Highlights from the IIF’s Latest Policy Letter

April 25, 2017

The IIF recently issued its semiannual policy letter to the IMF and World Bank, as it has done for the past 25 years, to present financial industry perspectives on key global issues. In the recent years, the IIF has raised issues such as the global regulatory reforms, Brexit, the impact of low interest rates, and the need for fiscal and structural reforms. In this latest policy letter, we focus on the importance of sustaining support for global trade, the need for continued cooperation on regulation and fighting financial crime, and steps to boost private sector investment in infrastructure, including green finance.

 

To address rising nationalism and reinstate support for globalization – that has yielded large gains in per capita real incomes, productivity and poverty reduction – we need to put in place effective policy measures to address imbalances in surplus and deficit countries, promote inclusive growth, and facilitate labor redeployment, education and training. Similarly, to resist the shift away from international regulatory coordination – that has enabled efficient cross-border intermediation of capital, financial deepening and financial stability – we need to balance greater consistency with risk-sensitivity without significantly increasing capital requirements. Global standard-setting bodies also need to recognize underlying differences across markets, undertake cost-benefit analysis and improve governance at their institutions.

 

International cooperation is also critical in the fight against financial crime and can be enhanced by reducing impediments to information sharing, such as inconsistent legal frameworks across jurisdictions for data protection, privacy and bank secrecy. Removing such barriers would also help financial institutions use Regtech solutions more effectively to detect fraud and comply with AML/CTF regulations.

 

An enabling policy environment is also critical to attract private investment in infrastructure projects with reliable and remunerative cash flows, such as by creating appropriate conditions for long-term commitment and ensuring clear investment rules, standardization, transparency, and market liquidity. Likewise, developing project pipelines, common terminologies and disclosures and a clear legal and regulatory environment will help attract private investment in green finance, and in turn, support sustainable economic growth, job growth in the renewables sector and adaptation to climate change risk.

Takeaways from Recent Trip to Argentina

April 10, 2017

My main takeaway from the IIF’s Argentina Financial Summit in Buenos Aires last week was the rapidly growing but still somewhat cautious enthusiasm that the Macri government can turn around the economy and improve the business climate after nearly twelve years of near-ruinous policies of protectionism, export controls, import-substitution and an unsustainable populist agenda.

 

Measures by the Argentine government to improve the macro-policy framework and kick-start open-market policies and pro-business reforms have helped raise growth prospects and ease inflationary pressures, and the government and corporate sector have benefitted from access to foreign capital markets. Maintaining policy and reform continuity after the October mid-term elections – including by accelerating fiscal reforms, reducing the cost of doing business, deepening local capital markets and improving infrastructure and the export base – will be key to attract capital. Policymakers will also have to ensure that those being affected by structural changes are cushioned and the benefits of higher growth are shared more broadly.

 

But despite the optimism, I heard deep concerns about the rise of protectionist sentiment in the US and its potential impact on Latin America via renegotiation of NAFTA and other trade deals, tariff and non-tariff barriers, immigration policy, the border wall and corporate tax reforms. People were also anxious about how Trump’s election rhetoric might impact US relations with China (a major trading partner for Latin America) and the US role in global multilateral trade and regulatory reforms.

 

Looking ahead, the expected recovery in Brazil and Argentina this year should bode well for the region’s growth. The region (ex-Venezuela) should continue to grow if the US and China work through trade and economic issues without a major trade war (which I think they can), the NAFTA is renegotiated to create a better deal (to include components like energy and technology), and US manufacturers integrated into the supply chain push back on import tariffs and taxes. Given that the more open and pro-market Latin American economies have benefited from higher economic growth and middle class expansion over the years, policymakers in the region could use the increased nationalism and protectionism rhetoric in advanced economies as an opportunity to diversify their export markets, increase regional trade, raise competitiveness, improve the business climate, and strengthen institutions and governance.

Travel Log

 Where Tim has been this year.