BusinessExecutivesAnother financial crisis? Think what would happen to Wall Street - Donald Kaberuka

Fri,24Nov2017

Posted on Thursday, 07 November 2013 18:45

Another financial crisis? Think what would happen to Wall Street - Donald Kaberuka

By Nicholas Norbrook in Washington D.C.

Donald Kaberuka President, African Development Bank. Photo©Vinvent Fournier for JAThe debt limit talks and potential for default in Washington DC will not take the world to the brink of another financial crisis. Donald Kaberuka President, African Development Bank warns that a repeat of the 2008 crisis could lead to some countercyclical responses.

 

 

The Africa Report: Are we reaching a breaking point in Washington's ongoing debt ceiling drama? does africa need to worry?

Donald Kaberuka: This is a problem for everybody, not just for Africa. The impact on the markets will be quite significant.

But I'm sure they will find a solution because the implications are too ghastly to contemplate.

Tapering of quantitative easing will hurt African countries if it is not gradual

Think of what would happen to Wall Street, what would happen the second that a default occurred.

If this led to a global crisis like it did in 2008, we would have to consider some countercyclical responses, depending on the nature of the impact.

In 2008 we doubled our lending, liquidity here, budget support there, some trade finance. But I really don't think we are going back to that situation.

Are the institutions in Africa plastic enough so that this relationship between the economics and the politics can be remodelled in a more constructive way than we see today in the United States?

First of all, this [the US] is a very old democracy, and this is how it works here.

For younger democracies, there are some other complications of how the executive relates to parliament and so on, but working more on the model of cooperation – have the division of power, but with collaboration to get to development.

It happens that parliament sits on the budget in low-income countries too, but I can't remember, from my time as finance minister of Rwanda, a situation when parliament brought the whole system to a halt.

The tapering of quantitative easing – the bond-buying programme of the US federal reserve – will have an effect on exchange rates for those countries that have a free float of their currencies. Is there a risk it will import inflation?

I hope the tapering, whenever it happens, happens in an orderly way because ending it suddenly will be disruptive to all of us, especially at a time when several African countries are making their sorties into the capital market.

So I hope the new chair of the Federal Reserve will figure out how to do it in an orderly and gradual way.

Inflation in many African countries actually tends to be a reflection of two things: the price of energy and the price of food. Those are two key factors.

Provided you can contain those two, I think our monetary authorities, coordinating with the fiscal authorities, could have ways of containing imported inflation. ●



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