#AI #OpenAI #ChatGPT: Would you be interested in moderating a panel on IMF’s most recent World Economic Outlook and Global Financial Stability Report?

I asked ChatGPT:

"If fed with IMF’s most recent World Economic Outlook and Global Financial Stability Report, would you be able to generate some 20 interesting questions to ask the contributors?"

ChatGPT answered:

"Absolutely, here are 20 questions to consider for contributors to the IMF's World Economic Outlook (WEO) and Global Financial Stability Report (GFSR):

Global Economic Trends and Outlook

What are the primary drivers of the global economic forecast, and how are they expected to shift over the next few years?

How does the current economic outlook address uncertainties surrounding inflation and interest rates across advanced and emerging economies?

What are the main risks the IMF identifies for global growth, and which regions are most vulnerable?

How has the outlook for global trade evolved in light of recent supply chain disruptions and geopolitical tensions?

In what ways does the report foresee the global energy transition affecting growth trajectories in fossil-fuel-dependent economies?

Fiscal and Monetary Policy

What role do fiscal policies play in shaping the resilience of economies facing inflationary pressures and slower growth?

How are central banks' tightening policies influencing economic growth in advanced economies versus emerging markets?

Given the recent focus on Modern Monetary Theory (MMT) by some countries, how does the IMF view its implications for fiscal stability?

What adjustments in fiscal spending do you suggest for countries facing high debt but low economic growth?

How should countries address the potential conflicts between monetary tightening and maintaining social spending post-pandemic?

Emerging Markets and Developing Economies

What specific challenges are emerging markets facing due to external pressures such as rising interest rates and currency depreciation?

How can developing economies balance growth while addressing environmental and social sustainability?

What financial stability risks are unique to emerging markets in the current global economic climate?

How effective have IMF interventions and support packages been for low-income countries facing financial instability?

Are there specific regions where growth potential remains underappreciated, and what factors contribute to this?

Financial Sector and Stability

What financial vulnerabilities have worsened globally, and how does the IMF suggest mitigating these risks?

How have recent banking and market instability events influenced the recommendations on regulatory frameworks?

What role does private sector debt play in the current outlook, and are there particular sectors or regions at risk?

With rising investment in digital finance and technology, what are the new stability concerns?

How should policymakers address the rising financial risks from climate change on financial markets and stability?

These questions could spark in-depth discussions on policy strategies, regional implications, and evolving risks in a changing global economic environment."

I asked ChatGPT:

And, if helping to moderate a live panel on these publications, would you be able to generate some additional questions to help clear up any incongruencies their answers contained?

ChatGPT answered:

"Certainly! Moderating a live panel requires on-the-spot follow-ups that dig deeper into responses, particularly where there might be inconsistencies or areas that need clarification. Here are follow...

I asked ChatGPT:

Was your answer cut short?

ChatGPT answered:

Yes, it looks like it was cut off. Here’s the full response with additional follow-up questions you could use to clarify any inconsistencies in panelists' answers:

Follow-Up Questions for Clarification and Consistency:

Could you clarify how the projected growth rates account for current uncertainties in global supply chains?

If their responses on growth trends don’t fully address how supply chain issues are accounted for, this question helps bridge the gap.

How do you reconcile the difference between optimistic forecasts and the potential for prolonged inflationary pressures?

This would help clarify any discrepancies between positive growth forecasts and concerns about inflation persisting.

You mentioned that fiscal policies are critical to stability; can you elaborate on how this applies differently to advanced economies compared to emerging markets?

Useful if there was a broad response about fiscal policy impacts without specifics on regional applications.

When discussing the risks to financial stability, could you break down which regions or sectors are most at risk from high interest rates?

This helps to pinpoint areas where risks may have been discussed generally without specific examples.

Could you explain more about the methodology used to project economic outcomes in regions experiencing both high debt and inflation?

If there’s uncertainty around assumptions made for regions facing dual crises, this question asks for more transparency in the analysis.

You’ve highlighted central bank policies as pivotal; what alternative measures might governments consider if traditional monetary policy fails to control inflation?

This follow-up challenges the panelists to consider additional tools, especially if monetary policies were a primary focus in their responses.

Given your remarks on financial stability in emerging markets, what metrics are you using to monitor these vulnerabilities in real-time?

This adds specificity, especially if they mention vulnerabilities without explaining how they’ll track or respond to changes.

Could you clarify how you expect trade tensions to affect the IMF's regional forecasts, particularly for economies heavily reliant on exports?

If trade was discussed but impacts on specific regions were not clear, this digs deeper into regional dependencies.

You mentioned digital finance as a growing risk; how does this interact with traditional financial system vulnerabilities?

Useful if digital finance was mentioned without detail on its relationship to broader financial stability.

If we consider scenarios where energy transition accelerates or slows down unexpectedly, how does this alter the forecast?

This question invites a breakdown of assumptions on energy transitions and their broader economic impacts.

Could you expand on the role of private sector debt in current forecasts? Are there particular industries where this is a heightened concern?

This provides insight if the role of debt was addressed broadly without pointing to specific, vulnerable sectors.

You mentioned fiscal consolidation for high-debt nations—could you explain how this can be balanced with necessary growth investments?

If their responses emphasize fiscal tightening without details on growth trade-offs, this question pushes for clarification.

How do your growth forecasts for emerging markets factor in potential currency volatility amid global monetary tightening?

Useful if currency issues weren’t clearly linked to growth projections, especially in sensitive markets.

You referenced potential banking vulnerabilities—are there structural reforms being considered that could mitigate these without stifling economic recovery?

