Africa: Coping With World Bank-Led Financialization

The World Bank has successfully promoted its 'Maximizing Finance for Development' (MFD) strategy by embracing the United Nations' Sustainable Development Goals, internationally endorsed in September 2015.

It has also secured support from the G20 of twenty biggest economies, and effectively pre-empted alternative approaches at the third UN Financing for Development summit in Addis Ababa in mid-2015.

As the main 'show in town', developing countries will need to address the MFD's implications by responding pro-actively and collectively to address the new challenges it poses.

Managing new macro-financial challenges

As the MFD agenda privileges foreign investors and portfolio inflows, multilateral development banks (MDBs) should be obliged to clearly show how developing countries will benefit.

Greater vulnerability and other adverse implications of being more closely integrated into fickle global financial markets, which detract from the ostensible advantages of such integration, are now widely acknowledged.

The IMF and other international financial institutions (IFIs) should also advise on the efficacy of various policy instruments, such as macroprudential measures, including capital controls, to ensure central bank control of domestic credit conditions.

Although portfolio flows are generally recognized as pro-cyclical, IFIs reluctantly recommend capital controls, and even then, only after governments have exhausted all other monetary and fiscal policy options.

After experiencing repeated boom-bust cycles in capital flows, many emerging markets have learnt that they must manage such flows if they are to reap some benefits of financial globalization while trying to minimize risks.

Addressing systemic risks

In fact, many concerned economists believe that monetary and fiscal policies cannot adequately address such systemic fragilities, but may inadvertently exacerbate them, e.g., raising interest rates may attract more capital inflows, instead of just stemming outflows. Read more on All Africa 

Source: All Africa