Tuesday 16 Aug 2022 | 04:47 | SYDNEY
People | experts Stephen Grenville
Nonresident Fellow
Lowy Institute
Areas of ExpertiseRegional economic integration; Australia's economic relations with East Asia; international financial flows and the global financial architecture; financial sector development in East Asia

Ratings agencies too slow on Indonesia

For the decade following the 1997-8 Asian crisis, Indonesia struggled to lift its growth rates back to the pace recorded during the Soeharto era: an average of 6-7%. Now two achievements have triggered a spate of favourable stories in the foreign press: maintaining positive growth during the 2008

Commercial objectives in foreign aid

\'There you are, sir. Will that be cash or credit?\' (Photo by Flickr user Royal Australian Navy.) For some, the international aid program should be a matter of pure altruism, driven solely by the development objectives of poor countries. Commercial objectives, furthering the interests of

Growth forecasts: Out of puff

Both the World Bank and IMF have recently announced new forecast for world growth this year and next, trimming more than half a per cent off their forecasts made six months earlier. Seen in historical terms, the central forecast doesn\'t look too gloomy: the IMF estimates that growth

The IMF role in the euro crisis

The IMF is passing around the hat again, hoping to get an additional $500 billion in contributions, which would more than double its loanable resources. This request has not yet been formalised and it has certainly not been earmarked for the euro crisis, but the connection is clear: funds are

Oz still a wallflower at Asia party

Andrew Shearer represents a long tradition in Australian diplomacy, of viewing Asia through the prism of our relationship with the US. No serious commentator is suggesting that Australia should focus on Asia to the exclusion (or even downgrading) of our US relationship; everyone agrees that keeping

US housing market stays underwater

Traditionally, US housing drives both phases of the economic cycle: a sharp cut-back in construction weakens economic activity, but as soon as underlying demographic demand restores equilibrium, construction recovers quickly. This time is different. Four years after the current US recession began,

Rudd mixed messages on Indonesia

Of course it\'s good to see the Foreign Minister deliver his \'wake up to Indonesia\' call to Australian businesses to seize the opportunities in Southeast Asia\'s fastest growing economy. But while the Minister is urging businesses to act, his Department\'s Travel Advisory is telling them not to

Blogs and the US economic debate

Economists have certainly taken to blogging with alacrity. But this vigorous debate has done little to winnow out dodgy arguments or produce a policy consensus. Economists have a reputation for hedging their bets (\'on the one hand...on the other hand...\'). But in the current US macro debate,

The case for a bolder ECB

Whenever it comes to supporting ailing financial sectors, central banks routinely quote the nineteenth-century Bagehot dictum: \'lend freely to solvent institutions against good collateral\'. This might sound sensible, but in fact it is a narrowly conservative strategy. At the time, the then-

How to discipline sovereign borrowers

The central issue in the current euro mess is the excessive borrowings of governments, with debt/GDP ratios in many countries now universally regarded as excessive. Leaving aside the problem of reducing the debt to sustainable levels, the aim is to put in place a framework to avoid a recurrence.

What wrong with the economists?

President Truman famously complained that his economists always gave advice in terms of \'on the one hand...on the other hand\', and called for a one-handed economist. This criticism doesn\'t apply to the current bunch of economic commentators, all single-minded in their views. The problem is that

The euro crisis: Lessons for East Asia

Only a few years ago, the European common-currency arrangements were held up as a possible model for Asia. With the euro under serious threat, we don\'t hear much about this now, but there may be some lessons for Asia from the current mess in Europe. Lesson one might be surprising at first sight.

Central banks - saving the system comes first

In an Economic Briefing column in The Australian Financial Review, Lowy Institute Visiting Fellow Stephen Grenville writes on how recent financial choas has revived old roles.Australilan Financial Review, 21 November 2011, p. 23

The elusive confidence fairy

Addressing the sovereign debt overhang in Europe and the US, Paul Krugman often refers to the \'confidence fairy\', the idea that if budget austerity is clearly in the interests of the economy, the public will understand the benefits. Thus tough austerity boosts public confidence and spending,

The rise of the oligarchs

It\'s been well known for decades that incomes of less-skilled workers in advanced countries have been squeezed by globalisation (they now have to compete with Chinese workers) and technology (their jobs are increasingly done by machines/computers). In the US, hourly earnings of those who did not

Euro: Interest rates must reflect risk

Everyone now agrees that Greek debt is worth less than half its face value. The puzzle is why until early last year it was treated as being almost identical to debt issued by Germany. It\'s not as if Greek policy suddenly did something unexpectedly foolish, or even that its banks were found to be

