Now, says Robert Zoellick, World Bank president, the bank guarantee programmes being launched across the rich world could be further starving the developing world of capital.
“As the developed countries have guaranteed a lot of debt for understandable reasons they have made it harder for developing countries to be able to issue bonds,” Mr Zoellick told the Financial Times. “You’ve seen some [debt] offerings by Mexico and a couple of other countries but they are paying up for it.”
The World Bank, which had been edging away from lending to middle-income countries amid a surge of investment from the private sector, has had to come back. This year Mr Zoellick predicted the bank’s commercial lending arm would increase lending to $100bn (£70bn) over the next three years, two or three times the level in recent years. “We are trying to help the Mexicos, the Indonesias and others to try to have some modest deficit financing. At a time when the other financial institutions in the world are in turmoil, we can lean forward to help.”
The bank has been tweaking its lending practices to try to provide a form of insurance for countries that want to protect long-term infrastructure investment plans, or keep government welfare payments going, despite the lack of private capital. “Some of the lending programmes we are offering are designed to offer them contingent financing,” Mr Zoellick said. “If Indonesia wanted a budget deficit of 2-3 per cent of GDP [gross domestic product], they would know if they couldn’t access the market we would be there to provide.”
See, for the magical cycle of capital flows to work, LDC's MUST, MUST import. Part of Obama's strategy to revivify the US entails exports, and LDC's import capital goods, manufactured goods, and agricultural commodities from the US. Oh, and don't forget weapons and "consultants" are also major exports, too!
The real question is, how should this be financed? Who should backstop the LDC's credit risk? Soros wants SDR's from the IMF. The US would probably want to do it through a domestic agency or a P3 sort of deal involving a major commercial bank. This amongst other issues is what's forestalling a resolution of the current crisis, since no one wants to lend to a LDC if he can't control who exports what to them!
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The real question is, how should this be financed? Who should backstop the LDC's credit risk? Soros wants SDR's from the IMF. The US would probably want to do it through a domestic agency or a P3 sort of deal involving a major commercial bank. This amongst other issues is what's forestalling a resolution of the current crisis, since no one wants to lend to a LDC if he can't control who exports what to them!
I think you are right and this is a crux of the problem.
The thing that simply amazes me is the number of people who believe that the World Bank and the IMF can somehow magically save the whole world from the current mess.
Even if we neglect their abysmal record of offering assistance to nations in distress, still the IMF and WB cannot save the whole world from the financial crisis. They don't have enough money for that.
The only ones who can "save the world" is a consortium private of large banks and large PE funds with good connections to the government (similar to the private banking consortium that makes up the FED in USA).
The problem is that nobody is going to save a country as long as that country has the ambition to pursue it's own independent and sovereign monetary and financial policies (for example mercantilism and dollar peg in China's case).
Therefore, I believe that only countries that accept give up control over their monetary and financial policies, accepting a "pact with the devil" will be rescued, while the others, will be slowly brought one by one into submission of into outright bankruptcy by the crisis.
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