By Shahab Sabahi
Energy and Environment - Policy analysis research group
In theory, free-market, globalization and free capital mobility are welfare-enhancing. Theory says that they promote better and more efficient allocation of financial resources worldwide. But the history of globalization is witness to large and volatile short-term capital flows, complicating macroeconomic management, destabilizing weak financial systems, and disrupting growth in emerging economies. It poses a question “why did capitalism work for the west but fail when it exercises in a global scale?”, “Should It be altered?
Globalization compelled financial markets integration. Rapid financial liberalization did not allow financial market regulators came up with effective and sound market rules, therefore short term capital flows for touch & go investments turned to become the taste of investors. Historically, short-term capital flows are absolutely volatile compared with long-term alternatives like foreign direct investment.
The recent global economic crisis in Europe and the US demand a stronger political momentum for significant capital market development and regional integration. Now financial stability is the foremost challenge of policy-makers’ to address. It requires a wise approach as I list below.
Financial market liberalization must now be managed by mechanisms to ensure the effective use of capital. Conditions should be imposed for rendering capital flows more stable and long-term to economies. Macroeconomic policy reform should be set as top priority with emphasize and effective control in high level of financial sector and market development; and effective institutions and good governance. (Iwan Aug 2011).
New macroeconomic policy and regulatory frameworks should allow only longer-term investments. Capital markets must be made more liquid, more diverse and innovative regional financial products should be created. This can help unlock capital to meet those regions and sectors that seek huge infrastructure financing needs.
It is equally important to ensure financial sector and market development benefit the wider public, with inclusive measures to broaden access to finance for families, small- and medium-sized enterprises, and other traditionally underserved market segments.
Please do not forget free market should not be as free as a bird. Without stringent regulations in financial markets, they will come short of maximizing the benefits of all. A new framework for Capitalism is needed.
Energy and Environment - Policy analysis research group
In theory, free-market, globalization and free capital mobility are welfare-enhancing. Theory says that they promote better and more efficient allocation of financial resources worldwide. But the history of globalization is witness to large and volatile short-term capital flows, complicating macroeconomic management, destabilizing weak financial systems, and disrupting growth in emerging economies. It poses a question “why did capitalism work for the west but fail when it exercises in a global scale?”, “Should It be altered?
Globalization compelled financial markets integration. Rapid financial liberalization did not allow financial market regulators came up with effective and sound market rules, therefore short term capital flows for touch & go investments turned to become the taste of investors. Historically, short-term capital flows are absolutely volatile compared with long-term alternatives like foreign direct investment.
The recent global economic crisis in Europe and the US demand a stronger political momentum for significant capital market development and regional integration. Now financial stability is the foremost challenge of policy-makers’ to address. It requires a wise approach as I list below.
Financial market liberalization must now be managed by mechanisms to ensure the effective use of capital. Conditions should be imposed for rendering capital flows more stable and long-term to economies. Macroeconomic policy reform should be set as top priority with emphasize and effective control in high level of financial sector and market development; and effective institutions and good governance. (Iwan Aug 2011).
New macroeconomic policy and regulatory frameworks should allow only longer-term investments. Capital markets must be made more liquid, more diverse and innovative regional financial products should be created. This can help unlock capital to meet those regions and sectors that seek huge infrastructure financing needs.
It is equally important to ensure financial sector and market development benefit the wider public, with inclusive measures to broaden access to finance for families, small- and medium-sized enterprises, and other traditionally underserved market segments.
Please do not forget free market should not be as free as a bird. Without stringent regulations in financial markets, they will come short of maximizing the benefits of all. A new framework for Capitalism is needed.
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