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Council on Foreign Relations Press
Council Special Report No. 44
As the economic crisis has spread from financial markets to real economies in countries around the world, governments have understandably focused on short-term measures to contain the damage. Crafting stimulus packages and financial bailouts to address immediate problems has for many reasons been a priority for policymakers. In this Council Special Report, however, Steven Dunaway argues that policymakers must go beyond these steps and tackle one of the root causes of today’s crisis: imbalances between savings and investment in major countries. The report analyzes the nature of these imbalances, which occur when some countries, such as the United States, run large current account (essentially trade) deficits while others, such as China, maintain large surpluses. Dunaway identifies three features of the international financial system that have allowed the imbalances to persist, features that involve both floating and managed exchange rates as well as the issuance of reserve assets. In particular, he notes that the United States’ status as an issuer of such assets has enabled it to finance a current account deficit. The report then prescribes a variety of steps to address global imbalances. Beyond stimulus packages around the world, it urges measures to raise savings (principally government savings) in the United States, reform labor and product markets in Europe and Japan to increase competition and flexibility, and boost domestic consumption in China. Finally, the report advocates improving International Monetary Fund (IMF) surveillance of member states’ economic policies by reducing the role of the Fund’s executive board and depoliticizing the selection of its senior management.
Global Imbalances and the Financial Crisis is a timely work that offers thoughtful analysis and recommendations. It makes an important and sober case that without action to deal with global imbalances, these imbalances will balloon again and imperil future economic growth. And while such institutions as the IMF and the Group of 20 (G20) have significant roles to play, Dunaway contends that the ultimate responsibility for tackling imbalances rests with national governments. The central question is whether governments are up to this challenge.
Steven Dunaway is an adjunct senior fellow for international economics at the Council on Foreign Relations. Previously, he was a deputy director of the Asia and Pacific department at the International Monetary Fund. From November 2001 until December 2008, he was primarily responsible for directing the IMF’s country work on China and headed the IMF’s consultation missions with the Chinese government. This was Dr. Dunaway’s second assignment on China while with the IMF; in the late 1980s, he was desk officer for China. Before his assignment in the Asia and Pacific department, Dunaway was head of the North American division in the IMF’s Western Hemisphere department. In that capacity, he directed the IMF’s consultations missions with the United States and Canada.
During his twenty-five-year career at the IMF, Dunaway had a wide variety of other country assignments ranging from such countries as Australia and New Zealand to Indonesia and the Philippines. In addition, during the mid‑1990s, he directed the IMF’s research on private capital flows to developing countries and handled IMF support for Brady debt deals for Ecuador, Panama, and Peru.
Before coming to the IMF, Dunaway worked for ten years at the Bureau of Economic Analysis in the U.S. Department of Commerce, doing analysis and forecasting of U.S. international transactions. He holds undergraduate and graduate degrees in economics from the Universities of Louisville and Cincinnati, and received his PhD in economics from George Washington University.
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