Category: Finance

Where Is the Risk in the COVID Economy? A look at shadow banking

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By and Andrew Moon

We are witnessing a public bailout of the private sector that dwarfs the bailout response to the 2007颅鈥�2008 Great Recession. Compared to the $700 billion Troubled Asset Relief Program (TARP) implemented in 2008, today鈥檚 mobilization of public funds through the Coronavirus Aid, Relief, and Economic Security (CARES) Act amounts to a whopping $2.3 trillion, thus far.

As we know from media coverage of the CARES Act, today鈥檚 relief programs are intended to support payrolls, corporate operations, and small business overhead. What we don鈥檛 hear from the mainstream media is news on how these relief programs serve, once again, to .

Unfortunately, few people are training their sights on that process 鈥� that is, on the actual mechanisms by which public funds are being used to underwrite not payrolls or job creation, but rather new sites of capital accumulation.

Just where are these new sites?Read More »

The perils of monetary policy in the global periphery during the Covid-19 pandemic

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For several decades, countries of the periphery have been deeply in the grip of debt. The Covid-19-induced crisis has and thus increased financial vulnerability. Recent policy measures by peripheral governments and central banks have brought momentary relief, but ultimately represent a manifestation of the interests of finance capital to get the most out of peripheral economies as long as it is still possible. 

Because of the dependence of their currencies on international capital flows, due to the possible effects of political decisions on the movement of such flows. The enormous power of financial markets over monetary policy in the periphery is again becoming evident during the current crisis. The crisis in the global periphery is generally much more severe than in the central countries, not only because of often inadequate health systems that have been abandoned under three decades of neoliberal policy. As peripheral assets do not serve as a store of value, within three months, constituting a historically unprecedented capital flight. Factors such as the deflation of prices of primary resources, the fall in external demand for manufactured products, and the fall in cash flows due to decreasing remittances and tourism mean that financial pressure has increased even more. Consequently, peripheral currencies significantly depreciated with the beginning of the crisis, in some cases by as much as 20-30%, as in the cases of Brazil and Mexico.

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Green Structural Adjustment in The World Bank鈥檚 Resilient Cities

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Jakarta, Indonesia

By Patrick Bigger and Sophie Webber

Cities across the world are facing a double-barreled existential problem: how to adapt to climate change and how to pay for it. Over the next thirty years, more than听听owing to sea level rise and more intense storms, while as many as听. Other looming crises include soaring urban temperatures, the urgent need to transition away from fossil-fueled energy and transport systems, and plummeting rates of local biodiversity.

Responding to these problems will, international bodies project,, from hardened municipal water and sewage systems, to urban afforestation, to renewable energy systems. This massive infrastructural program coincides with global economic conditions marked by the lingering ideological stranglehold of austerity, unprecedented levels of capital concentration, and now, myriad uncertainties produced by COVID-19. Cities across the world are facing a double-barreled existential problem: how to adapt to climate change and how to pay for it. Over the next thirty years, more than owing to sea level rise and more intense storms, while as many as . Other looming crises include soaring urban temperatures, the urgent need to transition away from fossil-fueled energy and transport systems, and plummeting rates of local biodiversity.

In response to the twin problems of resilient infrastructure needs and public fiscal constraints, the World Bank and an array of partner institutions from the to USAID have been ramping up programs to facilitate private investment in urban resilience. From a baseline of $10 billion across 77 cities in 2016, the World Bank aims to 鈥榗atalyze鈥� investment of more than $500 billion into urban resilience projects across 500 cities by 2025.听Read More »

COVID in Pakistan, the Role of Middle-Classes and the Unprecedented Demand for a New Social Contract

Farwa Sial2 Comments

Screenshot 2020-06-21 at 10.15.40

A conversation with and Dr. Juvaria Jafri and Dr. Aasim Sajjad.

is Professor of Political Economy at the National Institute of Pakistan Studies, Quaid-e-Azam University and a founder of the Awami Workers Party (AWP).听 His research has focused on state theory, informality, colonial history, rise of the middle classes and social movements in Pakistan. His latest book is 鈥�.

听 is a Lecturer in International Political Economy at City University. Her research is on financial development in Pakistan, including inclusive finance, fintech, and impact investing strategies. Her latest co-edited book is

Introduction

The full impact of the COVID-19 pandemic on developing countries is still unfolding. While many countries have managed to achieve some stability in eliminating the spread of the crisis, others are struggling on various fronts. In South Asia, India has received much global attention owing to the violence of a hasty lockdown which was imposed without warning and an accompanying social safety net. Other countries in the region including Bangladesh, Srilanka and Nepal also continue to grapple with the existential question of how to ensure that contagion control does not come at the expense of destroying livelihoods.听

In this interview we focus on the situation in Pakistan. We invited Aasim Sajjad and Juvaria Jafri to address some questions related to the current situation in Pakistan. The following four questions were designed to provide a glimpse of how the pandemic is impacting the existing socio-economic structure of the Pakistani economy particularly focusing on class inequality, fin-tech as a potential solution and the activist and citizen-led first historic demand for a long-term welfare package.听

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The latest significant step in the UK鈥檚 development agenda

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Michael Haig DFiD CC BY-NC-ND 2.0

By Susan Newman听and

Johnson鈥檚 announcement on 16 June that Department for International Development (DfID) would be merged into the Foreign and Commonwealth Office (FCO) has been met with criticism and condemnation from aid charities, NGOs and humanitarian organisations. By institutionally tying aid to UK foreign policy objectives, the merger would shift humanitarian aid away from the immediate needs for relief and longer-term development.