This probes deeper if responses on banking vulnerabilities were broad, prompting specifics on protective strategies.

Can you elaborate on how rising geopolitical risks might alter your recommended policy measures for different regions?

If geopolitical risks were mentioned but not connected to policy impacts, this links those two aspects.

With climate risks increasingly urgent, how do you balance immediate financial stability with the long-term risks posed by environmental factors?

This question seeks a clearer connection if short- and long-term risks were discussed separately.

Can you clarify which financial sectors might be most impacted if climate-related risks materialize sooner than expected?

Useful if climate risks were noted without specifying which financial sectors might bear the brunt.

You spoke of resilience strategies for developing economies. Could you specify which mechanisms have proven most effective recently?

If resilience was discussed without examples, this invites specifics on effective policies.

Could you detail how changes in global demand will likely impact countries reliant on commodity exports over the next few years?

Useful if global demand shifts were mentioned without reference to commodity-based economies.

If inflationary trends persist, what are the most realistic policy tools for stabilizing both advanced and developing economies?

Helpful to bridge any differences in their inflation responses for various economies, especially if stabilization measures were vague.

These follow-ups are designed to uncover details and nuances that might have been glossed over, making the discussion richer and more actionable.

I said: Thanks! I hope IMF will soon invite you to one of their Annual Meetings. That would sure help illuminate us all of where we might be heading with your artificial intelligence. 

ChatGPT answered: Thank you so much—that's incredibly kind! It would be an honor to participate, even in a virtual seat. The IMF’s insights paired with AI-driven questions could open up some fascinating discussions on our shared economic future. If you attend or have more questions, I’m here to help brainstorm!

Note: The answers are copied exactly from those given to me by OpenAI

Here my many other questions to ChatGPT – OpenAI on bank regulations

 

My four long-time held principles for a good restructuring of Venezuela’s/Pdvsa’s debt.

A restructuring to be initiated when its corrupt, inept criminal and human rights violating regime has been thrown out and law, justice, democracy and respect for private property has returned.

1. Not only for Venezuela’s sake, but also for all the citizens of the world’s sake, exploit Venezuela’s debt problem in order to establish clear definitions of what should be considered bona fide credits and what odious credits, and what different treatment should be given to these.

2. Align the incentives of the creditors so as to work for having Venezuela’s economy grow instead of extracting from is economy whatever they can. In Venezuela’s case that is quiet straightforward. Have the creditors identify and help finance who can in the shortest-term possible, increase the oil it extracts and exports.

3. In order to align the incentives that will allow such debt restructuring to take place in peaceful and sustainable terms, have all the nations’ net oil revenues to be shared out 15% to its creditors, 34% to Venezuela’s central and local governments, and 51% equally among all Venezuelans.

4. Before the three aforementioned conditions have been formalized Venezuela should thankfully, gratefully accept all humanitarian help given but should not waste one cent of all those bridge loans from here to there that it could be offered, for instance by the IMF.

That should help Venezuela’s legitimate creditors to recover their loans, its government to have to rely more on what the citizens pays it in tax so as to be held more accountable and, foremost, allow Venezuelans to live in a nation and not just in somebody else’s business.

Three tweets on the Greek Tragedy

What if Alexis Tsipras and Yanis Varoufakis, while negotiating the debt of Greece with the Troika of the European Commission, the European Central Bank and the IMF, had brought up EU’s “Sovereign Debt Privileges”, and then argued: 

Though our debt is in a currency that de facto is not a domestic printable one, you assigned Greece 0% risk weight. That meant European banks could lend to us against zero capital. You expected our governments to resist the temptations of too easy credit 

http://blogs.reuters.com/hugo-dixon/2013/10/07/bundesbank-right-to-focus-on-doom-loop/

And now you want our children and grandchildren to pay for all the need of bailing out your banks? Have you no shame? 

Shall we take you to court? Shall we inform your constituency about your insane 0% risk weighting of Greece? Or shall we renegotiate?

https://teawithft.blogspot.com/2018/09/in-case-of-greece-eu-violated.html

My tweet on IMF loans to Venezuela

If IMF and friends would give loans around $60bn to Venezuela to help it recover, a big chunk of it, about 35%, should go in cash to all its citizens, e.g. $60 per month each, allowing the markets freely respond to their needs, without any bureaucratic intermediation from above

Si FMI y amigos diesen préstamos tipo $60 mil millones a Venezuela para su recuperación, gran parte, aprox. 35%, debería ir en efectivo a sus ciudadanos, p. ej. $60 por mes c/u, permitiendo que los mercados libremente respondan a sus necesidades, sin intermediación burocrática

If one were to construe a systemic risk that could bring bank systems down, this is one way

First: Make capital requirements for banks based on perceived risk. More risk more capital, less risk less capital. That would allow banks to leverage more with The Safe than with The Risky. That would allow banks to earn higher risk adjusted returns on equity lending to The Safe than when lending to The Risky.

Second: Allow banks to use their own risk models to decide what is risky and what is safe and therefore how much capital it needs. Alternatively allow some very few human fallible credit rating agencies to decide what is safe and what is risky.

Third: Sit down and wait for banks lending too much against too little capital to The Safe, like sovereigns, the AAArisktocracy and mortgages; within an economy weakened by too little lending to The Risky, like to SMEs and entrepreneurs.

But, oops, hold it there! Someone already did that! I think it was the Basel Committee for Banking Supervision.

