Tuesday 16th December, 2008

 

Lending agencies to be more flexible

 
 
 
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Nouriel Roubini

SANDRA CHOUTHI

International lending agencies such as the International Monetary Fund (IMF) and the World Bank will be more flexible in assisting countries affected by the credit crunch than they were in the 1980s and 1990s, said noted economist Nouriel Roubini.

Roubini is professor of economics at New York University Stern School of Business.

“This time around, IMF conditionalities will be less stringent than they were in the 1980s for a number of reasons.”

He said in the past, financial crises were caused by policy and financial and macro decisions taken by countries, which such lending agencies as the IMF agreed to assist on the condition of belt tightening.

He said this time around, the financial shock for a number of economies is coming from the centre of the financial system, and the IMF will not only be more flexible, but has learnt lessons from the 1990s.

Roubini said back then, the IMF told countries in Asia and elsewhere to tighten their belts, that there were to be no bailouts, no deposits and to prepare for fiscal contraction.

He said similar things are now happening in the US, but just the opposite is taking place, with the bailout of financial institutions.

“Many emerging markets are saying there is a double standard. We were being told to do all these things, tighten our belts. There’s a severe recession now, you’re telling the United States to do just the opposite.

“The IMF learned the lesson that sometimes you need fiscal and monetary discipline if you have problems in other places if the shocks come from the outside. You might actually need to ease and try to provide liquidity for these countries rather than ask them to do things that might be counter-productive,” Roubini said.

Roubini was the keynote speaker on Thursday at RBTT’s annual investors’ forum, which was held at the Mandarin Oriental hotel, Miami. The forum focused on the theme, Capital Markets in the Caribbean and Central America, The Way Forward.

Roubini said the IMF has “become more nuanced” in its understanding of what drives crises and what are the appropriate policy responses, as no one type of medicine works for all.

He said it was very important for the international financial community to help some Caribbean countries, which have similar characteristics in the composition of their capital comparative advantage, may be excessively reliant on a few commodities and have not diversified their economies away from tourism.

He said the shock from the present credit crunch did not occur due to the mistakes of these small countries, but were the mistakes of the US and advanced countries.

He said the credit contraction is like a tsunami hitting many small economies in Latin and Central America and the Caribbean, and it is up to the international financial community to help those countries which deserve assistance.

Roubini said some of these countries have to ensure they make the necessary policy changes to ensure their fiscal conditions are not worsened.

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