Predicting Financial Crisis in Developing Economies: Astronomy or Astrology?

In the aftermath of the European currency crisis of 1992-3, the Mexican financial crisis of 1994-5 and the Asian financial crisis of 1997-8, neoclassical economists in the academy and policy community have been engaged in a project to develop predictors or indicators of currency, banking and generalized financial crises in developing economies. This paper critically examines the efforts of the economics profession in this regard on both empirical and theoretical grounds. The paper argues that these predictors perform poorly on empirical grounds--indeed, the predictors developed after each of these crises failed to predict the next major crisis. These predictors are also rejected on theoretical grounds. From a post-Keynesian perspective, there is no reason to expect that the mere provision of information will prevent crises by changing agents' behaviors. The paper will also propose several indicators that are consonant with post-Keynesian economic theory, although it will be argued that these indicators do not represent a sufficient means to prevent financial crisis. Ironically, as agents develop confidence in the predictive capacity of crisis indicators, they may engage in actions that increase the economy's vulnerability to crisis. Far more important to the project of preventing financial crisis in developing economies is the implementation of constraints on those investor behaviors that render liberalized, internationally integrated financial systems inherently prone to instability and crisis. Hence, intellectual capital would be more productively expended on devising appropriate changes in the overall regime in which investors operate (such as measures that compel changes in financing strategies) rather than in searching for new predictors of crisis.Financial Crisis

Promising Avenues, False Starts and Dead Ends: Global Governance and Development Finance in the Wake of the Crisis

Grabel addresses three related questions. How is the crisis affecting the governance of the IMF and the influence that developing countries have within the institution; the policy space available to developing countries; and the prospects that alternative financial architectures will emerge as competitors or complements to the Fund? At this point it appears that IMF practice on capital controls has changed partly as a consequence of the crisis, that relatively autonomous developing countries are taking advantage of the policy space that has emerged, and that the global financial architecture is becoming more heterogeneous and multi-nodal. Developing countries do not yet enjoy more formal influence at the IMF as a consequence of the crisis. However, it is premature to conclude now that the formal and informal influence of developing countries will not increase in the coming years.Global financial crisis; policy space for development; International Monetary Fund; capital controls; regional financial governance; global governance

TRIP WIRES AND SPEED BUMPS: MANAGING FINANCIAL RISKS AND REDUCING THE POTENTIAL FOR FINANCIAL CRISES IN DEVELOPING ECONOMIES

This paper investigates the shortcomings of the “early warning systems” (EWS) that are currently being promoted with such vigour in the multilateral and academic community. It then advocates an integrated “trip wire-speed bump” regime to reduce financial risk and, as a consequence, to reduce the frequency and depth of financial crises in developing countries. Specifically, this paper achieves four objectives. First, it demonstrates that efforts to develop EWS for banking, currency and generalized financial crises in developing countries have largely failed. It argues that EWS have failed because they are based on faulty theoretical assumptions, not least that the mere provision of information can reduce financial turbulence in developing countries. Second, the paper advances an approach to managing financial risks through trip wires and speed bumps. Trip wires are indicators of vulnerability that can illuminate the specific risks to which developing economies are exposed. Among the most significant of these vulnerabilities are the risk of large-scale currency depreciations, the risk that domestic and foreign investors and lenders may suddenly withdraw capital, the risk that locational and/or maturity mismatches will induce debt distress, the risk that non-transparent financial transactions will induce financial fragility, and the risk that a country will suffer the contagion effects of financial crises that originate elsewhere in the world or within particular sectors of their own economies. It argues that trip wires must be linked to policy responses that alter the context in which investors operate. In this connection, policymakers should link specific speed bumps that change behaviours to each type of trip wire. Third, the paper argues that the proposal for a trip wire-speed bump regime is not intended as a means to prevent all financial instability and crises in developing countries. Indeed, such a goal is fanciful. But insofar as developing countries remain highly vulnerable to financial instability, it is critical that policymakers vigorously pursue avenues for reducing the financial risks to which their economies are exposed and for curtailing the destabilizing effects of unpredictable changes in international private capital flows. Fourth, the paper responds to likely concerns about the response of investors, the IMF and powerful governments to the trip wire-speed bump approach. The paper also considers the issue of technical/institutional capacity to pursue this approach to policy. The paper concludes by arguing that the obstacles confronting the trip wire-speed bump approach are not insurmountable.

