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  • World Bank Sees Overall Improving Regulatory Climate for Start-ups, Local Business

    The Doing Business 2010 report from the World Bank commends leaders in countries around the world for instituting reforms that make doing business easier. The report gives high marks especially to countries in Eastern Europe and Central Asia where the report says that 84% of economies instituted at least one Doing Business reform. Overall, 75% of economies had at least 1 key reform in 2009/10: The 2010 report has an optimistic tone, as the authors seem to feel that policy makers around the globe have heeded some important lessons from the last few years and are trying to make it easier for start-ups and small businesses: Against the backdrop of the global financial and economic crisis, policy makers around the world took steps in the past year to make it easier for local firms to start up and operate. This is important. Throughout 2009/10 firms around the world felt the repercussions of what began as a financial crisis in mostly high income economies and then spread as an economic crisis to many more. While some economies have been hit harder than others, how easy or difficult it is to start and run a business, and how efficient courts and insolvency proceedings are, can influence how firms cope with crises and how quickly they can seize new opportunities. Between June 2009 and May 2010 governments in 117 economies implemented 216 business regulation reforms making it easier to start and operate a business, strengthening transparency and property rights and improving the efficiency of commercial dispute resolution and bankruptcy procedures. More than half those policy changes eased start-up, trade and the payment of taxes (figure 1.1). Read the full report here .

  • Considering a New Gold Standard

    As G20 leaders meet this week, fluctuating currencies will be at the center of a lot of discussions. World Bank president Robert Zoellick suggests that they consider some sort of updated gold standard . While that proposal seems unlikely to get serious consideration, Slate 's Christopher Beam "entertain(s) the possibility," in order to explain just what Zoellick's modest proposal would mean. First, the government would have to decide what the price of gold is. That's a lot harder than it sounds. In theory, there's an ideal rate at which to peg currency against gold. We just don't know what it is. Gold is notoriously volatile-its price has doubled over the last two years. If the Federal Reserve were to simply fix the dollar to the price of gold on a given day, and demand for gold changed drastically, it would wreak havoc on the economy. If the Fed pegs the rate too high, for example, people would want to trade their dollars for gold, forcing the Fed to raise interest rates in order to make dollars more attractive. Even if the Fed were to pick the rate correctly, it would still have to make adjustments based on the economies of the United States' trading partners. If the dollar is growing in value, but another country's currency is decreasing in value, yet both currencies are pegged to gold, something has to give-either one of the currencies has to inflate or deflate, or the exchange rate has to be adjusted. Once the Fed set the price of gold, it would then have to keep the currency fixed, leaving the economy subject to the vicissitudes of the gold index. If the price of gold goes up, the United States would have to raise interest rates, which could lead to tighter credit. Which might be OK, except that gold is a primary indicator of economic uncertainty: When the economy is bad, the price of gold goes up. So the Fed would be tightening credit just when people need it most. The result: a deflationary spiral that drives the economy even deeper into recession. Read Gold Rush here Meanwhile, Harvard Kennedy School Economist Jeff Frankel takes Zoellick's proposal less literally, and briefly explains the core idea of shifting the global monetary system off of being pegged to one currency: the dollar. Read Gold: A Rival for the Dollar here .

  • Telecoms Find Success in War-torn Somalia

    It may be counterintuitive, but unstable countries may provide uniquely strong business opportunities. That is apparently the case with telecom companies in Somalia, a country that has not had a stable government in nearly two decades. Abdinasir Mohamed and Sarah Childress report on the success of these perseverant telecoms in the Wall Street Journal : Backed by expertise from China, Korea and Europe—and funded from their own pockets—Somali telecom entrepreneurs are providing inexpensive mobile-phone services. Users can conduct money transfers via mobile phones and gain Internet access, both wireless functions that aren't widely available in many other parts of Africa. The success of Somalia's telecom sector isn't all that unusual for a war-shattered economy, experts say. In countries with shaky economic foundations, such as Afghanistan and the Democratic Republic of Congo, telecommunications companies have stepped in to provide missing infrastructure. In these environments, "the first ones who put in electricity generators in rural areas are the telecom operators," says Svet Tintchev, a World Bank expert on the telecom industry in developing countries. "In a way, their leverage goes beyond pure telecom service." Read Telecom Firms Thrive in Somalia Despite War, Shattered Economy here .

  • Rebound in Global Trade Volume at End of 2009

    The Economist points us toward an interesting data-set from the Netherlands Bureau for Economic Policy Analysis (CPB). The CPB tracks global trade volume each quarter, and 2009 was--to the surprise of no one--a bad year overall for trade. But the CPB findings show that the fourth quarter was relatively strong. From the CPB report: Based on preliminary data, world trade volume expanded by an unprecedented 4.8% in December 2009 from the previous month, following an increase of 1,1% in November (unrevised). Import volumes of emerging economies continued to expand at an accelerated pace, growth reaching 7.8% in December. Import growth was particularly high in emerging economies in Asia and Latin America. Import growth in advanced economies accelerated as well, from 0.7% in November (first estimate: 0.3%) to 2.7% in December. In December, trade was 8% below the peak level reached in April 2008, but 15% above the trough reached in May 2009. In 2009 as a whole, trade decreased by an unheard-of 13.2%. Here's a look at the CPB data over a longer period--this is the trade of "world merchandise" by volume, seasonally adjusted: Of course, this does not mean the time for popping a bottle of champagne has arrived. As The Economist points out, trade volume statistics measure bulk and not value: Figures from the World Bank, which track the value rather than the volume of trade, point to a deceleration in the final quarter, not the acceleration that the CPB’s data suggest. According to the bank, the value of exports from a sample of 56 countries making up the lion’s share of world trade continued to rise in the final quarter, but at a slower rate than in the third quarter. Data on trade values partly reflect exchange-rate fluctuations, so it is not unusual for them to lead to somewhat different conclusions from volume figures. But there are other reasons to be cautious. December is typically a good month for global commerce because of holiday spending in many parts of the world. Strength in December is therefore by no means sure to have continued into the new year. Read the CPB report here , and more analysis from The Economist here .

