No Method in this Confusion C.P. Chandrasekhar

Reserve Bank of India Governor Raghuram Rajan faces a challenge greater than that confronting his peers. Having taken office when the task of dealing with the global crisis had ostensibly been done with, he cannot appeal to circumstances to defend actions that go contradictory to his professed faith. Developed country finance ministers and central bankers did that through the crisis—borrowing to spend while swearing by fiscal consolidation or pumping liquidity into the system while claiming to be committed to a monetary policy framework that makes reining in inflation its prime target. Rajan took office when many claimed the crisis was…

Is Global Finance Finally Shrinking? Jayati Ghosh

It is obvious that the recent boom in global capitalism had witnessed massive over-extension of finance. What has been described as “financialisation” reflected not only the ever-greater penetration of finance capital into more activities of the real economy and involvement in critical markets such as those for commodity futures that affect traded prices of food and fuel, but also huge and volatile movements of capital across national borders. By 2007, global stocks of financial assets (both equity and debt stocks) amounted to $206 trillion.  This meant that financial assets were more than 4 times the maximal estimate of GDP in…

The Endless Eurozone Crisis, Where Do We Stand? A Classical-Kaleckian Overview Sergio Cesaratto

This paper reviews the main causes of the Euro Zone financial crisis and argues that the prevailing crisis resolution philosophy resembles the original deflationary Euro-bias. Endless_Eurozone_Crisis (Download the full text in PDF format) (This article was originally published in The Quaderni del Dipartimento di Economia Politica e Statistica (Department of Economics and Statistics Working Papers) in February 2013.)

Changing the Investment Policy Menu Smitha Francis

The WIR rightly focussed on the interactions between national investment policymaking and international agreements. But its investment policy reform agenda remains incomplete. Changing_Investment_Policy  (Download the full text in PDF format) (This article was originally published in the Economic and Political Weekly, Vol. XLVIII, No. 05, February 02, 2013.)

Financial Convergence in Asia C.P. Chandrasekhar and Jayati Ghosh

The recent Asian experience with financial convergence suggests that financial proliferation largely facilitates new lines of business in financial services and affects the real economy more from the demand side through the debt-financed household expenditure it promotes. Thus excessive exposure to retail markets becomes a source of fragility in these countries just as it did in the developed countries. Asia (Download the full text in PDF format) (This article was originally published in the Business Line on 3 September 2012)

The Nature of Aid Dependence Syed Akmal Hussain

Pakistan’s debt servicing burden has once again reached unsustainable levels. As the exchange rate depreciates rapidly under balance of payments pressures the economic crisis deepens. Amidst the gathering storm the current high level of indebtedness has become a cause of concern for government, Parliament and the opposition parties. It may be helpful to examine the factors underlying the perennial problem of Pakistan’s aid dependence to understand why such a crisis recurs with unsettling regularity. Consider first, the magnitude of the debt crisis at hand. State Bank data shows that the total external debt and liabilities are now over USD 60…

India and the Credit Rating Agencies Jayati Ghosh

The recent downgrade of India as a sovereign borrower by the US-based Fitch has come close on the heels of similar downgrades and placing on “negative watch” by the other big two international credit rating agencies. In April, Standard and Poor’s had lowered India's rating outlook from “stable” to “negative”, and June it warned that India become the first “fallen angel” among the BRICS nations to get a sovereign credit rating below investment grade. These moves have created hysteria in much of the media and near panic in official circles. The domestic financial press, being more susceptible to external perceptions…

How the Full Opening of the Capital Account to Highly Liquid Financial Markets Led Latin America to Two and a Half Cycles of ‘Mania, Panic and Crash’ José Gabriel Palma

Latin America has recently experienced three cycles of capital inflows, the first two ending in major financial crises. The author analyses the dynamics of the second cycle — from the 1989 ‘Brady-bonds agreement’ to the Argentinian 2001/2002 crisis (and 9/11). It is argued that these financial crises took place mostly due to factors that were intrinsic to the workings of over-liquid and under-regulated financial markets — and as such, they were both fully deserved and fairly predictable. In short, these crises point not just to major market failures, but to a systemic market failure. mania_panic_crash (Download the full text in…

India’s External Sector C.P. Chandrasekhar and Jayati Ghosh

Even before global currents caused relatively rapid outflows of mobile finance capital from India, the Indian economy was vulnerable on the external front. The recent pattern of growth that has been reliant on capital inflows to generate domestic credit-driven bubbles, rather than trade surpluses is not sustainable and puts the economy at greater risk. External_Sector (Download the full text in PDF format) (This article was published in the Business Line on January 9, 2012)