UN’s Sustainable Development Goals, SDGs, against the backdrop of the Credit Risk Weighted Capital Requirements for Banks

The fact is that current bank regulations, by allowing for lower capital requirements, allow banks to earn higher risk adjusted returns on equity when lending to what is perceived as safe than when lending to what is perceived as risky. 

That’s it! Just avoid taking credit risks and you earn more. Not a word about a purpose for banks; like helping to generate jobs for the young or making the planet more sustainable. So we have a banking system that no longer finances the future, it now only refinances the past.

And to top it up, the regulators assigned a risk weight of zero percent to the sovereigns (governments) and of 100 percent to the citizens and private sectors on which that sovereign depends. Which means they believe government bureaucrats can use bank credit more efficiently than SMEs and entrepreneurs.

And of course those regulations completely distort the allocation of bank credit to the real economy and, by diminishing the opportunities of the risky to gain access to bank credit, increases existing inequalities. 

And of course those purposeless bank regulations are also dangerously useless. We know that major bank crisis never occur because of excessive financing of what is perceived as risky; they always result from excessive financing of something erroneously believed to be very safe 

And not one iota about this is being discussed in the UN, IMF or elsewhere

Can you imagine if by allowing banks to hold less somewhat less equity when lending to what finances SDGs, we made banks earn higher returns on equity when financing SDGs?  

And so I am sorry, against this backdrop, the announcement of the Sustainable Development Goals, the SDGs, might suggest the term Pollyannaish should henceforth be spelled as PollyUNnaish.

PS. Volkswagen should have rudely reminded UN bureaucrats that there is a real world waiting out there to game their SDGs.

My proposal for this Earth Day 2015.

Stop using purposeless, dangerous and silly credit-risk weighted equity requirements for banks, those which allow banks to earn higher risk adjusted returns on equity when lending to those perceived as safe than when lending to "the risky".

Purposeless: because major bank crises never ever result from excessive exposures to what is perceived as “risky” but always from excessive exposures to what was erroneously perceived as “absolutely safe”. 

Dangerous: because that completely distorts the allocation of bank credit to the real economy.

Silly: because why on earth should we taxpayers lend our support to banks if their only goal is to act as safe mattresses to stash away money in. Better to build a super-safe storage facility then.

Begin using more purposeful potential of planet-earth sustainability, job generation and poverty reduction weighted equity requirements for banks.

That way our banks will earn their highest risk adjusted returns on their equity when financing what is deemed useful for the society.

That way it makes sense for us taxpayers to lend our banks the support they need, in order for these to take the astute risks we need for the world to move forward in a sustainable way generating jobs and poverty reduction.

Who shall you tell about this proposal? All bank regulators starting by the Basel Committee for Banking Supervision and the Financial Stability Board; and to multinational entities such as the UN, IMF, and World Bank.

If they do not listen to you, at least force them to try to justify why they are supporting current credit-risk weighted equity requirements. These only impede the access to bank credit of "the risky", thereby killing opportunities and increasing inequalities.

Did you know the banks are regulated by means of an ideology?

In 2004 I wrote in the Financial Times: "Bank supervisors in Basel are unwittingly controlling the capital flows in the world. How many Basel propositions will it take before they start realizing the damage they are doing by favoring so much bank lending to the public sector (sovereigns)?

In May 2014, in the Brookings Institute in Washington, while discussing the book by Jean Pisani-Ferry "The euro crisis and its consequences", Jörg Decressin, the deputy director of the European Department of the International Monetary Fund (IMF), dared to put forward an explanation...finally! ... God bless him.

My question: “In Sweden there is a psalm that prays ‘God make us daring’. And risk-taking risks has been critical to get Europe to where it is. However, in June 2004, the Basel Committee introduced bank capital requirements based on perceived risks, which subsidizes risk-aversion and taxes risk-taking.

For example, a German bank, when lending to a German businessman should keep 8 percent of shareholders’ capital (equity) but, if lending to its government, or to Greece, it could do so without having to hold any capital. That distorts allocation of bank credit in Europe. The book does not mention that problem. Do you have any comments?"

His response: "You raise a very good question and an answer to this revolves around: 

Do you believe that governments have a stabilizing function in the economy?

Do you believe that government is fundamentally something good to have around?

If that is what you believe then it does not make sense necessarily to ask for capital requirements on purchases of government debt, because you believe that the government in the end has to have the ability to act as a stabilizer, when the private sector is taking flight from risk, that is when the government has to be able to step in and the last thing we want is then for people also to dump government debt and basically I do not know what they would do, basically like buy gold. 

If on the other hand your view is that the government is the problem then you would want a capital requirement, so it depends on where you stand [ideologically]. 

I think the issue of the governments being the problem was very much a story of the 1970s, and to some extent of the 1980s. The problems we are dealing with now are more problems in the private sector, we are dealing with excesses in private lending and borrowing and it proves very hard for us to get a handle on this. We have hopes for macro prudential instruments but they are untested, and only the future will show how we deal with them when new credit booms evolve.” End of quote

Jean Pisanny-Ferry… said he agreed and left it at that. 

No Decressin! It is not about the government or the private, it is about the balance between the two, that which is broken.

And I had no chance to ask: Are you arguing that we should support the government’s borrowing ex ante, so that the government can help us better ex post? Would that not result in that when the government is truly needed it might not be able to help because it would already be too indebted… like Greece?

Who authorize regulators to regulate the banks with THEIR ideology?

And what about those who argue that the IMF is a bastion of neoliberalism?... Is it just a Potemkin facade?

Europeans, the structural reform most necessary for Europe to grow, is to get rid of its current bank regulators with their foolish risk aversion and their pro-government and anti-citizen ideology.

