if99.net

IF99 ITB

Archive for the ‘financial services’ Category

Liberalization of trade in financial services is good (or not) for economic growth in developing countries.

without comments

Bellow, I provide arguments to oppose the liberalization proposition.

As provided in 4a, the argumentation confronting the liberalization in financial service is basically based on the doubt that financial repressions by central bank over financial institutions is really exist. Just to repeat the argument, for instance, the worry that the financial repression will weaken the saving propensity of the people and therefore also weaken transferability of saving into investment but in fact, the demand for investment is not depend on the availability of accumulated saved money since there are always a central bank who can back up the commercial bank in the case of the excessive investment demand. The other argument is that the liberalization through high rate of interest in order to make saving attractive can have a boomerang effect on investment, when investor loosing their mood to invest even though the money have been accumulated through saving simply because the high rate of interest.

The other argument is something related to the situation in developing country itself. Since developing country need investment project to develop and since that investment project need a more stable and steady supply of money which is cannot be satisfied if the financial sector is being liberalized. In the deregulated financial sector, an investment agent is always has a full freedom to move their capital from one financial institution to another institution as they wish without any investment purposive regulation. In this way the availability of private saving is always in the form of “hot” money that can easy to come and easy to go.  This fast moving money is becoming faster in term of transaction by the aid of information and communication technology. Meanwhile, an to be successful an investment project need several condition that most of it need a long lasting commitment to invest since it happening in the real economy. Because, in turn, the investment project in developing country could also highly affects the real macroeconomic indicators such as income and unemployment which is hard if the money market is liberalized.

Written by ibu didin

February 13th, 2010 at 1:06 pm