Financial Policy

.Financial Policy, Economic Policies, MDGs, Poverty, Pro-Poor Growth, Training, Programme, Research

Capital Management Techniques In Developing Countries: An Assessment of Experiences From the 1990s and Lessons for the Future

The Ghana Poverty Reduction Strategy (GPRS) is currently Ghana's blueprint for growth, poverty reduction, and human development. It represents the framework the government of Ghana adopted to foster economic growth and fight poverty. A joint ILO/UNDP team was set up to specifically study the employment initiatives, programs, and projects that the government of Ghana is currently pursuing within the context of the GPRS. This report examines the current content of the GPRS with regard to employment; identifies challenges for realizing employment objectives; and develops recommendations for strengthening the employment content of national policies. In doing so, it outlines the elements of an employment framework for poverty-reducing growth in Ghana.

CAPITAL MANAGEMENT TECHNIQUES IN DEVELOPING COUNTRIES: AN ASSESSMENT OF EXPERIENCES FROM THE 1990S AND LESSONS FROM THE FUTURE.

This paper uses the term, capital management techniques, to refer to two complementary (and often overlapping) types of financial policies: policies that govern international private capital flows and those that enforce prudential management of domestic financial institutions. The paper shows that regimes of capital management take diverse forms and are multi-faceted. The paper also shows that capital management techniques can be static or dynamic. Static management techniques are those that authorities do not modify in response to changes in circumstances. Capital management techniques can also be dynamic, meaning that they can be activated or adjusted as circumstances warrant. Three types of circumstances trigger implementation of management techniques or lead authorities to strengthen or adjust existing regulations: changes in the economic environment, the identification of vulnerabilities, and the attempt to close loopholes in existing measures. The paper presents seven case studies of the diverse capital management techniques employed in Chile, China, Colombia, India, Malaysia, Singapore and Taiwan Province of China during the 1990s. The cases reveal that policymakers were able to use capital management techniques to achieve critical macroeconomic objectives. These included the prevention of maturity and locational mismatch; attraction of favoured forms of foreign investment; reduction in overall financial fragility, currency risk, and speculative pressures in the economy; insulation from the contagion effects of financial crises; and enhancement of the autonomy of economic and social policy. The paper examines the structural factors that contributed to these achievements, and also weighs the costs associated with these measures against their macroeconomic benefits. The paper concludes by considering the general policy lessons of these seven experiences. The most important of these lessons are as follows. (1) Capital management techniques can enhance overall financial and currency stability, buttress the autonomy of macroeconomic and microeconomic policy, and bias investment toward the long-term. (2) The efficacy of capital management techniques is highest in the presence of strong macroeconomic fundamentals, though management techniques can also improve fundamentals. (3) The nimble, dynamic application of capital management techniques is an important component of policy success. (4) Controls over international capital flows and prudential domestic financial regulation often function as complementary policy tools, and these tools can be useful to policymakers over the long run. (5) State and administrative capacity play important roles in the success of capital management techniques. (6) Evidence suggests that the macroeconomic benefits of capital management techniques probably outweigh their microeconomic costs. (7) Capital management techniques work best when they are coherent and consistent with a national development vision. (8) There is no single type of capital management technique that works best for all developing countries. Indeed our cases, demonstrate a rather large array of effective techniques. There are sound reasons for cautious optimism regarding the ability of policymakers in the developing world to build upon these lessons. In particular, we are heartened by the growing understanding of the problems with capital account convertibility in developing countries; by the increasing recognition of the achievements of capital management techniques by important figures in academia, the IMF and the business community; and by the potential for some developing countries (such as Chile, China, India, Malaysia and Singapore) to play a lead role in discussions of the feasibility and efficacy of various capital management techniques.

