This issue of Diplomaatia deals with the topic of economic crises.
Head of the International and Public Relations Department of the Bank of Estonia Tanel Ross analyses the performance of international financial organisations and the International Monetary Fund in particular. He examines its role as a regulator of the economy and describes how it has changed through time. “We could ask the following question: why should the IMF be responsible for crisis prevention and management all over the world? The answer is simple: the IMF boasts a membership of practically all the countries in the world and it has acquired a unique know-how over the years,” writes Ross. “Therefore, the decisions and recommendations of the IMF are more binding for all the countries than the opinions of the G8 that represents only superpowers.”
This issue of Diplomaatia deals with the topic of economic crises.
Head of the International and Public Relations Department of the Bank of Estonia Tanel Ross analyses the performance of international financial organisations and the International Monetary Fund in particular. He examines its role as a regulator of the economy and describes how it has changed through time. “We could ask the following question: why should the IMF be responsible for crisis prevention and management all over the world? The answer is simple: the IMF boasts a membership of practically all the countries in the world and it has acquired a unique know-how over the years,” writes Ross. “Therefore, the decisions and recommendations of the IMF are more binding for all the countries than the opinions of the G8 that represents only superpowers.”
English summary
This issue of Diplomaatia deals with the topic of economic crises.
Head of the International and Public Relations Department of the Bank of Estonia Tanel Ross analyses the performance of international financial organisations and the International Monetary Fund in particular. He examines its role as a regulator of the economy and describes how it has changed through time. “We could ask the following question: why should the IMF be responsible for crisis prevention and management all over the world? The answer is simple: the IMF boasts a membership of practically all the countries in the world and it has acquired a unique know-how over the years,” writes Ross. “Therefore, the decisions and recommendations of the IMF are more binding for all the countries than the opinions of the G8 that represents only superpowers.”
Ross highlights a major difference between the economic crisis we now see looming on the horizon and previous crises: “Earlier crises resulted from a loss of trust with respect to developing countries. This time, however, the crisis began in developed industrial countries and they also suffer the most. Paradoxically, developing markets, especially the vast foreign assets of Asian and oil-producing countries, have been used to mitigate the effects of the turmoil in the financial markets of industrial countries.”
Deputy Governor of the Bank of Estonia Märten Ross concurs with this view, as he assesses the capability of developing economies to resist crises. “Some analysts believe that developing markets could help the US move out of economic recession and support an upturn in the European economy, i.e. inject liquidity and capital into countries whose income per capita is up to ten times higher,” claims Ross. “I would not be indulging in wild speculation, if I claimed that this scenario would have a wider impact on global politics and enable developing countries to have a bigger say in, for example, security issues.”
Ross also analyses the economic situation in Estonia and concludes that inflation is the risk factor that has affected Estonian economy the most: people have been put on guard by a steep rise in food prices; their cautiousness, in turn, reduces domestic demand and cools the economy.
Journalist Villu Zirnask writes about great currencies and the US dollar in particular. He does not predict a change in its status as the world’s leading currency: “The world’s foreign currency reserves are still denominated mostly in dollars. It is probable that the dollar will retain this status for a long time to come, even if the world will become politically more multipolar,” states Zirnask. “Yet some things have changed: while the US could be quite carefree in its currency policy over the last decades and follow the principle ‘The dollar is our currency, but your problem’, it has now become slightly worried.”
Zirnask claims that it is the Chinese yuan that could threaten the leading role of the dollar in a more remote future, whereas the European Central Bank does not seem to care at all about promoting the euro.
Geographer Hardo Aasmäe gives an overview of crises and their consequences all through history. He begins with an asteroid that struck the Yucatan Peninsula 50 million years ago, causing a 5-million-year-long ecological crisis, cooling the climate and triggering a mass extinction of the dinosaurs that allowed the mammals to thrive.
“These kinds of global changes have always shattered the world around us, bringing chaos, but also clearing way for new developments,” claims Aasmäe. “From the historical point of view, it is nothing more than a general tendency, the meaning of which is that you have to embrace the new and disregard the old in crisis situations. The biggest mistakes made in crises are connected with useless clinging to the old and bygone.”
Member of the European Parliament György Schöpflin discusses the topic of authoritarian capitalism, using Russia as an example of this kind of economic system. “A direct consequence of the resource curse is that in the states affected by it, society can be bribed to stay outside politics while at the same time the large sums of money derived from raw materials sales can be accumulated in sovereign wealth funds that are outside any control but the elite’s. These funds can then be used elsewhere, in market democracies, for example, to achieve political objectives,” writes Schöpflin. “What we are seeing is the rise of sovereign economic actors that mimic some of the qualities of multinationals, but simultaneously retain the political and legal protection enjoyed by state sovereignty.”
He analyses the features of the Russian authoritarian capitalist system in great detail and reaches the following conclusion: “The West should rapidly construct the necessary instruments of control over both types of economic actor, multinationals as well as sovereign economic actors, but re-establishing control over just the multinationals would in any case set a useful precedent and legitimate action targeted at authoritarian capitalists. Near complete economic freedom has been with us for over two decades and it is clear enough that it creates as many problems as it solves, above all in the damage that is being done to democratic norms and democracy itself. It is time re-examine the assumptions that have allowed this freedom to damage democracy and to take the necessary steps to curb the sovereign economic actors and their parasitical growth spawned by the globalised market.”