Former high-ranking IMF official on air at Azeri.Today
Azeri.Today information-analytical website continues the column "World Economy amid Crisis", within the framework of which a series of author's articles and interviews with authoritative international economists on global and topical economic topics are published.
Today's guest of our project is ex-assistant to the Director of the Middle East and Central Asia Department at the International Monetary Fund, famous Pakistani economist Zubair Igbal.
- How will the world economy change under Trump?
- President Trump's economic agenda has been determined by his slogan of "America First". This has meant altering or walking away from rules that have evolved since World War II and bound the economies into an integrated global economic system. The centerpiece of this agenda is increased trade restrictions in order to protect domestic US firms from cheaper imports and thus increase domestic employment. A drastic cut in immigration--inflows of foreign skill or human capital-- was to buttress this protectionist strategy. Concurrently, the agenda aimed at weakening the globally accepted regulation of financial institutions which has so far provided protection against a repeat of the 2007/08 global financial crisis. The primary purpose of the agenda has been to move away from globalization and in favor of domestic market as a vehicle for economic management. However, policies in the first three months following his induction as president, Trump's position appears to be less drastic than contained in his election agenda. While threats of retaliation have been made against selected trading partners--China, Germany, and Mexico--with which the US has unfavorable trade balances, no clear cut policy actions have been taken, nor have declarations for gutting the global financial regulation been implemented. More importantly, the Trump administration has come face to face with the global economic and strategic realities which have forced it to reconsider the appropriateness of its original policy stand. It has come to recognize that the US cannot walk away from its strategic interests and also that the planned extreme policy positions would be counter productive. Nonetheless, uncertainty has increased with likely negative effects on global investment and growth. Therefore, to the extent that Trump's economic agenda is weakened in the face of global economic realities and strategic interests, the damage to the global economic order may not be as serious as initially anticipated. However, the evolving economic order will likely be less liberal, capital flows will slow down, countries will probably become more protectionist, and the risk of global financial crisis will probably increase. In the process, global economic growth will slow down, inequality would increase, unemployment might edge up, and economic pressures for migration may increase.
- Some experts predict the next financial crisis. What can you say about it?
- As stated above, any measures that weaken the globally accepted and applied rules for economic governance would cause increased uncertainty and increase the prospect for crises. This conclusion applies very well to the global financial stability. The current global financial stability system has evolved over the past decade through comprehensive negotiations and is deemed to be a highly effective system to avoid yet another financial meltdown--a la 20008. Any scrapping or weakening of rules governing, say, regulating failing banks, specially global banks, will, in addition to increases uncertainty, have serious ramifications for global stability and could result in economic slowdown. if, however, the intent of planned US policy action is to deter unnecessary risk taking while adherence to the global regulations is ensured, then the risks could be mitigated. The most important safeguard should be that whatever changes are proposed, the global bank regulators should buy into them. In view of the above, it is difficult to project whether another crisis is likely, but that increased collaboration can avoid it. A prudent fiscal policy that does not increase fiscal deficit will also be critical.
- And what will happen to dollar? Will it continue to consolidate?
- Difficult question to answer. It depends, among other things, on the US fiscal stance. If, as the Trump administration wants, there is a substantial tax cut while expenditures cannot be reduced, government borrowing will go up, forcing interest rates to rise, thus appreciating the US dollar. Similarly, if import protection is intensified in line with America First strategy, the dollar would appreciate, negatively affecting US competitiveness.
- Oil prices range between $50-55 per barrel. How long can this period of law prices last?
- There are number of factors behind the current relatively low oil prices. These include not only moderation of global economic growth, but also an increase in the supply of oil ( such as shale oil in the US) and other sources of energy ( including natural gas), and technological change adding to the efficiency of energy use. If the global economy continues to grow at about the current pace and recent investments in energy , including for crude oil and natural gas, continue, there is limited probability for the crude oil prices to increase significantly in real terms for the foreseeable period.
- OPEC is to hold a session in May. What are your expectations from that session?
- OPEC is finding it increasingly difficult to regulate oil production and global oil prices. Reduction in oil output has become a less effective instrument to raise oil prices and a number of OPEC members have also become less observant of their commitments. In light of the global supply of oil, natural gas, and other sources of energy, output cut may not achieve its objective. There may be a symbolic curtailment in output at the next OPEC meeting but it will not make a significant impact on prices.
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