Capital Controls in a Time of Crisis

The startling resuscitation of capital controls during the global crisis has substantially widened policy space in the global north and south. The paper highlights five factors that contribute to the evolving rebranding of capital controls. These include: (1) the rise of increasingly autonomous developing states, largely as a consequence of their successful response to the Asian crisis; (2) the increasing confidence and assertiveness of their policymakers in part as a consequence of their relative success in responding to the global crisis at a time when many advanced economies have and still are stumbling; (3) a pragmatic adjustment by the IMF to an altered global economy in which the geography of its influence has been severely restricted; (4) the intensification of the need for capital controls during the crisis not just by countries facing fragility or implosion, but also by those that fared “too well”; and (5) the evolution in the ideas of academic economists and IMF staff. The paper explores tensions around the rebranding of capital controls. These are exemplified by efforts to develop a hierarchy in which controls on inflows that are a last resort and are targeted, temporary, and non-discriminatory are more acceptable than those that are blunt, enduring, discriminatory, and that target outflows. In addition, tensions have increasingly focused on whether controls should be used by capital-source rather than just capital-recipient countries

Post-American Moments in Contemporary Global Financial Governance

It is difficult to find much to celebrate about the current conjuncture, marked as it is by deeply destructive incoherence. The best that can be said is that we are in an interregnum. But I suggest that today’s incoherence also includes productive and even transformative moments. I argue that incoherence in global financial governance should be understood as productive in several respects. It is creating and widening alternative spaces in which some of the values, practices, tools, objectives, and goals associated with embedded liberalism can be rearticulated in a world in which there is no “order,” American-led or otherwise. The silver lining of incoherence is that it creates space for experimentation and innovation unconstrained by an overarching “ism.” Incoherence is creating exits or leakages from noxious national and global policy environments, rendering it less poisonous than it would be in the absence of ideational aperture and contestation, competing policies, institutions, networks, and poles of power. The abdication by the US of its traditional role of global coordination and discipline, as exerted under the post-war embedded liberal or the neoliberal American-led orders, is creating opportunities for more permissive and varied “reembededness” and diverse forms of economic integration. The emerging regime reflects neither your grandmother’s American-led order 1.0 or 2.0. In this morbid post- American interregnum there is no singular “ism” or “alternative order,” a fact that I do not mourn

Carbohydrate specificity of sea urchin sperm bindin: a cell surface lectin mediating sperm-egg adhesion.

We have examined the carbohydrate specificity of bindin, a sperm protein responsible for the adhesion of sea urchin sperm to eggs, by investigating the interaction of a number of polysaccharides and glycoconjugates with isolated bindin. Several of these polysaccharides inhibit the agglutination of eggs by bindin particles. An egg surface polysaccharide was found to be the most potent inhibitor of bindin-mediated egg agglutination. Fucoidin, a sulfated fucose heteropolysaccharide, was the next most potent inhibitor, followed by the egg jelly fucan, a sulfated fucose homopolysaccharide, and xylan, a beta(1 leads to 4) linked xylose polysaccharide. A wide variety of other polysaccharides and glycoconjugates were found to have no effect on egg agglutination. We also report that isolated bindin has a soluble lectinlike activity which is assayed by agglutination of erythrocytes. The bindin lectin activity is inhibited by the same polysaccharides that inhibit egg agglutination by particulate bindin. This suggests that the egg adhesion activity of bindin is directly related to its lectin activity. We have established that fucoidin binds specifically to bindin particles with a high apparent affinity (Kd = 5.5 X 10(-8) M). The other polysaccharides that inhibit egg agglutination also inhibit the binding of 125I-fucoidin to bindin particles, suggesting that they compete for the same site on bindin. The observation that polysaccharides of different composition and linkage type interact with bindin suggests that the critical structural features required for binding may reside at a higher level of organization. Together, these findings strengthen the hypothesis that sperm-egg adhesion in sea urchins is mediated by a lectin-polysaccharide type of interaction