indrawati7_GOH CHAI HINAFPGetty Images_imf bali Goh Chai Hin/AFP/Getty Images

Cooperation for a New Age of Volatility

As advanced economies take the low road toward a new world of great-power rivalries, it is worth remembering that cooperation is what staved off a global depression just ten years ago. In the face of today's rising global threats, there is no good reason why multilateralism should not prevail once again.

JAKARTA – Managing an economy is not for the faint of heart. Policymakers must constantly monitor the ever-evolving global economic landscape, and anticipate lightning-fast changes that can breed volatility and uncertainty. As today’s political and economic turbulence attests, the impact of events in one place can be felt far and wide, but particularly in emerging economies.

To stay ahead of the curve, policymakers must put international cooperation above short-term national interest. And yet, in the last two years, protectionism, policy divergence, and a lack of coordination have begun to pose serious downside risks to the global economy. A confluence of factors is creating a perfect economic storm.

For starters, the US Federal Reserve has tightened liquidity through its interest-rate hikes, while the US Treasury’s pro-cyclical expansionary policy (tax cuts and increased spending) has bolstered aggregate demand and pushed up the yield on ten-year Treasury bonds. Moreover, US trade policy vis-à-vis China and Europe has dampened global trade. As a result of this policy mix, the US dollar is appreciating, and capital flows into emerging economies are declining.

https://prosyn.org/xX3HJaY