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Focus on risks

January 26, 2009

 Abstract: One extreme view on lessons from the global financial crisis is the ‘shutters down’ view, which holds that countries must cut down their global exposures to better cope with external shocks. There is, however, evidence to the contrary. For example, surges in international oil prices had made India’s BoP vulnerable in 1979-80 and 1990-94, but were hardly a concern during 2003-08 because opening up the economy since the early 1990s had helped India build up a significant foreign exchange buffer.

On the other side of the debate is the ‘business-as-usual’ view, which states that the negative impact of global turbulence is the price to pay for the larger benefits from increasing integration. This view is also fraught with danger, as in the absence of an institutional ‘safety net’, stakeholders such as industrial workers are still susceptible to external shocks. To conclude, increased integration pays, but must be accompanied by measures to mitigate the risks it entails for vulnerable groups.

Keywords: risk mitigation; global integration; institutional protective device; lessons from crisis; external shocks; business-as-usual; global turbulence; BoP; safety net; risk mitigation; global integration

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