Overburdening the bank guarantee

The European sovereign debt mess is a reminder of how foreign capital flows can get countries into trouble. It\'s not just the southern Europeans who are feeling the pinch. The heavy investment of French and German banks in Greek government bonds (and the debt of other troubled countries) has left

On hobby-horses to corral productivity

In an Economic Briefing column in The Australian Financial Review, Lowy Institute Visiting Fellow Stephen Grenville writes that appropriately measuring output is complicated.Australian Financial Review, 24 October 2011, p. 23

The GOP pines for a simpler time

There seems to be a competition among Republican US presidential hopefuls to see who can pour the most abuse on the Federal Reserve, Chairman Bernanke and monetary policy. Front-runner Rick Perry said Bernanke would be \'almost treasonous\' if he continued quantitative easing (QE) policies. At

Credit-rating biases revealed

In a world where financial markets are supposed to be forward-looking, the most striking characteristic of the credit rating agencies is their \'rear-vision\' view of the world, making downgrades after the crisis has already arrived.  One other foible of the rating agencies is that emerging

A tax to suit the times

Stephen Grenville describes the possible benefits of introducing a Tobin tax - a small tax on financial transactions - in slowing excessive international capital flows, and its place in addressing the eurozone crisis

What the G20 meeting should be about

Next month\'s G20 Leaders\' meeting in Cannes faces a testing time. The leaders are important people who want to spend their time addressing the most pressing economic issues of the day. But the two most pressing issues don\'t fit the G20\'s territory. The first problem is Europe\'s sovereign debt

The Tobin Tax revisited

Rescuing Greece will be expensive. And if Greece is not the end of the story, the costs will be mind-numbing. Thus it is no coincidence that European Commission president Barrosso has reached into the bag of possible ways to pluck the taxation goose with minimum squawking, and has rediscovered the

Last exit: planned Greek default the only way out

In an Economic Briefing in The Australian Financial Review, Lowy Institute Visiting Fellow Stephen Grenville wrtites that a deliberate strategy for Greece's insolvency is better than the alternative.Australian Financial Review, 26 September 2011, p. 23

Economists' ideas deficit

Few would dispute that the politicians\' handling of the world economy has been seriously deficient. Perhaps the lack of political consensus on what to do is not too surprising: the issues often trespass on vested interests and deeply-held views. Less understandable and less forgivable, however, is

The bankers still don't get it (part 2)

Part 1 of this post looked at the failure of financial reform in Europe and the UK. In the US, the epicenter of the global financial crisis, the effectiveness of financial reform is obscured by the sheer volume of the 2600-page Dodd-Frank legislation. The financial sector is busy subverting

The bankers still don't get it

As the world economy struggles to extricate itself from the mire of the 2008 global financial crisis (with GDP in the major advanced economies still below 2007 levels), you might expect that the central player in this disaster, the financial sector, would have undergone transformative reform. You

Debt ratio analysis gets too much credit

Over-leveraging was clearly an important element in the 2008 global financial crisis. Does this mean residual balance sheet problems have to be whittled away over many years, with America and Europe repeating Japan\'s \'lost decade\'? The financial markets\' alarmist focus on debt/income

China: Still decoupled, still converging

As the advanced economies slipped into recession in 2008, many observers doubted that China (and other emerging countries such as India and Brazil) could continue to grow rapidly without the help of strong demand for their exports from the US and Europe. As it turned out, the emerging countries did

US needs a path out of here

Those who were expecting a powerful policy initiative from Fed Chairman Ben Bernanke at the Jackson Hole Conference on Friday were bound to be disappointed. Monetary policy has done just about all it can do. There is always room for fine–tuning, but the gaping policy shortfall is in fiscal

Politics spooks market more than US debt

In an Economic Briefing column in The Australian Financial Review, Lowy Institute Visiting Fellow Stephen Grenville writes that a balanced United States budget is eminently achievable.Australian Financial Review, 29 August 2011, p. 23

A qualified defence of Ben Bernanke

You might have thought that the debilitating arm-wrestle over the US debt ceiling was about as dismal as politics could get, but Texas Governor (and Republican presidential hopeful) Rick Perry demonstrates that it is possible to explore new depths. He said that if Fed Chairman Ben Bernanke

The strange ways of US taxation

Sam demonstrates just how adamant the Republican presidential hopefuls are that taxes mustn\'t go up. I\'m no expert on taxes, let alone in US taxes, but this position looks very strange if you want to run a normal advanced country. The ratio of federal taxes to GDP has now fallen to 14%,