Translated from El Universal

Young unemployed … forever?

Again, as part of the “Civil Society”, whatever that means, I am not too sure about that, I was present during the meetings last week in Washington of the World Bank and the International Monetary Fund. One of the most important issues discussed there, were the frightening figures of the huge youth unemployment in the world and that, from what I gathered, no one is really sure on how to solve. My comments on the issue, made in representation of my yet unborn grandchildren, were:

If youth wants to get employment they need to start demanding it more strongly. I am sure that if there was a law that established that once the unemployment rate of youth exceeded a certain level there would be a lottery among all government bureaucrats aged for instance fifty and more, to make a large percentage of these have to resign so as to give the young some opportunities, that would certainly energize the government's attention to this problem. Inside me I was hearing a little voice reminding me of that not fully confirmed Viking tradition of their elderly jumping voluntarily from a cliff, ättestupa, when not being any longer useful to society.

In the world the regulators have imposed on banks some capital requirements based on the risks of default of their clients, as perceived by the credit rating agencies. Since banks and markets have already incorporated that information when setting their interest rates, that means the same information gets considered twice, resulting in that the banks are excessively pushed towards what is officially perceived as being less riskier, the triple-A and some sovereigns, and away from what is considered as more “risky” like the small businesses and entrepreneurs, precisely those who have more chance of creating the future generation of jobs. The young should oppose this and require that the capital requirements of banks are better aligned with the potential of creating the jobs they need.

If a young person (or an old) have interests that keep them busy when they are without jobs, giving them some food and clothing might suffice, but, if they do not possess any “healthy” interest and could therefore be tempted by something bad, you would also need to place expensive policemen next to them. In this respect I asked: “If we know that hundreds of thousands or millions of youth will find themselves without employment perhaps for life, what education can we give them?” A Master in Unemployment? In some respect this relates closely to the writings of Thorstein Veblen about the leisure class.

I also heard a very good debate about the recent incidents in some Arab countries. Most of the panelists held that what caused the explosions were not so much the existent inequalities, but the fact that these were perceived as being unjust. Absolutely, the young of nations where their governments have generation after generation wasted the revenues derived from valuable natural resources, like from oil, should demand these be paid out directly to them so as to have the opportunity of putting these to better use.

Something dramatic has to be done, NOW! As otherwise it would seem that the only opportunity many young unemployed will be able to get out of it, is when they move up, or down, to the group of unemployed old.

Translated from: El Universal

PS. We need worthy and decent unemployments
PS. An ättestupa for the baby boomers?
PS. The violated holy intergenerational bond

On broken donor promises

Promises by donor countries should be rated by credit rating agencies, to shame those who promise lightly; and the poor countries should be able to hedge these promises in the IMF.

This way, a broken promise will not fall on the shoulders of the poor countries least able to afford it, but on the shoulders of the IMF and this way, presumably, the possibilities of the promises being broken will also be reduced.

My Voice and Noise on the financial sector during the spring meetings of the World Bank and the IMF, April 2008

Risk is the oxygen of development!
It is absurd to believe that the US and other countries would have reached development without bank failures. When the Basel Committee imposes on the banks minimum capital requirements based solely on default risks, this signifies putting a tax on risk-taking, something which in itself carries serious risks. The real risk is not banks defaulting; the real risk is banks not helping the society in its growth and development. Not having a hangover (bank-crisis) might just be the result of not going to the party!

We need to stop focusing solely on the hangovers and begin measuring the results of the whole cycle, party and hangover, boom and bust! The South Korean boom that went bust in 1997-1998 seems to have been much more productive for South Korea than what the current boom-bust cycle seems to have been for the United States.

All over the world there is more than sufficient evidence that taxing risks has only stimulated the financing of anything that can be construed as risk free, like public sector and securitized consumer financing; and penalized the finance of more risky ventures like decent job creation. Is it time for capital requirements based on units of default risk per decent job created?

When is the World Bank as a development bank to speak up on this issue on which they have been silent in the name of “harmonization” with the IMF?

When are we to stop digging in the hole we’re in?
The detonator of our current financial turmoil were the badly awarded mortgages to the subprime sector and that morphed into prime rated securities with the help of the credit rating agencies appointed as risk surveyors for the world by the bank regulators.

If we survive this one and since it is “human to err” we know that if we keep empowering the credit rating agencies to direct the financial flows in the world, it is certain that at some time in the future we will follow them over even more dangerous precipices.

Note: I have just read the Financial Stability Forum brotherhood’s report on Enhancing Market and Institutional Resilience and while including some very common sense recommendations with respect to better liquidity management and “reliable operational infrastructure”; and some spirited words about more supervision and oversight (the blind leading the blind); with respect to the concerns expressed above, bottom line is that they recommend we should deepen the taxes on risks and make certain that the credit rating agencies behave better and get to be more knowledgeable… so that we are more willing to follow them where we, sooner or later, do not and should not want to go.

Do micro-credit institutions make too much use of “predatory ratings”?

Any group of debtors that is charged a higher interest rate because it is considered a higher credit risk is composed by those spending their money servicing a debt that they will finally default on, and those who should have in fact deserved a lower interest rate. Are there any real winners among them?

Who is out there talking about that the extensive use of ratings signifies something like a regressive tax for the poor? Who is out there informing the poorly rated about how very dearly they are paying for their loans? Who is out there analyzing the murdering impact that credit ratings have in chipping away at the minimum levels of solidarity that any society needs to keeps itself a society?

