RSS FeedBy M. Isi Eromosele
It is imperative that global financial institutions play a crucial in restoring the world economy, especially because there has to be combined action to correct the difficulties that has ensued from incompetent market.
In the capital markets, there are three types of breakdowns: non-interactive communication between lenders and borrowers, investor herding and contract implementation difficulties. While there are regulatory procedures in place to resolve these problems at the national level, there are none at the global level.
The emerging economies still need global financial institutions to help them preserve their access to capital markets on realistic terms. Low income countries especially require developmental assistance as well as expert policy advice. Additionally, the low income emerging market countries will continue to need world financial agency assistance for loans to affect infrastructure developments. As such, emerging countries will continue to need full global support during their adjustments to the financial shocks they have endured during the global economic downturn.
Global financial institutions have considered a number of suggestions in how to reform their role. A majority opinion seems to be leaning to having developmental lending be more directed towards projects that would alleviate poverty in low income and middle income emerging economies. Concurrently, the private sector will expand its function in providing long-term economic development financing to these same countries.
The International Monetary Fund (IMF) should concentrate its efforts on offering financial stabilization recommendations to the emerging economies. Additionally, they should provide enough funds to help maintain their liquidity. They should desist from putting unproductive pressure on these countries, especially on matters that are outside the IMF’s functional mandate.
The World Bank needs to make the provision of funding for social and economic infrastructure the center of its attention. This is especially true in areas where private capital is unavailable at favorable rates. The World Bank should support the funding with long-term development recommendations. Finally, the two global financial institutions have to be more effective in synchronizing their activities when dealing with emerging economies.
It is a fact that the growth of global financial activities has outstripped that of real global output. As such, the scale of global capital outflows has become an impediment to governmental sectors’ capability to provide funding for liquidity during a crisis. Even though the IMF recently announced the execution of new lines of credit to member nations, as written in the New Arrangements to Borrow Agreement, the resources that can be provided through government sources is inadequate to meet the global capital outflows.
The International Monetary Fund should be a lender of last resort in a situation when an emerging market country is basically in the black but is experiencing liquidity problems. Emerging market countries could also be helped by the International Monetary Fund to restructure and refinance their outstanding debt. While the World Bank may focus a major part of its capital on helping low income countries, they could also help middle income countries by assisting them with infrastructure financing, perhaps through long-term bond underwriting.
M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance
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