trend of consolidating of the banking sector. Is that a part of the general global trend or is it a strictly European phenomenon?

Of course the initial impact was the global one and also not only global but initially American one. But now this problem may be to some extent intra-European and can be interregional also because of its influence on emerging markets closely related to Europe, by the way Russia, or some other economies. And of course there maybe some external consequences and they can lead to new tensions in the global financial system and maybe even in the global economy as well.

Now, as we’ve mentioned the developing countries and emerging countries, as far as I understand the BRICS initiative consists in creating a BRICS bank of development. What would that imply?

I think this is one of the steps of this increasing role of emerging and developing countries, and first of all the countries with large economies which really BRICS are. And that’s why of course they somehow try to increase their role in global governance and by creating their own institutions in financial sphere which is rather underdeveloped in these countries compared with advanced economies. I think that in this way these steps maybe in the right direction but of course there may be many political tensions because really the financial interactions between the BRICS countries are not so high as for example between the European countries. But anyway, there may be some interest in economic projects which could be financed by those countries and their bank. But the scope is rather limited from economic point of view.

Sir, and finally, at the beginning of our conversation you’ve mentioned certain political tensions, both at the meeting and in a broader context, when we were talking about the IMF and the WB. Could you focus a little bit on those?

The problem is that of course there are some bilateral political tensions but also there are some economic backgrounds for the increasing interactions between countries, I think first of all Asian countries because now the main political tensions are between the Asian countries, for example China and Japan, the Republic of Korea and Japan and so on. And I think these political tensions can be to some extent solved. There is actually an economic background in this region for the closer interaction. And there are many interesting initiatives for example in the sphere of financial integration and so on.

But the IMF has been much criticized over the last month for its hard-handed policy?

I think that overall the IMF now is changing. And I think probably no one clearly knows in what direction. So, there is an expectation that there should be some new points in this role, for example concerning this financial sector regulation and soon. But of course there are many contradictions, especially concerning the distribution of the IMF quotas. And I think now this is the main question because of course there will be losers, there will be winners and of course there will be tensions. But anyway, to some extent this problem should be solved because actually it is an objective that the emerging and developing countries should increase their role in the IMF.

Sir, thank you so much. And just to remind you our guest speaker was Mikhail Golovnin – Deputy Director of the Institute of Economics, Russian Academy of Sciences.

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