This latest move to merge the departments should be seen as the latest, and a very significant, step in the restructuring and redefinition of British Official Development Assistance (ODA) to serve the interests of British capital investment abroad, that has been taking place over the last decade. These developments need to be considered within a wider shift in development policy that has been shaped by the demand for new assets by investors in the global North in the context of a global savings glut that has grown out of economic slowdown.Read More »

Financializing state capitalism: Exchanges, financial infrastructures & the active management of capital markets in China

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DCE trading floorThe development of capital markets has been a core focus of financialization research. For Epstein, financialization 鈥�鈥�, while Pike and Pollard define financialization as the 鈥�鈥�. Other scholars also attribute a significant role to capital markets in financialization processes, be it in the , the rise of , or 鈥�鈥�. At the heart of and as a precondition of many aspects of financialization stand capital markets and their development.听

This is not only the case when it comes to financialization in advanced economies, but also with respect to the study of . Financialization processes are not uniform, they are rather variegated and refracted by national institutional settings that lead to . As Lapavitsas and Powell emphasized, 鈥�鈥�. This has also been picked up in debates about the relationship between financialization and the state. Previously, many scholars argued that financialization often results in a and the effects on developing economies are often described as potentially negative with financialization for instance or . But stemming from earlier discussions on , more recent scholarship has highlighted that . It argues that an increasing takes place in which state and (quasi-)state institutions often co-constitute financialization processes.听

Contributing to the growing literatures on variegated financialization and the state, in a paper titled 鈥�鈥� (recently published in ) I argue that states are not only important actors facilitating financialization but can also exercise a considerable degree of control over financialization, thereby shaping its very form. Instead of a financialization process that , what we see in China is a 鈥榝inancialization with Chinese characteristics鈥� where the state actively tries to manage financialization and its social outcomes.听Read More »

Book Review of Money, Markets, and Monarchies: The Gulf Cooperation Council and the Political Economy of the Contemporary Middle East

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, Cambridge: Cambridge University Press, 2018. ISBN: 9781108453158 (paper); ISBN: 9781108614443 (ebook)

Adam Hanieh鈥檚 book 鈥楳oney, Markets, and Monarchies: The Gulf Cooperation Council and the Political Economy of the Contemporary Middle East鈥� is one of the most important works on contemporary Middle East. The book analyses the specificity of the Gulf Cooperation Council (GCC) as part of global capitalism by focusing on the socio-economic structures of the six Gulf States, the interlinkages between them and other socio-economic and financial relationships with the rest of the world. Joining other scholars, Hanieh draws attention to the fact that scholarship on the Middle East including the GCC has inclined towards an exceptionalism which overwhelmingly focuses on the Middle East as a resource-rich country and a site of various conflicts. This reductive emphasis diminishes the various ways in which the region integrates the contemporary patterns of capital accumulation and historical lineages of familial and monarchic capitalism. As he mentions, even the modern concept of the 鈥楤RICS鈥� excludes the large population of the Middle East. Filling this vacuum, the book focuses on how the GCC absorbs and reproduces contemporary modalities of capital accumulation in diverse sectors including finance, agribusiness, real estate, retail, telecommunications, and urban utilities. The six states of Gulf Cooperation Council (GCC) including Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman, and Bahrain have special linkages with global powers including the US, Israel, China and other Arab states. As important logistics hubs and sites of intermediate supply chains these states also connect with other countries.Read More »

Financing Needs of Developing Countries in the wake of Covid-19: The Role of Special Drawing Rights

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Since the outbreak of the Coronavirus, developing countries have been exposed to massive withdrawals of capital flows. In this post, I unpack the financial challenges these countries are facing and consider what role the Special Drawing Rights (SDRs) of the IMF can play in easing the burden.听

According to the calculations by the Institute for International Finance (IIF), investors withdrew almost $80 billion over recent weeks from emerging markets (Wheatley 2020). During periods of crisis, investors ‘fly to safety’ by selling risky assets and purchasing safe assets such as US Dollars and the US Treasury Securities. As international investors flee to dollars amidst the financial turmoil caused by the Coronavirus, there is an acute concern that low and middle-income countries will be short of dollars. Furthermore, the scale of the withdrawal suggests that these countries will face great difficulty in raising funds for their sovereign debt payments. Besides governments, firms based in developing countries are also expected to face difficulties in raising foreign currency-denominated debt in international capital markets. Meeting this growing demand requires a global lender of last resort that can provide dollars on request. Within the existing global financial order, the Fed and the IMF are two major organizations that are capable of meeting this demand.听

The Fed can provide dollar liquidity through swap lines, which allows global central banks access to dollars in exchange for their own currency with the promise that the principal, as well as the interest, will be paid later. When engaging in a swap operation, the Fed provides dollars to the recipient central bank for an equivalent amount of their currency at a given market exchange rate. After a certain period, the two central banks resell to each other their respective currencies at the initial exchange rate. The recipient central bank provides the dollars to financial institutions in its jurisdictions at the same maturity and rate. This way, swap lines provide dollar liquidity to recipient countries鈥� central bank and financial institutions (Bahaj and Reis 2018).Read More »