Category: IFIs

The World Bank Pushes Shadow Banking in the Name of Development

Daniela Gabor1 Comment

10229163274_7cb142ccf3_o.jpgLast month, central bankers and politicians around the world remembered the global financial crisis and the lessons learnt in its wake. The consensus goes at follows: we have done a great deal to reform banks and protect tax payers from their aggressive risk taking but we haven鈥檛 done enough on shadow banking. At this point, the consensus fragments. Central banks claim that they need more power to deal with systemic risks stemming from the shadows, whereas politicians worry about the moral hazards involved in future rescues of shadow banks like Lehman.

We are all the more concerned that the same authorities have been actively promoting shadow banking in the Global South. Under headings such as聽Billions to Trillions聽and the World Bank鈥檚 new聽Maximizing Finance for Development (MFD)聽agenda,听the new strategy for achieving the Sustainable Development Goals is to use shadow banking to create 鈥榠nvestable鈥� opportunities in infrastructure, water, health or education and thus attract the trillions in global institutional investment.Read More »

Currency crisis in Argentina or the IMF鈥檚 tango

robertolampa2 Comments

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By Roberto Lampa and聽狈颈肠辞濒谩蝉 贬别谤苍谩苍 Zeolla

The Argentinian government has requested financial assistance from the IMF to tackle the consequences of a serious currency crisis. Last Wednesday, the government emphatically announced the new terms of such an agreement. However, unpacking the terms of those agreements and the current situation reveals serious concerns about the country’s future .

A few months back (), we provided an analysis of the current Argentinian crisis, highlighting the excessive vulnerability of the economy produced by the abrupt financial deregulation carried out by Macri鈥檚 administration.聽Three aspects in particular threatened the country’s future prospects: the deregulation of foreign exchange that failed to stop capital flight, a boom in foreign debt (at a record level among emerging market economies) and the promotion of speculative capital inflows to carry trade (buying financial instruments issued by the Central Bank聽called LEBAC in order to pursue carry trade operations).

When international conditions worsened and the carry trade circuit came to an end, the 鈥淟EBAC bubble鈥� exploded and produced a tremendous foreign exchange crisis that shook the Argentine economy, causing a sharp rise in inflation and a severe recession from which the country has not yet managed to escape. Read More »

Caveat emptor: the Graduation Approach, electronic payments and the potential pitfalls of financial inclusion

plbds2 Comments

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By Paulo L dos Santos and Ingrid Harvold Kvangraven

The Graduation Approach to poverty reduction is inextricably bound up with programmes promoting financial inclusion. Proponents for the approach see it guiding a series of interventions that encourage poor households to 鈥榞raduate鈥� into 鈥榤ainstream development programmes鈥� which are centred on the provision of credit and other financial services (). Indeed, the approach has been presented as a way to address the needs of those 鈥渢oo poor for microfinance services鈥� (). The presumption is that the development and poverty reduction needs of 鈥榞raduates鈥� will be well served by financial inclusion initiatives.Read More »

The Financialization of Africa鈥檚 Development

Richard Itaman4 Comments

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Financial development has gained prominence in Africa. Only with slight reservation around the regulatory environment, most country and regional studies of financial development paint a strikingly positive picture of its impact on growth, poverty and inequality. [i] This optimism with finance in Africa is corroborated with increase in financial flows, expansion of commercial bank branches, growth of regional banks, rise in microcredit institutions and success of mobile payment systems. [ii] However, poverty and inequality remain persistently high. There are more poor people in Africa today than in 1990, and 7 of the 10 most unequal countries in the world are in Africa. [iii] Hardly has any progress been made in addressing a most obstinate infrastructure gap unsettling the continent. In addition, Africa鈥檚 most recent average growth of 1.5 per cent is at its lowest in two decades. As such, the underscored belief in financial development as a driver of progress is exaggerated, since it seems to disregard the immediate needs of the people on the continent.

For these reasons, a growing body of literature now demonstrates wariness with the financial development narrative. An aspect of this literature reveals that the success story of microfinance in Africa is not quite what the proponents claim it to be. There is evidence of how the poor were plunged into a crisis of over-indebtedness in South Africa, through microfinance lending. By 2012, the country鈥檚 debt amounted to a staggering 75 per cent of disposable income. [iv] This experience contradicts the proposed poverty alleviating effects of microfinance. Like other forms of finance, its dominant motivation has been found to be profit seeking rather than poverty alleviation. Similar caution has been expressed about the celebrated rise of electronic payment systems,[v] prominent in Kenya, Nigeria and Uganda. Yet, more than just caution is needed to ensure that the proliferation of finance does not continue to wield detrimental effects on economic development in African countries.Read More »

On the Blogs: Lack of Good Governance at the World Bank

Ingrid Harvold Kvangraven1 Comment

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The process of selecting a new World Bank president has started. Pundits are already criticizing the process for being rushed, closed, and favoring the re-selection of the current President Jim Kim. This serves as a reminder of how political the international financial institutions are, although they often present themselves as being technical and apolitcal.

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Why Isn鈥檛 The World Bank鈥檚 Choice of Chief Economist More Controversial?

Ingrid Harvold Kvangraven4 Comments

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This week it became clear that Paul Romer as its next Chief Economist. As Chief Economist he鈥檒l have the overall responsibility of the Bank鈥檚 research program and be able to shape the developments of the highly influential development institution. Commentators have named the choice of Chief Economist , , , . The choice of World Bank Chief Economist rarely garners this much attention 鈥� so, why the fuss?

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