  • Service Driven Economic Success: The India Model for Developing Countries

    India's leaders are anticipating that their country's economy will be able to maintain is rapid growth in the coming years, according to a new government economic survey . Whether or not India can indeed boast the "fastest growing economy" by 2014, as the survey predicts, the rapid recovery of India's GDP even as prices lag around the globe remains a story to watch. China will remain the giant in Asia, but it is interesting to watch the success of India compared to its neighbor. As China grows on the strength of manufacturing, India's is a service economy. World Bank economic advisor Ejaz Ghani says India's success is a new model for developing countries, and just might allow them to jump ahead on the traditional path of growth. Ghani writes, at VoxEu : The Services Revolution could upset three long-held tenets of economic development. First, services have long been thought to be driven by domestic demand. They could not by themselves drive growth, but instead followed growth. In the classical treatment of services, any attempt to expand the volume of services production beyond the limits of domestic demand would quickly lead to deterioration in the price of services, hence a reduction in profitability, and hence the impulse towards expanded production would be choked off. Second, services in developing countries were considered to have lower productivity and lower productivity growth than industry. As economies became more service oriented, their growth would slow. For rich countries, with high demand for various services, the slowdown in growth was an acceptable consequence of the higher welfare that could be achieved by a switch towards services. But for developing countries such a trade off was thought to be inappropriate. Third, services jobs in developing countries were thought of as menial, and for the most part poorly paid, especially for low skilled workers. As such, service jobs could not be an effective pathway out of poverty. India’s development experience offers hope to late-comers to development in Africa. The marginalisation of Africa during a period when China and other East Asian countries grew rapidly has led some to wonder if late-comers to development like Africa are doomed to failure. Many considered the “bottom billion” to be trapped in poverty (Collier 2007). The process of globalisation in the late 20th century led to a strong divergence of incomes between those who industrialised and broke into global markets and a bottom billion” of people in some 60 countries where incomes stagnated for twenty years. It seemed as if the bottom billion would have to wait their turn for development, until the giant industrialisers like China became rich and uncompetitive in labour-intensive manufacturing. Read The service revolution in India here .

  • World Bank President Warns of 'Human Catastrophe'

    World Bank President Robert Zoellick says the global economic crisis is already putting a major strain on development and aid efforts, and the World Bank, the IMF , and global leaders need to act now to "prevent a human catastrophe." Zoellick made the remarks at the close of the World Bank's spring meeting. At the press conference, the World Bank's Development Committee outlined the following initiatives to help alleviate the economic challenges in developing countries: • To protect the poorest, the Bank has set up the Vulnerability Financing Facility, including the Global Food Crisis Response Program and the new Rapid Social Response Program. IFC (International Finance Corporation) has also created the Microfinance Enhancement Facility to help poor borrowers. • To reinvigorate trade finance, IFC has expanded its Global Trade Finance Program from $1 billion to $3 billion, and has also launched its Global Trade Liquidity Program, expected to support up to $50 billion of trade over the next three years. • To maintain infrastructure development and create jobs, the Bank has established the Infrastructure Recovery and Assets Platform. The Bank will lend up to $15 billion a year for infrastructure, while IFC has launched the Infrastructure Crisis Facility. • To help support the financial sector , IFC has created the Capitalization Fund, to provide additional capital for developing country banks. MIGA has extended guarantees to loans to Eastern Europe for coverage of $500 million. You can read Zoellick's remarks here , and watch the full Development Committee news conference here .

  • G20 Leaders' Pledges to Restore Global Growth and Prevent Future Global Economic Crises

    The Group of 20 leaders have wrapped up their London Summit , and have released an outline of shared goals (see below). The pre-meeting chatter was all about calls from some quarters to focus on regulatory measures over stimulus. In the end, they decided to pursue both. They have pledged $1 trillion dollars in stimulus funds for the IMF and The World Bank, and say they will pursue tighter regulation of financial institutions and punitive measures for so-called tax havens. The meeting featured a relatively concilatory tone. And President Obama pointed to that tone in his press conference, calling the meeting a "turning point" : Today we’ve learned the lessons of history. I know that, in the days leading up to the summit, some of you in the press, some commentators, confused honest and open debate with irreconcilable differences. But after weeks of preparation and two days of careful negotiation, we have agreed on a series of unprecedented steps to restore growth and prevent a crisis like this from happening again. British Prime Minister Gordon Brown was the host of the summit. Here are excerpts from his closing press conference: In their closing Leaders' Statement , the summit participants made a series of pledges. And for those of you keeping score at home, here they are: · restore confidence, growth, and jobs; · repair the financial system to restore lending; · strengthen financial regulation to rebuild trust; · fund and reform our international financial institutions to overcome this crisis and prevent future ones; · promote global trade and investment and reject protectionism, to underpin prosperity; and · build an inclusive, green, and sustainable recovery. As the statement reads, "By acting together to fulfill these pledges we will bring the world economy out of recession and prevent a crisis like this from recurring in the future." You can read the full statement here . For more detail from the conference organizers, go to the London Summit website .