Bill Clinton's former adviser is a guest of Azeri.Today
Azeri.Today's exclusive interview with Jeffrey Frankel, famous international macroeconomist, former member of the Council of Economic Advisers of the White House, former economic adviser of ex-president Bill Clinton.
- How will the economic world order change under Trump?
- Mr. Trump's words and actions are volatile and unpredictable. One must admit that in the past we have all repeatedly made predictions of his failure and been shown wrong by events. Nevertheless, my guess is that he will steadily lose domestic political support during his term in office, due to a likely series of setbacks and scandals. But he will do a lot of damage in the meantime. I hope that four years from now we can all resume progress under a liberal world order of peace and prosperity, under an agreed set of international rules and institutions, including openness to market-based trade and openness to reality-based ideas. The question is how much damage Trump does in the meantime.
- Some experts predict the next financial crisis. What can you say about it?
- After the global financial crisis of 2008 the US and other countries enacted a lot of reforms to make future crises less frequent and less severe. For example, they raised capital requirements for banks. Mr. Trump wants to reverse many of these reforms. If he were to succeed, that would make a new severe crisis more likely.
- In the aftermath of the drop in oil prices, many countries were forced to devaluate their national currencies, which ultimately led to inflation growth – price hike on foodstuffs and nonfoods. How long will the oil crisis continue?
- Oil prices recovered somewhat in 2016, but I don't see them going a lot higher. My guess is that there are too many sources of supply of oil and other energy sources that can come back in at a price of $55 a barrel to let the price go much higher. The normal range of prices is where we are now, not where we were in 2010-14.
- What would you recommend to the governments of the countries, which faced the devaluation of their national currencies?
- Oil-exporting countries like Azerbaijan and Kazakhstan should have currency arrangements that allow the exchange rate to adjust automatically to the inevitable ups and downs in the world oil market.
The best way to avoid severe consequences when the world conditions for your export commodity are weak is to take prudent steps when the conditions are strong. Some commodity-exporting countries switched to better policies after the crises of the 1990s, and as a result have done better so far in this century, when faced with foreign shocks such as the Global Financial Crisis in 2008-09 and the fall in dollar commodity prices in 2014-15. The good policies include allowing some flexibility in the exchange rate, both on the upswing and the downswing.
I have proposed a plan called "Currency plus Commodity Basket," under which the national currency is pegged to a basket that includes not only weights on the value of the dollar and other major foreign currencies but also some weight on the price of a barrel of oil. Other good policies include countercyclical fiscal policy, accumulating foreign exchange reserves and paying down debt when the price of the commodity export is high and minimizing borrowing denominated in dollars or other foreign currencies.
- Fed reserve last increased the discount rate in December 2016. Do you think the rise will continue this year?
Yes. I foresee several further increases in interest rates by the Federal Reserve in the coming year. Increases in US interest rates tend to have negative effects on the economies of oil-exporting countries, first because they tend to have negative effects on the dollar price of oil and, second, because they tend to worsen the ratio of debt to export revenue, especially because they appreciate the dollar much debt is denominated in dollars.
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