Ways out of the US economic crisis

This morning\'s post looked at the confused and tentative tone of debate on what to do about the US economy. Now for some suggested ways forward.  First, there is a need to distinguish between the urgent short-term objective of getting the economy moving and the medium-term problems

US economic policy paralysis

The US has squeaked through its debt ceiling crisis and survived its Standard and Poor\'s downgrade. While failure to increase the debt ceiling would have been \'calamitous\', both these events were distractions from the pressing economic problems facing the US. The immediate issue is that the

Markets ignore Australia safe harbour

You might think Australia\'s economic strength would stand out among the advanced countries, like a marvelous beacon in a bleak and confused world. When you look at the actual stand-alone performance, things are going well. When you look at comparative performance, the difference is stunning.

Ratings agencies: front, centre and still flawed

In an Economic Briefing in The Australian Financial Review, Lowy Institute Visiting Fellow Stephen Grenville writes that it is time the risk assessors, the credit ratings agencies, were assessed themselves.Australian Financial Review, 1 August 2011, p. 23

US debt: A disastrous distraction

It\'s understandable that the eyeball-to-eyeball confrontation between President Obama and the US Congress should be getting all the attention now. After all, if the US has to keep its expenditures in line with its receipts, starting this week, spending will have to fall by 40%. This will not cause

Bankers hold Europe to ransom

The evolving Greek debt tragedy illustrates the subtle nature of the financial sector\'s risk management process. On the surface, its risk analysis seems to have been a dismal failure, apparently unable to anticipate obvious problems. But in practice the financial sector seems to have largely

IMF maintains tradition of failure

By vigorously-defended tradition, the Europeans get the top slot at the International Monetary Fund and the US gets the second slot – First Deputy Managing Director. The change-of-guard is now complete. Former French Finance Minister Lagarde, newly-appointed to the Managing Director position

US debt talks: Who will blink?

If the US Congress doesn\'t agree to raise the limit on US debt by 2 August, government expenditures will have to be cut to match revenue, involving a 40% cut in spending. This would not mean a default on US debt (interest payments would still be met), but financial markets would be shocked. Fed

Didn't we quit the EBRD?

Three years ago I drew attention to a news item reporting that Australia would leave the European Bank for Reconstruction and Development, noting that this departure made good sense. The EBRD\'s interests in Eastern Europe were always peripheral to ours and resources could be focused on our

Gung-ho inflation fighters unwelcome

In an opinion piece in The Australian Financial Review's Economic Briefing section, Lowy Institute Visiting Fellow Stephen Grenville argues that tighter monetary policy is not the answer.Australian Financial Review, 4 July 2011, p. 23

Greece: It didn't have to be this way

We can\'t re-run history, but it looks like a serious error was made early last year in not allowing Greece to default. The fundamental position was clear, even at the time: Greece was insolvent rather than illiquid. The time-honoured solution, for companies and countries, is that creditors

Is the BIS hitting the alarm too soon?

The Annual report of the Bank for International Settlements (the central bankers\' \'club\' in Basel) is pressing the alarm button on both monetary and fiscal policy, not just for specific countries, but for the world as a whole. They have a point on fiscal policy. The Global Financial Crisis did a

Responding to higher commodity prices

World commodity prices have risen for much of the past decade, with only a brief respite during the Global Financial Crisis. As a result, headline rates of inflation just about everywhere are well above normal. Central banks are reluctant to respond with higher interest rates. Action by any

Indonesian democracy: The myth of '98

The idea that Indonesia might be a model for Egypt\'s emerging democracy has been discussed before on The Interpreter. This post by Giora Eliraz brings the story up to date, but it is seriously misleading in the impression it gives of the history of democracy in Indonesia. Let me not get

Bidding for the financial sector

As the international community tries to work out a sensible regulatory response to the manifold failures of the financial sector in 2007-8, the best solutions may be falling prey to rivalry between countries hoping to attract the footloose financial sector. The benefits of hosting a big financial

Geithner comes out swinging

US Treasury Secretary Tim Geithner provoked annoyance and pushback when he gave an update on financial sector reform since the 2007/8 Global Financial Crisis.  He made US progress sound impressive. The US has closed or restructured nine of its fifteen largest financial institutions, passed

EU: Austerity threatens survival

While the headlines are focused on the unfolding debt crisis in Greece, Europe has other economic headaches as well. Economic growth is still quite tentative. Even the best performer — Germany — is still recording unemployment of 7 per cent. At the same time inflation is

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