What's Next for Emerging Markets?
Download Michael Klein's recent speech on the international financial crisis. He discusses the various dimensions of the financial crisis, its effect on developing countries, and how the world's financial architecture may change. Michael is the World Bank Group's vice president for financial and private sector development.
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The World Bank (and the IFC) needs a different discourse.
Financial experts tell us that for our own security our portfolios should be well diversified, which means having many investments as little correlated as possible, so that the bumps compensate for the humps. Though some could argue that this only guarantees us a lackluster average, for most people, given that the world at the final count is still an average world, this sounds like quite prudent advice.
But then, surprisingly, other financial experts, the regulators, get together in the Basel Committee and decided that in an ever more globalized world, we should correlate all our banks to the some minimum capital requirements that are based on the single risk that is of their concern, namely default; and to the opinions of only three credit agencies.
Well this systemic risk nuclear financial bomb just went off and what are the experts proposing now? … “To make sure that we should be able trust the credit agencies even more? Please help us, someone!
I would understand someone from the IMF giving this discourse but in the case of the World Bank I would much rather see Michael Klein talking about the opportunity this crisis gives us to redefine the purpose of our commercial banks and to analyze the whole concept of risk as an integral element of a development agenda. The whole stabilization discourse is just too status quo for a development bank.
But, if we really want to pursue sustainable stabilization, then this crisis also proves that trying to eliminate the ripples only brings us a Tsunami.
I tried, time and again, to argue these points of view during my short term as an Executive Director in the World Bank but to no avail, since we had to “harmonize” with the Supreme Stabilizer, the Fund. The World Bank should now use this crisis to recover its right to voice loudly its own development agenda.
Let us not worry so much about the next crisis; it will come, no matter what. Let us instead worry about making the most out of the meanwhile, because that is what a development and poverty reduction is all about, 100 steps forward, and 99 back, that is one step at the time. Who on earth managed to develop without risks? Risk is the oxygen of development!
And frankly to talk about $100 billion when we all know that the credit rating agencies led trillions into the swampland of the badly awarded mortgages to the subprime sector, is to sell short the capacity of the World Bank to act as a Wisdom Bank… knowledge does not suffice… in fact knowledge alone is about the most dangerous thing that exists. Think sophisticated state of the art financial modeling!
By the way, and since Michael Klein quotes the famous philosopher Kierkegaard let me remind you that a finance-wise Kierkegaard would at this time be telling us “never believe projections about future risks based solely on past risks”.
Posted by: Per Kurowski | Nov 22, 2008 8:44:06 AM
Thank you so much for your wonderful column sir. It really helps me a lot to understand what the world got. Keep up the good work and more power =) God bless.
Posted by: Student101 | Nov 26, 2008 3:13:09 AM