Developing Countries Need Monetary Financing

By Anis Chowdhury and Jomo Kwame SundaramSYDNEY and DAKAR, Nov 1 2022 (IPS) Developing countries have long been told to avoid borrowing from central banks (CBs) to finance government spending. Many have even legislated against CB financing of fiscal expenditure. Central bank fiscal financing Such laws are supposedly needed to curb inflation – below 5%, if not 2% – to accelerate growth. These arrangements have also constrained a potential CB developmental role and government ability to respond better to crises. Anis ChowdhuryImproved monetary-fiscal policy coordination is also needed to achieve desired structural transformation, especially in decarbonizing economies. But too many developing countries have tied their own hands with restrictive legislation. A few have pragmatically suspended or otherwise circumvented such self-imposed prohibitions. This allowed them to borrow from CBs to finance pandemic relief and recovery packages. Such recent changes have re-opened debates over the urgent need for counter-cyclical and developmental fiscal-monetary policy coordination. Monetary financing rubbished But financial interests claim this enables national CBs to finance government deficits, i.e., monetary financing (MF). MF is often blamed for enabling public debt, balance of payments deficits, and runaway inflation. As William Easterly noted, “Fiscal deficits received much of the blame for the assorted economic ills that beset developing countries in the 1980s: over inde...
Source: IPS Inter Press Service - Health - Category: International Medicine & Public Health Authors: Tags: COVID-19 Development & Aid Economy & Trade Featured Financial Crisis Global Headlines Labour TerraViva United Nations IPS UN Bureau Jomo Kwame Sundaram & Anis Chowdhury Source Type: news