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Post-crisis restrictions on international banking can blunt growth prospects in developing countries




Growing restrictions imposed on foreign banks operating in developing countries since the 2007/9 global financial crisis are hampering better growth prospects by limiting the flow of much-needed financing to firms and households, a World Bank report warned on Tuesday.

International banking can have important benefits for development, but is no panacea, and carries risks. Developing economy policymakers would do well to consider how to maximize the benefits of cross-border banking while minimizing its costs, the World Bank’s Global Financial Development Report 2017/2018: Bankers without Borders says.

The 2007-2009 crisis and economic downturn prompted an extensive re-evaluation of the benefits and costs of international banking and led to restrictions that brought a decade-long surge in financial services globalization and cross-border lending to a halt. However, developing countries may need to reconsider the value of international banks as critical gateways to global credit and faster economic growth, even as they continue to manage risks, the report says.

“As aspirations continue to rise all over the world, and the banking sector evolves, there is a critical question: will finance be a friend or foe in the fight to end poverty?” World Bank Group President Jim Yong Kim said. “International banking does create risks of exporting instability, especially for countries with poor regulations and institutions, and those risks need to be mitigated. But without a competitive banking sector, the poor will not be able to access basic financial services, many businesses will be locked out of markets, and growth in developing countries will stall.”

Bank finance is essential for a vibrant private sector, particularly for nurturing small and medium-sized businesses. Developing countries can maximize benefits from a stronger banking system while shielding against risks through improving information sharing through credit registries, vigorously enforcing property and contract rights, and guaranteeing strong supervision of banks.

Rise of Developing Economy Banks

As advanced economy banks retrenched after the crisis, developing country banks stepped into the void and expanded across borders, accounting for 60 percent of new bank entries since the downturn. The result has been an increase in banking relationships between developing countries and regionalization of international banking operations.

For example, Africa’s Ecobank started in Togo and now has operations in 33 countries across the continent. It also has offices in Paris, Beijing, Dubai, Johannesburg, and London, which allows it to attract capital from wealthy countries to invest across Africa.  

At the same time, the total asset size of the world’s largest banks increased by 40 percent, raising concerns that regulatory efforts since the crisis have failed to address the risk of banks that are too big to fail. In the face of greater uncertainty about the benefits of openness, many countries have viewed the recent expansion of the world’s largest international banks with alarm and have restricted foreign banking. Nearly 30 percent of developing countries have put in place restrictions on foreign bank branches. These curbs are depriving many economies of opportunities to access global credit that could benefit businesses and households.    

“Openness to international banking is no guarantee of financial development or stability,” said World Bank Research Director Asli Demirguc-Kunt. “But a wealth of research shows how the right policies and institutions can ensure that openness leads to greater competitiveness, smoothing of local economic shocks, and increased access to the scarce capital needed to spur growth.”

Done right, enabling foreign bank entry and improving financial openness – alongside well-functioning capital markets — can offer systemic benefits, including improved financial stability, greater competition, and improved resilience to economic shocks.   

The report also examines both rewards and risks of rapidly expanding financial technology that works globally and across borders through digital products, with examples ranging from companies like Kenya’s mobile money platform, M-Pesa, to the peer-to-peer Lending Club.

These technologies can speed transactions, lower costs, improve risk management, and extend financial services to underserved populations. However, they also pose risks through a lack of safety nets, potential abuse of personal data, and electronic fraud.

“While developing countries suffered collateral damage from the global financial crisis, the benefits of openness are too large to ignore,” said Shanta Devarajan, World Bank Senior Director for Development Economics. “Achieving the levels of economic growth needed to end poverty depends on a competitive and stable financial sector.”

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Partnerships key to promoting economic empowerment for rural women in the MENA region




The economic empowerment of rural women in the Middle East and North Africa (MENA) region was the topic of a side-event organized by the governments of Italy and Tunisia, in cooperation with the United Nations Industrial Development Organization (UNIDO), UN Women and the Food and Agriculture Organization (FAO).

The event featured a range of high-level speakers from Italy, the MENA region, UN agencies and non-governmental organizations, and was moderated by Omar Hilale, Permanent Representative of the Kingdom of Morocco to the United Nations in New York. “Women face several barriers to their equal participation in the social, economic and political spheres, and these constraints are felt even more harshly by rural women,” he stated in his opening remarks.

Fatou Haidara, Managing Director of Corporate Management and Operations at UNIDO, highlighted the significance of industrialization in reducing poverty and increasing employment, and the positive benefits of this for women. She referred to the holistic approach adopted by UNIDO in its work in promoting women’s empowerment and entrepreneurship in the MENA region, stating that both policy and capacity-building dimensions are crucial.

“We have facilitated an ecosystem of knowledge and support, successfully partnering with governments and the private sector to create the foundation for structural change that has mobilized women’s entrepreneurship throughout the region,” she said. “For UNIDO, this project is one step forward in our long-term strategy for enabling women’s economic independence, because the resulting benefits will go beyond women and girls to put us all on the path to achieving the 2030 Agenda.”

The importance of integrating women into the political system was stressed by Neziha Laabidi, Minister of Women, Family and Childhood of the Government of Tunisia, who also highlighted the inclusion of women in Tunisia’s national, multi-sectoral strategy.

