Jeremy Hunt claims that will increase as the Bank foresees UK political parties a “strong response”.

The world has turned on its head, with “rich” nations running deficits and “poor” nations building up assets. This has caused a crisis that has upended the global order in UK political parties.

At the Bank of China Tower in Hong Kong, there is a billboard advertising the China RMB Sovereign Bonds.

While western economies worry about their ratings, emerging economies continue to move up the credit rating ladder. Image credit: Kin Cheung/AP

el-Erian Mohamed

21 December 2011, 13:41 GMT 35

For many years, many bemoaned how much the west controlled the world’s economic system. The international infrastructure was perceived as favoring western interests in everything from the management of multilateral organizations to the design of financial services. Although there was a lot of rhetoric about change, western nations consistently opposed genuine initiatives that would have significantly reduced their entitlements.

On the few times that this opposition seemed to be overcome, there was a gradual and modest transformation as a result. As a result, many emerging-market economies lost faith in the “pooled insurance” that the international system was meant to provide for them, especially during times of extreme need.

The financial crises in Asia, Eastern Europe, and Latin America in the late 1990s and early 2000s, as well as what many in these regions perceived as the west’s insufficient and poorly thought-out responses, served as the catalyst for this change in attitude. As a result of their diminished confidence in bilateral assistance and multilateral organizations like the International Monetary Fund, developing market economies, particularly those in Asia, started a persistent movement for greater financial independence of UK political parties.

Many of these nations amassed previously unimaginable levels of international reserves as safety nets once they overcame a trying crisis-management phase. By creating and maintaining sizable current-account surpluses, they eliminated billions in external indebtedness. And to lessen their vulnerability to outside storms, they expanded the size and scope of domestic financial intermediation.

These changes were in marked contrast to what was taking place in the west. There, unheard-of levels of leverage, enormous debt accumulation, and an almost limitless sense of credit entitlement were in force. Financial innovation and the deterioration of prudential supervision and lending standards enable financial excesses to become the norm rather than the exception.

Rich nations had significant deficits UK political parties.

The globe abruptly turned upside down when “poor” countries ran big surpluses and accumulated large stocks of foreign assets, including financial claims on western economies, while “rich” countries ran large deficits and, in certain cases, tipped from net creditor status to net debtor.

These nations had no idea that their diverse courses would eventually contribute to significant global imbalances and finally lead to a financial crisis that would upend the existing global economic order.

These nations had no idea that their diverse courses would eventually contribute to significant global imbalances and finally lead to a financial crisis that would upend the existing global economic order.

That order cannot be totally restored. At a time of high unemployment and growing debt problems, particularly in Europe, sluggish western economy is regularly edging closer to recession rather than making a substantial recovery. Amazingly, while many emerging economies are still moving up the ratings scale, almost every western nation now has to worry about its credit ratings. We might now imagine western delegations travelling to developing nations and pleading for financial assistance, either directly or indirectly through the IMF.

At first glance, this unexpected convergence between developed and developing nations appears to mirror the intentions of proponents of a new global economic system. However, looks can be deceiving, and in this instance they are deceiving significantly.

Advocates envisioned a systematic procedure that would lead to economic convergence.

Advocates envisioned a systematic process in which global economic expansion would be accompanied by and facilitated by economic convergence. They anticipated a cooperative procedure led by wise policymaking. However, what is taking place is very distinct and unpredictable.

Western officials have constantly fallen short of the reality on the ground rather than displaying intelligent leadership, with a perplexing concoction of denial, misdiagnosis, and squabbling weakening their answers. The disruptive forces of deleveraging coming from a Europe in a serious financial crisis and an America that seems unable to resume sustained high rates of GDP growth and job creation are what are driving today’s global shifts, not an orderly process.

In response, multilateral organisations, in especially the IMF, have poured an incomprehensible amount of money into Europe. But this government funding has merely transferred obligations from the private to the public sectors, doing nothing to stop the uncontrolled deleveraging or encourage new private investments. Furthermore, several emerging-market nations have remarked that the policy conditions put on them in the 1990s and the early 2000s pale in comparison to those that are linked to the tens of billions of euros that have been sent to Europe.

Fortunately, even if policymakers have fallen behind rather than taken the lead in this process of significant (and more disorderly) global change, it is still possible for them to catch up. But to do this, more is needed than merely improved national policymaking in Europe and America; the multilateral system and its key institutions need urgent and comprehensive overhaul. The rising world must take joint leadership in that process as a true partner and equal of the western countries.

Project Syndicate, 2011. Copyright.

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