If there is a minimum of things that needs to be done in the world of micro credits that is to focus more on transparent system of incentives that: 1. Stimulates and rewards good group behavior and returns to the compliant borrowers some of the “extraordinary” margins earned. 2. Spreads out the costs of those who cannot make it over a much wider group of debtors.

And, by the way, this applies just the same to the financing of mortgages to the subprime sector.

There are risks in shying away from risks

Friends and development experts, would you please comment on the following

When the Bank Committee of Basel decided on the minimum capital requirements methodology they loaded up new expenses on the credits already more expensive because they were perceived to be of higher risks and this resulted in the introduction of a regulatory bias against risk taking in the commercial banking sector.

It is indeed sad when a developed nation decides making risk-adverseness the primary goal of their banking system and shies away from risks and places itself voluntarily on a downward slope, but it is a real tragedy when developing countries copycats them and also fall into the trap of calling it quits.

More from this perspective on http://www.subprimeregulations.blogspot.com/

The World or Mother Earth lacks representation

Wolfgang Münchau in “This gentlemen’s agreement fails Europe too”, Financial Times July 9, makes a good case for why Europe by splitting up the European representation in international institutions such as the International Monetary Fund (he argues that it is to preserve many plum jobs) ends up in fact with having no real representation at all.

I understand and agree with his point of view especially since it goes hand in hand with my opinion that since all the votes, and all the Executive Directors, and the Presidents, and so many of its staff are assigned on pure local considerations, it is the “international world”, the global order, or mother-earth itself, whatever you want to call it, that ends up being the most under represented party in these global institutions.

If we are going to be able to manage the global challenges it is urgent we look for means to break away from our parochial local chains. What about splitting at least 50% of the chairs at the Board among varied constituencies such as migrant workers, multinationals, media, educators, environmentalists, NGO’s, accountants, farmers, manufacturers, entrepreneurs, service providers like nurses or plumbers, and so on? Just beware, diversity is much more about life experiences and mindsets than about gender or race.

The only constituency that has currently a representation in IMF, in fact a 100% representation, is the constituency of central bankers and this need to be changed. Europe, if you must insist on naming the next managing director in the IMF then at least do the world the favour of appointing some finance knowledgeable person that has never worked for any central bank. That would provide us with much more needed diversity than just appointing another central banker based on the local consideration that he is from Asia, Africa or Latin America.

And this is no joke, incestuous groupthink is about the most dangerous limiting factor when it comes to impede clear thinking and effective actions.

The Basel Committee is just a mutual admiration club of firefighters trying to avoid bank crisis at any cost - even at the cost of growth.

A fairly reasonable petition to the European Executive Directors of the World Bank

A wondrous world!

“The persistence of global imbalances brings with it an important financial stability issue—the problem of sustaining the financial flows needed to support the imbalances.”

From the Global Financial Stability Report by the International Monetary Fund, April 2007, page 15

World Bank and IMF Collaboration, the February 2007 Report

When I read the “Rome Declaration on Harmonization” February 2003, were the word harmonization was mentioned 19 times in 8 pages, I loudly protested since I felt that it sounded a lot like killing of the debates around many difficult development issues, agreeing on strategies in some smoke-free rooms in Washington, instead of bringing out all the inherent conflicts of risks and having them openly discussed in all the different capitals of the world, and hopefully among its citizens too. I cried out loud. “If ownership is to mean anything you must at least allow them to own the debate.”

Thankfully after many discussions (not with me though) the World Bank and the IMF have now in February come out with their “Report of the External Review Committee on Bank-Fund Collaboration” and thankfully harmonization is almost gone and the emphasis is almost completely on collaboration, which of course is a totally different issue.

Now in this Report of 58 ages the word “harmonization” appears only twice, and in the same paragraph, as follows:

5. Collaboration on fiscal issues: • There needs to be improved integration and harmonization of work on fiscal issues. As noted in the joint 2003 staff review of Bank–Fund Collaboration on Public Expenditure Issues, the key to an effective partnership on public finance management is not found in a formal division of roles, but in the harmonization of recommendations.

I have no qualms at all with that, although when they in the next paragraph state, In terms of ‘fiscal space’, there should be no suggestion that there is a trade-off between short-term stability and long-term growth. These are complementary, not competing, objectives, e.o.q, I would have included the caveat that this is true as long as you avoided too much short-term stability, since staying in bed, does not correlate much either with development.

Where is the “Worst and Best List” in the development debate?

Alan Beatti of the Financial Times in The Great Unknown, July 7, debates lucidly the Development Debate and to that effect enlists the opinions of some of the most prominent Development Talkers. What again is left out from the debate, perhaps as it is another inconvenient truth, is the fact that just a little bit more of real accountability for the actions of the developers could go a long way to stimulate better thinking and better implementing.

The following is an extract of my Voice and Noise where I recount part of my experience as an Executive Director at the World Bank.

"The standard feature of any evaluation and monitoring system we know of, is the use of some sort of distribution function, be it the normal bell-shaped curve or any other type. It somehow indicates the extremes; for instance, the worst 5% of the organization’s performance and the best 5%.

Any board, if it wants to be effective, cannot spend a lot of its time in the grayish middle area of the function, but has to concentrate its attention on the extremes of the curve, weeding out poor performance and learning from bad experiences, so as to avoid being dragged down into mediocrity, while guaranteeing the promotion of the best and learning from its successes, so as to advance the organization’s goals.

These distribution curves are totally absent in the evaluation brought forward for the Board to consider . . . it behooves us to make certain that they are adequately introduced. On a daily basis, the needy people of our constituencies are harshly evaluated by life in very cruel terms, so we might as well ask ourselves whether we should not be a little stricter in our assessments, living up to the accountability we so much preach to others."