Teresa Bellanova, Deputy Minister of Economic Development of Italy drew attention to Italy’s commitment to promoting women’s rights and gender equality and to supporting women entrepreneurs and capacity-building at the local level in light of the radical, recent economic and geographical changes shaping the MENA region’s reality.

The discussion also touched upon issues faced by women in the region, such as access to land rights and discriminatory socio-cultural norms. The need for partnerships to come up with integrated solutions to such issues was addressed by Mohammed Naciri, Regional Director for Arab States, UN Women.

Engagement with the financial sector, including making capital more easily accessible to rural women, was underlined as a key factor in empowering rural women by Emanuele Santi, founder and president of Afrilanthropy, which connects social start-ups in Africa to impact investors. Santi added that creating incentives – for example by giving bonuses to companies that invest in companies led by women and rural women in particular – was another key to success. Finally, he stated that the development community had to “work as an ecosystem” and blend financial support with non-financial support.

The event was held on the sidelines of the Commission on the Status of Women (CSW), an annual two-week session at the United Nations in New York. The CSW is the principal global intergovernmental body exclusively dedicated to the promotion of gender equality and the empowerment of women.

Speaking at the opening of the CSW, UN Secretary- General, António Guterres, stated that the Commission was “leading the way” when it comes to empowering women. “When women are already taking action, we need to listen to them and to support them,” he said. “By building equality, we give women a chance to fulfil their potential. And we also build more stable societies.”

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Four countries on track to graduate from UN list of least developed countries




Four countries could soon “graduate” from the ranks of the world’s poorest and most vulnerable nations, a United Nations expert committee announced on Thursday

Bhutan, Kiribati, Sao Tome and Principe and the Solomon Islands have increased national earning power and improved access to health care and education, making them eligible to exit the group of least developed countries (LDCs).

“This is an historic occasion,” said Jose Antonio Ocampo, chair of the Committee for Development Policy (CDP), noting that only five countries have graduated since the UN established the LDC category in 1971.

LDCs are assessed using three criteria: health and education targets; economic vulnerability and gross national income per capita.

Countries must meet two of the three criteria at two consecutive triennial reviews of the CDP to be considered for graduation.

The Committee will send its recommendations to the UN Economic and Social Council (ECOSOC) for endorsement, which will then refer its decision to the UN General Assembly.

For CDP member Diane Elson, a professor at the University of Essex in the United Kingdom, Thursday’s announcement was good news for millions of women in rural areas.

She pointed out that the latest session of the UN Commission on the Status of Women (CSW), currently under way in New York, is discussing the challenges facing this population.

“The success of the countries that are graduating reflects things like the improvement of the health and the education of the population, which extends to rural women, and the increase in incomes in the country, which extends to rural women,” she said.

However, Ms. Elson stressed that the countries will need continued international support because they remain vulnerable to external shocks, including the impact of climate change.

Mr. Ocampo said this vulnerability is particularly evident in Pacific Island states such as Kiribati.

Globally, there are 47 LDCs, according to the UN Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States.

The majority, 33, are in Africa, while 13 can be found in the Asia-Pacific region, and one is in Latin America.

In the 47 years of the LDC category’s existence, only five countries have graduated (Botswana, Cabo Verde, Equatorial Guinea, Maldives and Samoa)

The CDP said two more countries, Vanuatu and Angola, are scheduled for graduation over the next three years.

Nepal and Timor-Leste also met the criteria but were not recommended for graduation at this time, due to economic and political challenges.

That decision will be deferred to the next CDP triennial review in 2021, according to Mr. Ocampo.

Bangladesh, Lao People’s Democratic Republic and Myanmar met the graduation criteria for the first time but would need to do so for a second time to be eligible for consideration.

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ADB, India Sign $120 Million Loan to Improve Rail Infrastructure




The Asian Development Bank (ADB) and the Government of India today signed a $120 million loan agreement to complete double-tracking and electrification of railway tracks along high-density corridors in India and improve operational efficiency of the country’s railway networks.

The $120 million financing is the third tranche of a $500 million financing facility for the Railway Sector Investment Program approved by ADB’s Board in 2011. The loan amount will be used to complete the ongoing works started in the project’s first two tranches.

The agreement was signed by Kenichi Yokoyama, ADB Country Director for India, and Sameer Kumar Khare, Joint Secretary (Multilateral Institutions) of the Department of Economic Affairs in the Ministry of Finance, at a ceremony in New Delhi.

“The program will help develop energy efficient, safe, and reliable railway systems that will result in reduced travel time along project rail routes and also reduce annual accident rate,” said Mr. Khare.

“Funding for the project’s third tranche will contribute toward achieving the overall program outputs of double-tracking about 840 kilometers (km) of rail routes and electrification of 640 km of tracks along high density corridors,” said Mr. Yokoyama. “The program is also helping implement new accounting systems and provide additional safety measures including collision avoidance equipment.”

The investment program is targeting busy freight and passenger routes in the states of Andhra Pradesh, Chhattisgarh, Karnataka, Maharashtra, and Odisha, including the “Golden Quadrilateral” corridor that connects Chennai, Kolkata, Mumbai, and New Delhi. The doubling of rail sections is being implemented along Daund-Titlagarh section, Sambalpur-Titlagarh section, Raipur-Titlagarh Section, and Hospet-Tinaighat section, while electrification is being undertaken along the 641-km Pune-Wadi Guntakal section.

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