Wednesday, October 05, 2005

Leaning left?

Some rich pickings from today's Manila Times:

The editorial points to the apparent "leftward glance" made by the World Bank in its recent World Development Report. However as I've pointed out, there's really nothing new here: economists have been identifying the links between equity and growth, links that run through even the institutional framework of the market economy.

In any case, the World Bank does not dare meddle in the political side of the equation. The Economist notes that this is not where the World Bank wants to go anyway; however their view takes an overly-monolithic perspective on the dominance of the "elites". In democratic societies especially, numerous elites and pressure groups are jockeying for power and influence; academic analysis such as this may assist those groups lobbying for shifts conducive to both equity and efficiency.

Another slightly-leftward proposal (if I may unjustly characterize it as such) is the debt-for-equity swap, which Edgardo Espiritu endorses. But finance and Central Bank officials are cold to the proposal. There are some good features of the swap, as I said before: in particular it will institutionalize incentives towards cost-recovery, income generation, and risk-sharing (between creditor and implementer) in anti-poverty projects.

What I sense however is a moral hazard problem: Congress may slacken efforts to pass needed tax bills to bridge the deficit, once some form of swap is in place. I think this is what the finance officials secretly fear. However this is an argument for inserting a deficit-reduction conditionality prior to and in the swap, not against the swap idea per se. The skeptics are right to point out though that any form of novel repayment scheme should be merely supplementary to a wider effort of enforcing a sustainable deficit policy.

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