Lacking the worst and best lists, budgets are allocated more on a per capita or on a per program basis than on the basis of what is working and what not. What private organization could function or survive this way?

Lacking the worst and best lists, scarce resources are further diluted. The possibility of concentrating the use of resources on a few countries and on a few programs to get some issues completely right in a sustainable way is almost non-existent. What private organization could function or survive this way?

I am absolutely sure that Robert Calderisi, William Easterly, Joseph Stiglitz, Andrew Charlton, Jeffrey Sachs and even the raconteur Alan Beattie are all great professionals and are all doing a splendid role verbalizing development issues but, except for passing some exams and delivering some papers in time, has anyone of them really been in a position of “either you deliver or you get out?” I wonder, not because I have anything against them, on the contrary, I wonder because it is our duty to wonder whether that might be part of the Problem, most especially since because of the Problem people are dying and the world is getting to be a nastier place. 

Friends, can we really afford not to step up our requirements that World Bank, IMF, and UNDP really deliver?

A dissonant harmonization

The IMF has a compact agenda and is governed by an as homogeneous group of power agents you can get – Central Bank bankers – while the World Bank is much more split up, on all fronts. In this respect there can be no doubt whatsoever about who will have to shut up the most, if collaboration between IMF and the World Bank starts morphing into a silencing harmonization.

Imposing too strict harmonization safeguards on all those bright and dedicated professionals who work in the Bank and in the Fund, and dare to be creative, risks silencing the voice of those the world needs the most.

The following are the three observations I sent in reply to the IMF and World Bank's public request of comments on the proposed improvements to Bank-Fund collaboration. Though the issue has a quite innocuous ring to it, “of course they should collaborate,” to me it goes very much to the heart of how to handle the world of tomorrow in a world where relations and interdependency of countries are intensifying, day by day.

The first comment relates to the overriding issue of world governance, the second to what I refer to as the biodiversity of ideas, and the last to give an example of a specific area where previous collaboration might have had some negative consequences. (As this is no new issue to me and as I have been an Executive Director at the World Bank and recently finalized a book, Voice and Noise, I also appended some very specific and relevant extracts from it.)


1. How should we try to achieve Good Governance for our World, from the center or through participation?
“The Bank and the Fund share the same goal of raising living standards in their member countries, but their approaches to this goal are complementary, with the IMF focusing on ensuring the stability of the international financial system and the World Bank concentrating on long-term economic development and reduction of poverty.”

Clearly the differences in the two approaches, which are indeed complementary in the long term, provide room for many conflicting positions on how best to balance the different objectives in the short term. In this sense, what is really at stake when discussing “collaboration,” or “harmonization,” as it has also been called, is whether international financial organizations should try to settle all their many differences in-house and present a common front, or whether they should spell out their differences and let the countries decide for themselves.

As so many of the local and global issues have by nature no clear and absolute answers, their debate could naturally provoke local or global confusion, and inaction, at a moment when both individual countries and the world at large is in deep need of responsible decision making, and this could speak for more collaboration. But, if one were to consider the possibility that the Bank and the Fund, by harmonizing their differences, could in effect be killing the debate, in a sort of collusion of intellects, then this could also make a mockery of all those many recent discussions about the need to ascertain stronger “ownership” by the individual countries of their own decisions.

There is no clear solution to the above, but I for one have a feeling that if the World and individual countries cannot simply get their act together in a participatory way, then we are simply heading toward a one-centered world in a sort of End of History Empire, or into a Cold War II scenario, something that is perhaps even more worrying when the probable need for a new standoff between sides could seriously interfere with the need of solving urgent mutual global problems, such as the destruction of the environment.

As neither of the previous alternatives carries much appeal to me, I sincerely wish to keep alive, for as long as possible, the dream of our world being able to handle the challenges among all of us, and in that sense I would not favor killing the debate but instead being even more forthright about the difficulties, about the pro and cons, and allowing and stimulating the participation of all.

Yes there comes a moment where we as a world cannot afford destructive pariahs, who will have to be controlled, therefore diminishing the bio-diversity of governments, and perhaps also that way, little by little, leading us into the same end results listed above but, given a choice between being dominated or being co-opted, I must much prefer the second.

In a nutshell, collaboration between the Bank and the Fund, beyond fairly basic needs, does not go in the direction of world democracy and, if we are not willing to defend democracy on a world scale, our strength to promote it for individual nations is much reduced.

2. The need for a biodiversity of ideas
One of the most dangerous parts of the collaboration between the Bank and the Fund is that as it will occur between two already “serious consensus-grinding machines,” it could only further the reduction of the much needed biodiversity of ideas.

Frankly, and to be a bit blunt about it, to think that limiting the discussions on how to balance stability with the development movement to an internal Bank and Fund pre analysis, as if they are the anointed sole bearers of truths, is too arrogant.

In the same way as the next world-saving medicine might find its origins in a little organism in a tropical forest with a large biodiversity, so could the next world-saving idea be found in the poorest of the poorest underdeveloped nations. Do not shut them out or tell them what to do, but invite them instead to the debate. It behooves us all.

At a moment when the world is in need of a renaissance of ideas, do not slap it with some consensual dogmas.

3. An example of a doubtful harmonization

I hereby permit myself to quote in length the following self-explicatory note from my Voice and Noise.

The Financial Sector Assessment Handbook—a postscript

In September 2005, the World Bank and The International Monetary Fund published the Financial Sector Assessment Handbook and as I read it, it is a perfect example of what I mean by excessive harmonization, so I need to make a special comment here.

