Financial Crisis and Global Imbalances examines—from a standpoint of promoting stability and growth in developing countries—key policy lessons to be drawn from the devastating global economic crisis of 2008–09. The crisis has exposed deep faultlines in the world economy which increase its susceptibility to instability and crises. A major overhaul of the international financial system is needed in order to reduce the likelihood of virulent crises and manage them better if they do occur. This calls for, among others, fundamental reforms to establish multilateral discipline over monetary and financial policies in systemically important countries, to bring systematically important financial institutions and cross-border capital flows under control, and to involve the private sector in crisis revolution.
Reducing the likelihood of future turmoil also requires that the gap in demand between surplus and deficit countries be bridged, and the skewed income distribution between capital and labour rebalanced.
In this collection of papers on the 2008–09 Great Recession and its implications, leading economist Yilmaz Aküz underlines the need for economic restructuring along the above lines with a view to more effective crisis prevention and intervention. Given their vulnerability to shocks and limited capacity to respond, he says, this reform process is an endeavour in which developing economies have a crucial interest.
1 Policy Response to the Global Financial Crisis:
Key Issues for Developing Countries
Policy Response in DEEs: Payments Constraint
and International Support
Reform of the International Financial
Summary of Policy Conclusions and Proposals
2 Global Economic Prospects:
The Recession May Be Over But Where Next?
Issues at stake
Bubbles, expansion and imbalances
Crisis, recession and recovery
No return to “business as usual”
- need for US adjustment
China too needs to adjust,
but it cannot be a global locomotive
Bringing in the bystanders: Germany and Japan
Exchange rate adjustments
Removing the deflationary bias in the
international financial architecture
3 Export Dependence, Sustainability
of Growth and Adjustment in China
Measurement of contribution of exports
to economic growth
Import Content of Exports
To what extent is growth in China export-led?
4 The Subprime Boom-Bust Cycle and
Capital Flows to Developing Countries
Previous post-war boom-bust cycles
Capital flows in the 2000s
The changing nature of capital flows
Changing vulnerabilities to boom-bust cycles
The impact of recent capital flows on DEEs
What is next?
Managing capital inflows
5 Why the IMF and the International Monetary
System Need More Than Cosmetic Reform
The IMF’s failures in financial analysis
and early warning
IMF surveillance and members’ obligations
The international reserves system
Crisis intervention and lending