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March 20, 2009

Why Don’t the Bretton Woods Sisters Offer Risk Insurance? (Could Governance Be Part of the Problem?)

Posted by Nancy Birdsall in Governance of the Bretton Woods Sisters: Making Progress on the Agenda Tags: , , , ,

Why have the IMF and the World Bank been so backward on risk management products — an issue Guillermo Perry explores in a forthcoming CGD book? What is it about their governance, mandate, instruments and/or human nature that leads them like horses to water to lending, even defensive lending, during good times, in effect inviting them, for lack of prior development of insurance and savings products, to “indulge” in a new round of lending in bad times? (Is it a coincidence that the same problem seems to plague microfinance initiatives — where, as David Roodman among others points out, credit eclipses savings and insurance programs by orders of magnitude?) Isn’t this asking countries to acquire more debt to build a new house to replace one that has burned down — when instead they should have had access to fire insurance? Isn’t it the lack of fire insurance that induces the self-insurance of reserve accumulation that has added to the global imbalance that is behind the current meltdown? Read More…

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