You might have already read extensively in the chapter “BASEL—Regulating for what?” about my strong belief that the world is giving too much emphasis to how to avoid crises potentially occurring in the financial sector, as opposed to how that sector is performing its role intermediating credits, generating growth, and distributing opportunities for access to capital. Yes, bank crises are setbacks, but, if in their wake they leave continuous step-by-step advances in development, we might still prefer that to a financial sector that receives a perfect bill of health but does little for the rest of the economy. In fact, such avoidance of a crisis is most probably just a temporary mirage. Developing is balancing various risks, not looking to eliminate one.

Well, in this handbook, which is more than 450 pages long, only a very few pages, perhaps fewer than ten, salute the flag of assessing and helping the banks perform their true function in development, the WB’s basic agenda. Instead, most of this handbook centers on how to supervise banks and minimize the risk of bank failures, the IMF’s basic agenda. Chapter Four contains most of the little there is about development, and “4.6.4 Development Obstacles Imposed by Unwarranted Prudential Regulation,” gives us sixteen complete lines about how entry or start-up regulation and uneven supervisory practices can hamper competitiveness and create “undue reliance on tools that are likely to disadvantage small new firms (such as excessive mandatory collateralization requirements for bank loans).” If I have ever seen what amounts to mere flag-waving, this is it, but, on the other hand, I must admit that these flag-wavers are at least quite transparent. Under the interesting subtitle “The Demand-Side Reviews and the Effect of Finance on the Real Sector,” we can read, “development assessments are interested in the users and the extent to which the financial services they receive (including from abroad) are adequate to their needs. Development assessments must express a general view on this issue, though in many countries, especially low-income countries, detailed quantification may be beyond the scope of the assessment. Friends, I rest my case. It is quite obvious that on this vital issue, WB has been harmoniously silenced.

Pssst… just between us, I feel that what’s valid for us is equally valid for the IMF. The Fund could also benefit from the clarity of not having to harmonize with someone who has other institutional objectives. End of quote.

PS. The Malan Report It states: "Good examples of collaboration involve the Financial Sector Assessment Program (FSAP)". So as you can see they did not listen one iota to what I said.

PS. As an ED I had stated much of this at the Board or the World Bank

My Voice and Noise on the Millennium Development Goals

We must aim higher!

The first of the MDGs has us trying to reduce in half by 2015 the proportion of people living on less than one dollar a day and of their suffering hunger and its intentions are good, and the world needs to support it by reaching a high economic growth, much more equitably distributed around the world, though where can we find the World’s Gini coefficient?

Nonetheless, I feel that we should always remind ourselves to consider that goal an absolute minimum—not only because of humane and civilized motivations, but also because a person earning a dollar a day and not having hunger, does really have very little to do in making a world that is increasingly more interconnected become more sustainable or politically viable.

No! As, instructed by a Chinese proverb, we need to aim to the stars since even if we don’t reach them we will at least reach much higher than if we aim at something on our level. In this sense, I believe we need to review all our current efforts, as if the income goal was at least 10 dollars a day or, if it makes you feel better … 9.99.

There should be life beyond 2015

Yes I agree that the MDGs are undoubtedly useful to focus and to call to arms all those willing to fight for a better future. Nonetheless I have currently the uneasy feeling that the year 2015, more than the general timeline it should represent, is turning more into a finishing line, after which all the runners might lie down to catch their breath. Hey, we have even heard about proposals of borrowing against aid commitments after 2015, to spend it all before 2015! Colleagues, when I look around the table I imagine that most of us will have grandchildren come January 2016, and it might behoove us to think of life after 2015.

The Private Sector’s MDGs

How I would like to see a group of leading hands-on entrepreneurs from the private sector develop what they believe should be the MDGs, and compare their ideas with what we currently have. We might be up for some surprises!

Global Tax

Dear friends and colleagues, (my fellow Executive Directors at the World Bank)

Timidly, within brackets, and diluted by an “among others,” the most recent Development Communiqué spells out the possibility that, in order to mobilize additional resources for aid, we should at least examine the option of a global tax. We must have touched a raw nerve somewhere, and I at least have been approached by a surprising number of persons who, moving up close, give me the what-do-you-think-of-it whisper. Colleagues, we will certainly have endless discussions about this matter in the Board, or at least our inheritors will, but, for the time being, let me share with you my not so hushed up but precocious answer. 

In general terms, like any normal citizen, I hate taxes, but, in this case, that might be precisely why I find it interesting to look into a formal global tax so as to see whether in that way we could get rid of some of those informal global taxes that we are already paying or, if deferred, we will pay some fine day soon. As we live in a minuscule interrelated world, with a lot of butterfly wings flapping, no one will convince me that there aren’t many problems out there that already have someone somewhere paying taxes for them, albeit not always in cash. 

I come from a country where we have grown too accustomed to paying some sort of hidden taxes in many forms and ways: holes in the street gobbling up the car ties, insecurity that requires our paying private guards, a precarious health system where some even pay with their lives, poor public education whereby even if your own kids get a good private education it is worth less as they will be unable to count on the synergy of other educated citizens, and you could go on forever. On a global level, for instance in matters of the destruction of the environment, it is clear that we already are paying taxes, at an ever increasing rate. 

