foresight for crisis prevention

As part of their efforts to professionalize crisis and conflict prevention, foreign policy-makers are investing more in foresight, early warning or prediction. Different approaches and their products are suited for different purposes, based on distinct strengths and weaknesses. This policy paper provides an overview of the most common methods used in the context of preventing violent conflict and governance breakdown, and offers guidance on what to look out for when thinking about and planning for the future of crisis prevention

Crisis Prevention: Tackling Horizontal Inequalities

Civil wars not only cause huge amounts of human distress, but are also a major cause of low-incomes. Hence their prevention should be a central aspect of poverty reduction strategies. Since about half low-income countries have been affected by wars, and a much higher proportion of the very worst off economies, policies to prevent conflict should form a central part of policies towards low-income countries. The paper draws conclusions from a research programme undertaken by WIDER and Queen Elizabeth House, Oxford which included a large number of case studies of countries that have suffered conflict in recent years. Civil wars occur when groups mobilise against each other; their leaders use ethnicity or some other characteristic like religion, to unite and mobilise the group. Such mobilisation is effective where there are substantial horizontal inequalities, i.e. inequalities among groups, which cause resentment. Such inequalities have political, economic and social dimensions. Other factors, e.g. growth failures and a weak state, are also often present in countries in which violent conflict occurs on a substantial scale. However, strong states also frequently initiate conflict, by attacking groups which they believe might threaten the ruling power. Policies to prevent conflict need to be directed at reducing horizontal inequalities in conflict-prone countries in all dimensions - political, economic and social. A major problem, however, is that domestic governments may not wish to pursue such policies, as they want to continue the dominance of their own group. International donors can contribute through their own expenditures, and also through policy conditionality. In practice, current conditionalities do not contribute to a reduction in horizontal inequality except accidentally. Current political conditionality is concerned with establishing democracy, not inclusive government, while current economic and social conditionality is directed towards promoting growth and efficiency and poverty reduction but not reducing horizontal inequality. Yet, the prevailing conditionalities will not succeed in realising their objectives of economic growth and democracy if civil war occurs. Hence they need to be changed for conflict-prone countries to place the reduction of horizontal inequality as a central objective. Countries which are conflict-prone include countries that have had serious conflict over the previous twenty years, low-income countries and countries with sharp horizontal inequalities. For all such countries, the measurement of horizontal inequalities and the introduction of policies to offset them when they are excessive should complement general development policies.

A Critical Review of the IMF's Tools for Crisis Prevention

Against the backdrop of the International Monetary Fund’s (IMF) increasing focus on crisis prevention measures and the G20’s discussion of “global safety nets”, this paper analyses the IMF’s tools for crisis prevention, with particular emphasis on the recently developed Flexible Credit Line (FCL) and Precautionary Credit Line (PCL). The paper reviews why it took the Fund so long to develop crisis prevention facilities that would find subscribers and scrutinises initial experiences with the FCL and PCL. Moreover, it discusses the systemic implications of and problems associated with such crisis prevention facilities and examines why only so few countries are using these facilities thus far. Based on this analysis, it offers policy recommendations for the development of the IMF’s crisis prevention facilities

Governance of the world food system and crisis prevention

The present study offers a framework, rooted in Disaster Studies. The next few sections will first discuss the analytical tool box, which we have largely drawn from Disaster Studies. Thereafter the food regime will be looked into in the quantitative (food security, Section 3.1) and qualitative sense (food safety, Section 3.2), and the actors and rules and regulations for international food aid discussed. It will become clear that the private sector has a key role to play in both categories. Chapter 4 calls attention to the increasing complexities and uncertainties in the global food system that complicate food governance. To get anything done at all, a simplification seems necessary, such as declaring a food problem a safety issue

Elihu Root and Crisis Prevention

Elihu Root pursued two themes relevant to international law and crisis. He believed firmly in the value of arbitration and adjudication to prevent crisis. He also worked toward the codification and greater specificity of international law so that judges and arbitrators would have more law available to apply in aid of crisis prevention. When crisis had not been prevented, as in the case of World War I, Root did not in fact believe international law-either process or substance-had much to offer. In his view, the Kaiser started World War I because he was bent on hegemony. Arbitration would not stop him, only the use of armed force. Root, therefore, supported early U.S. entry into the war. Once the war ended, he fully supported the establishment of a world court to prevent the next war

Crisis Prevention and Management - What Worked in the 2008/2009 Crisis?

This paper takes a systematic look at the economic impact of the crisis that started in earnest in the fall of 2008 across countries and regions. Despite warnings of growing domestic and external imbalances in many countries years ahead of the crisis, the massive impact of the crisis came as a surprise to most. By correlating economic performance in the crisis with an extensive set of early warning, country insurance, and policy indicators, this paper provides some lessons on crisis prevention and management for the future. Although significant efforts have been made to develop robust early warnings systems, the paper shows the mixed success of some commonly analyzed indicators in predicting economic outcomes in this crisis. The only robust early warning indicator was increases in real estate prices while international reserves seem to have insured against the worst crisis outcomes on average. However, much work on building a robust early warning system remains and the analytical and empirical challenges in this area are substantial. The issues confronting early warning systems are also relevant to the more recent field of macro prudential supervision and regulation. Nevertheless, the cost of crises is massive and preventing future ones with better regulation, policies and supervision based on solid research must be a top priority among policy makers and academics alike.Economic crisis; crisis prevention; early warning indicators

Transnational governance in global finance - the principles for stable capital flows and fair debt restructuring in emerging markets

This paper analyses and assesses the track record and effectiveness of the so-called “Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets”,which have emerged as an important instrument for crisis prevention and crisis resolution in the international financial system. The paper argues that, notwithstanding their low profile, the Principles which were jointly agreed between sovereign debtors and their private creditors in 2004 have proved to be an effective instrument in spite of their voluntary and nonbinding nature. Indeed, an increasing number of sovereign debtors and private creditors have adopted the Principles’ recommendations on transparency and the timely flow of information, close dialogue, “good faith” actions and fair treatment. Two elements have been critical to the success of the Principles: (i) their specific design feature as a soft mode of governance agreed by a transnational public-private partnership and (ii) the “hardening” after their launch in terms of precision and delegation, thus moving them somewhat along the continuum of soft law and hard law towards the latter. The paper also makes the case that the Principles and their design features can provide some lessons for the current international policy debate on codes of conduct in global financial regulation.. JEL Classification: F34, F51, F53, G15, G18.Crisis prevention, debt restructuring, sovereign default, soft law, transnational public-private partnership, global financial governance.