Often overshadowed by the regional powerhouses that border it, Paraguay’s recent sovereign bond issuance of $530 million was five times oversubscribed, revealing that the landlocked country of 7.5 million people warrants more attention.
Many factors could be cited for the low ratios of financial inclusion in Latin America, but in a recent paper we focus on the potential role of financial regulation. We assessed and compared the quality of the policies and regulations that impinge on financial inclusion in eight Latin American countries.
Recently, the World Bank published its latest Global Economic Prospects report, which highlights a welcomed cyclical recovery for all major regions of the world following recent slow growth. I was pleased to participate in a panel discussion at CGD analyzing the report’s findings, and to share my perspectives both on its implications and on future global outlooks—especially for emerging market and developing economies.
Here at CGD, we’re always working on new ideas to stay on top of the rapidly changing global development landscape. Whether it’s examining new technologies with the potential to alleviate poverty, presenting innovative ways to finance global health, assessing changing leadership at international institutions, or working to maximize results in resource-constrained environments, CGD’s experts are at the forefront of practical policy solutions to reduce global poverty and inequality. Get an in-depth look below at their thoughts on the 2018 global development landscape.
The difficulties encountered by emerging markets’ regulators in balancing socially desirable innovations and possible risks are accountable for the slow development of fintech regulations in these economies. To address these problems, the framework developed in CGD’s report, Financial Regulations for Improving Financial Inclusion can support regulators’ efforts. This approach, based on three main principles, encourages the private sector to successfully adopt and adapt digital finance solutions for low-income populations while circumventing risks.
CGD is establishing a high-level Working Group, composed of leading experts on Basel III and economic development, that will identify challenges for emerging markets’ financial stability and development derived from the global implementation of Basel III. Effective and appropriate implementation of Basel III’s recommendations could make a huge contribution to global financial resilience with the attendant benefits for development progress. The G20’s commitment on this issue is welcome.
Stay tuned for more on our Working Group’s progress in the coming months.
Each of the G20 summits of the past seven years has suffered in comparison with the London and Pittsburgh Summits of 2009, when the imperative of crisis response motivated leaders, finance ministers, and central bankers to coordinate effectively with each other. Subsequent summits have lacked the same sense of urgency and have failed to deliver any kind of agenda that can be pinpointed as clearly as “saving the global economy.” This week’s summit in Hamburg, Germany promises more of the same, with the real possibility that the G20’s stock could fall even further at the hands of a non-cooperative US delegation.
The rate is still very low at 0.75% in the US, and, in addition, there is no perception or expectation that rates are about to rise in other advanced economies such as Japan or the EU. Taken together then, interest rates in advanced economies look set to stay extremely low. So, for now at least, emerging markets may not need to worry too much about capital inflows drying up. But in the medium to long term a problem may loom for emerging markets.
Many emerging economies could benefit from insurance against this backdrop of volatility. Fortunately, cheap and no-strings-attached liquidity insurance exists, in the form of the IMF’s Flexible Credit Line (FCL) for countries with very strong policy fundamentals; for countries with somewhat weaker, but still sound fundamentals, the Precautionary and Liquidity Line (PLL) offers a similarly good deal. But these precautionary instruments remain underutilized. We have some suggestions on how the IMF could fix this.
CGD continued its commitment to the subject of financial inclusion with the release this March of Financial Regulations for Improving Financial Inclusion. As co-chairs of the Task Force that produced this report, we are enthused to see much alignment between the High-Level Principles of the G20 and the CGD Task Force report.