The Executive Board of the IMF recently approved a rule change for countries facing “exceptionally high uncertainty”. The change relates to disruptions outside the control of state authorities, and the reach of their economic policies, as well as irregular tail risks. The rule change will allow financing with safeguards to meet urgent Balance of Payments (BoP) needs.
This requires careful judgment about the feasibility of such interventions given the likely risk characteristics and the need to meet legal and policy requirements for Fund lending. This includes the provision of adequate confidence about the ability of the program to solve the member’s BoP problem and restore medium-term external viability while providing the necessary protections for the repayment of the Fund’s financing. This rule change is part of a larger pattern of global shifts from “Risk Management” to building “Strategic Resilience”.
In 2022, the World Food Programme estimated that 349m people across 79 countries were acutely food insecure. In Syria, 90 per cent of the people live below the poverty line. In February 2023, inflation in Turkey was 55 per cent, in Egypt 32 per cent, and in Argentina, it was 102.5 per cent. In 2018, the IMF approved for Argentina $57bn in credit – the largest loan package in the Fund’s history. A new $44bn deal was reached in 2022, to replace the 2018 plan. In March 2023, the IMF reached “staff-level agreement” to ease the country’s economic targets under the new debt plan, given the nexus of problems around severe drought.
The wealth of a nation is in the capacity of the state to deliver a high standard of living for all of its citizens. A focus on financial wealth is counterproductive and its growth is at the expense of the real wealth of a country, according to Columbia’s Nobel Laureate Joseph Stiglitz, in “People, Power and Profits” (2019, p. 8). In “Justice and the Global World”, (2011), Harvard’s Nobel Laureate Economist Amartya Sen puts well-being and the freedom to live a decent human life as the principal objective of the economy. Joseph Stiglitz, in his essay “The Age of Vulnerability”, (2011) observes that, “While many countries succeeded in moving people out of poverty, the welfare of a growing number is precarious.”
The SARS-CoV-2 global crisis and the war in Ukraine have dramatically demonstrated the sensitivity of economies to demand shocks, as well as country-specific vulnerabilities to supply chain disruptions. Covid-19 vined across continents in a world already blanketed by urgent demand to decarbonised buildings and adopt a circular economy. Adding to the public-health crisis and climate catastrophe, some developing economies now face the shrinking value of their currency.
Others wade in the disruptive currents created by societal uncertainties, geopolitical tensions, unseasonable weather, poor network readiness, low developer density, spatial inequality, food insecurity, cybercrime, inflation, and price volatility. These trends have resulted in unprecedented increases in vulnerability. The implication is that the decrease in societal well-being may be far larger than what conventional GDP measures may indicate.
Regardless of how fast GDP grows, an economic structure that cannot deliver gains for most of the citizens, and in which a rising share of the population faces increasing insecurity, remains a model that requires authentic reappraisal, (Stiglitz, 2011).
Resilience management is an increasingly critical prerequisite for economic competitiveness. Today, the inexorable pace of change makes it difficult to predict disruptions, even as they grow in severity and frequency. In a volatile world, sensitivity to vulnerabilities has moved away from a defensive risk management approach centred around a few well-defined risks, to a forward-leaning strategic resilience outlook.
Secure development hinges on the building of foresight capabilities as a competitive advantage. Scenario-based modelling can be used to pressure-test strategies using risk data aggregation through future volatile environments—including those defined by banking instability, rising geopolitical tensions, disruptions in the regulatory landscape, as well as technological disruption.
In the “Wealth of Nations”, Adam Smith prioritized the benefits of a growing economy over making a more serious effort to stem inequality. The inequality arising from capitalism is a source of existential worthlessness for the poor. Downward vulnerability is a lived experience. Upward mobility is more myth than reality. The most earnest ambition for national development must be freedom; that is, to enlarge the capability of all citizens to lead the lives which they have reason to value.
Dr. Eric Williams’ education for industrialisation and industrialisation by invitation were the first steps in this direction for Trinidad and Tobago. His mediations and plans hinged on the theoretical framework of the New World Nobel Laureate Economist Sir Arthur Lewis. Lewis argued that the peculiar circumstances of the Caribbean made necessary a model sui generis to explain the functioning of its plantation economies.
Dr. Eric Williams set out to address the vast wastage of talent which had very narrow chances of further development across all stages of the education system, and to disrupt the patterns, prejudices, and practices of plantation society. It is undeniable that the reforms which he introduced have reduced absolute differences in rates of education participation, and changed the quality of life for all citizens by augmenting their capabilities.