The Recent move by China to buy Spanish Debt shows the real meaning of mutually beneficial moves by economies. It might not completely pull the country out of crisis with a $7.9Bn investment but certainly can bring a positive change in the economy.
Why this can’t be done by all countries that has surplus current accounts. I don’t know how practical it would be to suggest an apex body like IMF to setup a fund collected from various economies of surplus current accounts. This pooled fund can be invested the in the dipping down or highly deficit economies. This would help in various parameters but apparently in the following four.
1) Pulls economies out of downturns.
2) It acts like a moral bond between economies... (Like China would not dumb all securities and threaten US debt market)
3) Diversification of investment portfolio which reduces risks for investing countries
4) Mutual cooperation and Development (The Holy Grail!!!!)
Might not be sounding very practical.. but good!! Isn’t it?
Dear Vamsi, beyond the finance, there are many other things..
ReplyDeleteThe Crisis of Spain (and that of Greece, Portugal, Ireland et al) is on account of financial Mismanagement from Micro to Macro level.
Do u think its moral to Lend so that someone can continue to spead beyond his means? is it ethical? or is it moral? these are not starving ppl who need food to stay alive; these are the over spenders who are living beyond their means.. will you lend to such an over spender?
if your answer is yes, do lend me 20-30 crores... i'll sure repay...
Also, China's rise is not peaceful; It has border dipute with its every neighbour; Its the supporter of Pakistan adding to the India's problem. The cause of More human rights problem in large chunk of Africa, by collaborating with regimes with poor record, Its suuport of North Korea that is an irritant to South Korea and Japan.... and it goes on... Do really want to take China because you like them, or because you dont have an alternative
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ReplyDeleteKarthik...thank you very much for reacting to my post first of all...
ReplyDeleteI am not talking in particular about china..but I got the idea of mutual cooperation with its move..
I totally agree with you that it is not correct to lend to a country which is immoral or highly deficit ( spend thrift)on moral lines. My school of thought is something that is above individual cases..
you might see countries in European Union and countries getting effected due to political turmoil in Egypt, whose fallout is through international channels and not generated with in their boundaries.
I suggest IMF to take up countries case by case and use sovereign ratings to invest the pooled money. This can be a trade off between arguments of both of us..