Rogerio Studart
Executive Director for Brazil, Colombia, Dominican Republic,
Ecuador, Haiti, Panama, Phillipines, Suriname, and Trinidad
Tobago
The World Bank Group rstudart@worldbank.org

• Additionality:
– More resources for sustained inclusive development and poverty reduction, thus to meet the Millenium
Development Goals;
– net real resources transfers from developed to developing countries;
• Stability and enabling environment
– To promote a fair and inclusive trade system
– To promote orderly flows of capital to developing countries
– To avoid uneven distribution, and especially, volatility of capital flows

• Trade : Sustainable growth of developing countries exports (which in turn would allow a sustainable increase of imports of essential goods for development);
• Capital flows : Orderly and even expansion of net capital flows to developing economies, which again lead to sustainable increase of imports

• Sound macroeconomic policies and appropriate rule of law in developing
(assuming developed economies would also follow this principle);
• Enabling international economic environment, including fair trade system and stable and inclusive international financial architecture

• Net exports from developing countries have increased fast, but
• For the great majority of developing countries it was partly a result of a hike of commodity prices, as a side-product of a rapid increase in demand in developed economies (and in secondary demand coming from those developing economies which supplied labor-intensive consumer goods to developed economies);
• For most developing economies, a significant part of such expansion ended up as accumulated reserves, or was used to repay debt
• In many developing economies this reserve accumulation led to exchange rate appreciation which stimulated demand (of the rich) rather than expansion of infrastructure, productive capacity or consumption of the poor

• Net capital flows have also increased but
– North-South FDI has been directed to a limited number of developing countries, which
• Happened to be the fastest growing ones, with expansion led by net exports, not always faring well when it come to the conventional
“doing business” and other “investment climate” indicators
• Therefore to developing economies that did not require more capital flows in order to finance their domestic investment
– Other North-South financial flows went after arbitrage gains, created either by excessively high domestic interest rates
(particularly if exchange rate appreciation was occurring) and where securities markets provided cyclical, speculative, investment opportunities

• Trade growth was only partly the result of trade liberalization; it was more the outcome significant and unsustainable disequilibria in world macro economy (consumption in the “North” and exportrelated infrastructure investment in the “South”);
• Financial flows have also been the result of the rapid and unsustainable increase in liquidity partly based on highly speculative expansion in the main developed financial markets (including the mortgage and consumer credit markets);
• Note: South-North flows went primarily to finance increasing public debts in the developed World, as a result of a clearly unsustainable macroeconomic policies. Only recently South-North and South-
South FDI has increased (interestingly this phenomenon has been significantly criticized in multilateral fora).

•
Since Monterrey
– We moved very little towards a trade system which facilitated the sustainable increase of net exports for all the developing world
– We have failed to establish an international financial architecture that led to the sustainable increase of productive capital flows to the developing world, and allowed for expansion of financial fragility in developed countries markets (which ended up in the crisis we see now)
– Macroeconomic policies in the developed economies did not warrant a enabling international environment and did stimulate fragility (and instability) –in some countries those policies were clearly not sound and/or sustainable.
– In the developing world, many of us counted too much on globalization as an engine of growth and prosperity, underestimating
• the need to enhance domestic mechanisms of resources allocation,
• the necessity to invest in infrastructure and increase domestic markets (as engine of growth) and
• the advantages in fostering regional integration and South-South cooperation (again as engines of growth and development)

• Use all instruments available to avoid a deepening of the current financial crisis;
• Move on with the trade agenda, prioritizing developing economies’ access to markets and technology
• Reestablish sound macroeconomic policies (but cautiously…), with particularly attention to sustainable growth of demand (that would be good for the environment too, by the way).

• Commit to a rapid increase to ODA
• Fully support a widening of the role of Multilateral institutions, and keep your minds open and flexible
– Institutions such as the IMF, the World Bank, the Asian Development
Bank, the African Development Bank, Inter-American Bank, CAF etc; should be ready to use all their existing instruments (and to create new ones) to expand their support their developing economies in the years to come;
– Promote a review of culture, business environment and conditionalities
– Understand that more equitable Voice, Quota and Representation
Structure is a matter of justice, but also a matter of efficiency (you serve the clients better and more promptly if your can hear them more)
• Work harder on the other parts of the international financial architecture , such as regulations, transparency and controls, in order to avoid another crisis is 5 years

• Sound macroeconomic policies important, but not enough: the challenge now is how to achieve sustained Inclusive growth (as Undersecretary
Barbosa said yesterday)
• Expanding trade is good, but focus on expanding domestic markets through
– social and economic inclusion (not to mention that this is a question of equity and justice too)
– Infrastructure – for growth and for the poor
– Regional integration

• Improving governance and business climate is good, but not enough
– develop appropriate domestic financial architecture
(or risk-sharing mechanisms, as mentioned by
Professor Kahn yesterday)
– Replicate and scale up experiences of developing countries
– Be pragmatic (rather than dogmatic) and deal with risk-sharing problems with what you have in hand
• Create appropriate incentives to attract productive foreign capital, but be cautious of short-term, potentially destabilizing capital flows