Crisis Talk - The World Bank Group

South-South Trade Tensions

John Authers argues that the newsworthy economic story of late isn't dollar weakness; rather, it is the weak renminbi:

Many, if not most, hopes for global recovery are pinned on China buying goods from countries such as Brazil. Commodity prices, a key driver of equities and forex rates, also move in response to the new orders received by China's manufacturers.

This currency regime makes it far harder for such countries to sell to China. So it is no wonder that currencies are back at the top of the agenda.

China's currency is 15 percent cheaper against the dollar than it was in 1993. Meanwhile, many emerging market currencies are returning to their pre-crisis exchange rates.

China has been building stronger trade relations with the Global South for quite some time. It is now South Africa's top export destination. But many of these partnerships are built around China purchasing commodities, and selling manufactured goods. With a weakening currency, China is likely to purchase fewer non-commidty goods from its trading partners. This may lead to growing trade tensions, particluarly with countries who are not endowed with commodities.

Crisis Roundup

China has replaced the United States as South Africa's largest trading partner.

In other Africa news, the World Bank has released a report on Doing Business in Kenya.

Problems with America's fiscal exit strategy. With a rebuttal.

Is the Fed too hawkish? Maybe because it's easier to be a hawk than a dove.

A pessimist's case for optimism. Plus, the probability of a US recession is diminishing.

But unemployment is looking ugly.  

UC Berkeley Professor Brad DeLong posts his lecture notes on the Great Depression, Keynes, and World War 1.

Free Exchange is hosting an excellent discussion on incentives and public regulators. Guest authors include Simon Johnson, Mark Thoma, and Tyler Cowen.

Finally, a loyal reader of Crisis Talk makes the case for freedom from imprudent risk aversion.

Trade Finance and the Curse of Soft Commodities

There is a fascinating article in this month's Africa Investor on the difficulties many African commodity exporters face in securing sufficient trade finance. The IMF estimates that, as a result of the crisis, there is a trade finance shortfall of $100-$300 billion, with Africa being the most affected by this dearth in funds.

Soft commodity products, such as cocoa and flowers, typically require advance financing to fund cultivation and production, which is repaid once crops are harvested and exported. Most African producers prefer dollar loans, as their costs are primarily denominated in dollars. Yet, because Europe is Africa's largest export market, most export revenues are denominated in pounds and euros. This creates a currency mismatch, which discourages lenders.

The situation is further complicated by an overall shortage of dollars, and Africa's dependence on commodity exports:

Doing Business 2010: Reforming through Difficult Times

The World Bank Group has released its annual Doing Business Report, which provides quantitative measures of regulations of the life cycle of a small or medium-size enterprise. Regulations related to registering property, employing workers, dealing with construction permits, and paying taxes are measured. Getting electricity and worker protection were added to this year's metrics.

In spite (or because) of the crisis, governments worked hard at improving the business climates within their borders:

In 2008/09 more governments implemented regulatory reforms aimed at making it easier to do business than in any year since 2004, when Doing Business started to track reforms through its indicators. Doing Business recorded 287 such reforms in 131 economies between June 2008 and May 2009, 20% more than in the year before.

Reformers focused on making it easier to start and operate a business, strengthening property rights and improving the efficiency of commercial dispute resolution and bankruptcy procedures.

IMF Weighs in on Recovery; World Bank Discusses Finance in Africa

The IMF and World Bank have both released reports discussing their latest thoughts on the global and regional effects of the financial crisis. 

Olivier Blanchard, the IMF's chief economist, has published his views on Sustaining a Global Recovery, arguing that the path out of the crisis for emerging markets is much simpler than in developed economies:

If past is prologue, the world economy likely will return to its past growth rate. But, especially in advanced countries, the period of above-average growth, characteristic of normal recoveries, may be short-lived or nonexistent.

Blanchard exposes two caveats to recent good news about growth:

Friday Crisis Roundup

Here are some of this week's highlights, from inside and outside the World Bank:

Does easy money and capricious legislation fuel commodity speculation? (Baseline Scenario)

Or is it a curse in general? (The Big Picture)

The World Bank's East Asia blog gives a roundup of the region, arguing that Asia will lead the world out of the crisis.

Meanwhile, our Africa blog ponders success in South Africa.

The European Central Bank has released a report on the international role of the euro...

...with Alea giving us the highlights. Bottom line:

The international role of currencies tends to be relatively stable over time.

Trade Finance in Africa

According to a recent World Bank press release, "Africa is likely to be the worst-hit region by the global financial crisis." This seems to be the height of unfairness, given that African countries had little to do with creating the current global crisis. How then best to mitigate the effects on the region of the world that is expected to be hit the worst?

Among its many pronouncements, the recent G20 summit stressed the importance of supporting trade finance in responding to the crisis. But a recent article in VoxEU.com suggests that trade finance is not really the problem - at least for firms in Sub-Saharan Africa. Researchers contacted SMEs in export-oriented sectors in the region, and this is what they found: