Esteban Pérez Caldentey

The Concept and Evolution of the Developmental State

The developmental state is associated with the leading role played by the government in promoting industrialization in Japan and East Asia in the post-World War II era. Their respective governments pursued a series of policies, including tariff protection, subsidies, and other types of controls aimed at developing selected productive sectors of economic activity. Fundamental to the design of the developmental state for these countries was the creation of an alliance between politics and the economy, which materialized in the establishment of a specialized bureaucratic apparatus that had ample powers and coordinated the developmental efforts, at least in their initial stages. The developmental state and its associated policies are not unique to Japan or East Asia. A similar type of model, albeit a more restrictive one, was also followed in Latin America during the period that lasted from the end of World War II to the beginning of the 1960s and, in some cases, the 1970s. During this time, the state intervened in a number of areas and indeed made use of fiscal, exchange rate, monetary, and sectoral policies to promote the industrialization of Latin America. Neither are developmental state policies a feature limited to the twen tieth century. European countries used the same policies throughout the seventeenth and eighteenth centuries and the United States during the

Heterodox Central Bankers: Eccles, Prebisch and financial reform

The Great Depression led to a need to rethink the principles of central banking, as much as it had led to the rethinking of economics in general, with the Keynesian Revolution at the forefront of the theoretical changes. This paper suggests that the role of the monetary authority as a fiscal agent of government and the abandonment of the view of the economy as self-regulated were the central changes in central banking in the center. In addition, in the periphery central banks changed to try to insulate the worst effects of balance of payments crises and the use of capital controls became more common. Marriner S. Eccles, in the United States, and Raul Prebisch, in Argentina, are paradigmatic examples of those new tendencies of central banking in the 1930s.

How Stimulative Has Fiscal Policy Been Around the World

The current credit crisis and worldwide policy response have resurrected the reputation of fiscal policy. But the authors contend that it is still widely misunderstood. Many of those who now support fiscal stimulus—such as more government spending—have a limited view of its usefulness, one advocated by the pre-Friedmanite economists of the University of Chicago. It stands in contrast to the more thorough Keynesian revolution, which they argue now more than ever needs to be understood. The result has been far smaller fiscal stimulus packages than are necessary to return nations to rapid growth.

Macroeconomics for Development in Latin America and the Caribbean

The Macroeconomics for Development blueprint for Latin America and the Caribbean is articulated around two issues: an active strategy of productive development and a countercyclical policy stance. Macroeconomic countercyclicality refers to the management of the level of aggregate demand to dampen the fluctuations and volatility of real and nominal variables around their long-term trends. This paper argues that the cycle and trend are interdependent and that, as a result, countercyclical policies (i.e., aggregate demand policies) are not neutral to the long-run behavior of economies. The way counter cyclical policies are designed and implemented, including their timing and the type of instruments used, shape and determine, along with other factors, the long-run growth trend of economies. The nonneutrality of countercyclical policies is reflected in three specific features of the Latin American and Caribbean business cycle: (1) expansionary cycles are shorter and less intense in Latin America and the Caribbean in relation to other regions; (2) short-run fluctuations affect long-run outcomes through real and financial variables; (3) the financial system tends to act as an amplifier of real fluctuations, and real recoveries occur prior to credit recoveries. The analysis implies that countercyclical policy must not only steer the cycle through variations in the level of aggregate demand. It must also focus on the composition of aggregate demand. This entails, on the one hand, sustaining the duration and intensity of the expansion and avoiding the use of public investment as the adjustment variable during cycle fluctuations. It also means using macro prudential policy as a countercyclical tool to manage the composition and level of aggregate demand.

Global Imbalances and Economic Development

The current account position of the United States has deteriorated significantly since 1997. Between 1997 and 2006 the current account deficit rose from 2 percent to 6 percent of the gross domestic product (GDP). The widening external imbalance of the United States vis-à-vis the rest of the world is mirrored by large surpluses recorded in some Asian economies (mostly China) and oil-producing and European nations (Lane and Milesi-Ferretti 2005, 2006). The available evidence shows that in 2005 China and Malaysia registered current account surpluses equivalent to 7 percent and 12 percent of GDP, respectively. For their part, Middle Eastern oil-producing countries recorded a current account surplus of 8 percent of GDP on average for the same year. The current account surplus, along with foreign exchange interventions aimed in part at the preservation of existing market shares in the United States, has facilitated an unprecedented international reserve accumulation in emerging market economies (United Nations Conference on Trade and Development 2006). The process is most notable in Asia and the Middle East, which currently hold on average at least the equivalent of one-third of their GDP in international reserves.

Quantitative easing, changes in global liquidity and financial instability

Abstract This article argues that quantitative easing (QE) led to significant changes in the global financial system that are not conducive to greater financial stability. Through a policy of reserve accumulation, QE did not have a direct impact in the creation of global liquidity through bank lending. It rather reinforced the statistical decoupling between base money and the money supply and between deposits and loans. However, QE did have an effect on the composition of global liquidity by altering the relative profitability of investing in different assets and in this way exerted a positive effect on the performance of the international bond market, to which the decline in bank credit due to the deleveraging of global banks in the aftermath of the crisis contributed. The growing role of the international bond market facilitated the expansion of the debt of both the financial sector and the nonfinancial corporate sector in developing economies but also has reinforced the role of the asset management industry in financial markets. Due to its concentration and interconnectedness, illiquidity, and procyclicality, the asset management industry poses important risks to financial stability.

Un Fondo de Reservas Regional para América Latina (A Regional Reserve Fund for Latin America)

This paper analizes and presents empirical evidence on the feasibility, implications and challenges of an expansion of the Latin American Reserve Fund (FLAR) to cover twelve countries (Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Costa Rica, Mexico, Peru, Paraguay, Uruguay and Venezuela). The paper argues that a regional reserve fund for these twelve countries should not be conceived as a unique line of defense but rather as part of a wider set of support mechanisms to which countries may resort to confront Balance of Payments difficulties. In order to estimate the possible size of a Fund for the twelve countries, we begin from the premise that regional reserve funds are one of the various mechanisms of the international financial architecture. As a result the size of Fund can be smaller than one built on the idea of a lender of last resort to all its members. In this sense the Fund should not necessarily cover extreme scenarios such as systemic crises or generalized contagion. It should be calibrated to cover the most likely scenarios (according to our results those in which only a fraction of members present simultaneous Balance of Payments problems). A fund calibrated to cover the most likely scenarios is within manageable ranges – between 9 and 10 billion dollars, representing on average between 1.4% and 1.7% of countries’ international reserves – depending on the scenario considered. A Fund of this size could cover a significant share of potential financing requirements of members but, in case of necessity, it should have the capacity to enlarge its pool of resources through other mechanisms of the international financial architecture. One of the main challenges of an extended fund is to reconcile the sense of ownership felt by member states and flexible/timely liquidity allocation with sound surveillance and participative decision making.

Harrod's interwar papers and correspondence: a review essay

Abstract This essay reviews Daniele Besomis recently published three-volume collection of Roy F. Harrods interwar correspondence and writings.