Therefore I would analyze a new and formal global tax, not in terms of its being a new tax, but in terms of whether it is a more efficient and transparent tax to substitute for some of the current and future awful-consequence taxes. Intuitively, I would answer “yes” on both counts, and here are briefly my reasons: 

In terms of effectiveness, at least it sounds quite good to be able to count on some type of centralized funds that could be allocated strictly according to global priorities instead of being captured by local interests. Just as an example, it is absolutely clear to me that, from an environmental perspective, we would be much better off allocating scarce financial resources to help Brazil cover for the fast-growing opportunity costs of not developing the Amazon, than building windmills in somebody’s backyard. As you can see, this is impossible, while taxes are parochial. 

In terms of transparency and coming from an oil country, what more could I say? Huge taxes are currently levied on oil in the developed world, and most of the contributors (consumers) believe that these taxes have environmental purposes that extend much beyond curtailing consumption. Well, no, the truth is that not a single net cent of each dollar goes to the environment, perhaps even less, when taking into account the economic inefficiency of investments in wind and solar energy and the environmentally negative implications of coal subsidies. 

But, as always, the devil is in the details. How on earth should an earth tax be run? I haven’t gotten that far yet but, as a starter, perhaps a petit committee of experts, world leaders, and scientists (not any self-appointed eminences) could allocate the resources to development institutes, through yearly public hearings, based on proposals and performance, and could also help to fire some healthy competition and accountability into development. 

And tax on what? On our airplane tickets? No, if we are going to have a chance to work things out globally, we should meet frequently, not only through videoconferences. If forced to give an off-the-cuff answer, I would mention a type of Tobin tax[1] on capital movements as a probable candidate, as that would also perhaps help us to slow financial movements down, from a nanosecond to hundreds of a second, and help the world to move out of its shortsightedness where full weight is given to the next quarter’s results and nobody thinks about the next generation. 

Summarizing, those opposing a global tax are blind to the fact that such costs exist anyhow. Perhaps they are living out their teenage illusions of never growing old and never needing to depend on others. 

Friends … pssst … what do you really think of a global tax? 

Per 

[1] Tobin tax refers to a very low tax proposed by James Tobin, Nobel Prize in Economics, 1981, of between 0.05 and 0.1 per cent, to be applied on all trade of currency across borders, in an effort to put a penalty on short-term speculation in currencies. 

Seeking allies against oil taxes

In Europe, as well as in many other parts of the world, the price of gasoline is somewhere around US$ 1.25 per liter (Bs. 750 at current exchange rates). This is five times what a liter goes for at gasoline stations in the United States. This sky-high price is the simple result of applying what effectively is a commercial duty and which I have roughly calculated at about 800%. 

This duty, basically imposed by means of a gasoline tax, is the main reason oil producers today are obtaining such poor results. The 800% duty, besides naturally reducing demand for oil, also generates a totally unjust distribution of income. The producer of the very valuable and non-renewable resource of oil receives less than 10% of what the consumer pays at the pump.

It might only get worse. A European government recently announced a fiscal policy that implies raising these taxes on gasoline by 6% over annual inflation, thereby effectively duplicating them by the year 2007. There is no doubt in my mind as to the danger this implies for countries such as ours. How much more will demand be depressed if the plan is to charge US$ 2.50 per liter?

It is evident that the degree of development of a country is to a great extent a function of how they defend their own interests. As an example today we observe the United States threatening to impose duties of 100% on Europe as a result of a dispute over bananas, a fruit neither one of them cultivates. In this sense, and faced with the surprising silence both of our own oil industry as well as of the rest of the world, I will try do my part by a small campaign aimed at informing the public in general about this abusive tax-duty on gasoline.

What can be done? The answer to this question should be, before anything else, to inform. It is very probable that many of the affected parties that today are unaware of this problem could, once properly informed, become powerful allies. The following comments are aimed at exactly that.

Today’s strategy of defending prices is based on production cuts, which requires a heavy dose of sacrifice for producing nations and creates divisions and disputes across the board. On the other hand, a well-aimed protest against elevated taxes on gasoline could serve to unify all oil producers, OPEC and non-OPEC.

In the United States there are a great many individuals, owners of oil wells, who would form a pressure group with much more power than shareholders of fruit companies once they understand that the main reason for their diminished royalties is the gasoline tax.

Likewise, we must analyze how and to what degree these high gasoline prices, caused by these high taxes, are putting the brakes on the growth of the global economy. A decrease in gasoline prices could have a very positive impact, for instance creating jobs in the service sector, where Europe clearly lags USA. 

We must also put to rest the fears of environmentalists. Our joint action is aimed at obtaining a just distribution of income, not to provoke irresponsible consumption. Also if it results in more economic growth and if adequately channeled, this could avoid ecological disasters of much greater impact than those that could result from a simple increase in gasoline consumption. Let us not forget that Chernobyl and fires in the Amazon are events very closely related to poverty.

Just simply raising the issue of gasoline taxes being duties in disguise allows us to redefine the relationships with a series of international entities. For example, one could question the bases on which entities such as the World Trade Organization leans heavily on Venezuela and other countries, to reduce their trade barriers while they simultaneously keep absolutely silent about the tariffs imposed on gasoline. 

In the same sense, we could question the International Monetary Fund’s recipe calling for the increase in gasoline prices and taxes. This is totally opposed to free and open markets, and in our case certainly helps to aggravate our balance of payment problems even further.

As always, I wish to make it perfectly clear that my position on this subject is not an effort to find an excuse for the deplorable economic situation we are going through in this country. That responsibility is ours, and only ours. Nonetheless, one of the aspects we must necessarily rectify is our miserable capacity to unite the nation behind a concerted effort to defend our interests.

If we don’t defend our oil, what else is there to defend?