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Unlocking Public Wealth

According to the International Monetary Fund, the world’s public assets are worth at least twice global GDP. Instead of neglecting those assets, as most governments do today, countries should be using them to generate value.

NEW YORK – After World War I ended, Havana emerged as one of the world’s most vibrant cities. During the first half of 1920, rising sugar prices and a favorable global environment meant that credit and finance were flowing into Cuba, fueling the so-called Dance of the Millions. But, as David Lubin recalls in his book Dance of the Trillions, the party ended abruptly before the year was over, owing largely to US interest-rate hikes, which drew liquidity back into the United States. The Cuban sugar industry never recovered.

With US credit to non-bank borrowers in developing countries having more than doubled since the 2008 global financial crisis – reaching $3.7 trillion at the end of 2017 – Cuba’s experience should serve as a warning. But, for developing countries today, there is an additional complication: global finance is increasingly governed not by the Washington Consensus, which encourages transparency and adherence to rules that apply to all, but rather by an opaque and biased “Beijing Consensus.”

China is now the world’s second-largest national economy and the leading supplier of credit to emerging markets globally, having filled the gap left by retreating Western creditors. The terms of this lending are so murky that only China has information about the volume, maturity, and cost of outstanding loans, which are issued on a bilateral basis, often for political or strategic reasons. As a result, assessing debt sustainability is more difficult than ever.

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    A Global Economy Without a Cushion

    Stephen S. Roach

    From 1990 to 2008, annual growth in world trade was fully 82% faster than world GDP growth. Now, however, reflecting the unusually sharp post-crisis slowdown in global trade growth, this cushion has shrunk dramatically, to just 13% over the 2010-19 period, leaving the world economy more vulnerable to all-too-frequent shocks.