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Global Imbalances: Petrodollars in the Lead

Fuad Hasanov, Rabah Arezki - August 2012

Since the late 1990s, the world has witnessed the emergence and substantial growth of large and persistent current account surpluses in some countries and large current account deficits in others, often referred to as global imbalances. So far, the discussion about global imbalances has chiefly focused on Asia and the United States. However, another major player has taken a center stage, the oil exporters. In fact, oil-exporting countries have contributed more to global imbalances than China or all of emerging Asia. High oil prices alone do not explain large current account surpluses of oil exporters, and oil exporters’ saving and investment policies also matter. High oil price volatility, low productivity of the tradable sector, limited absorptive capacity, and weak public administrations make it optimal for oil exporters to save a lot and invest relatively little. To contribute to the reduction of global imbalances, fiscal policy is a more potent tool for many oil exporters than the exchange rate policy. In addition, recycling of petrodollars would be more beneficial for global imbalances and growth outlook if petrodollars fuel productive activities rather than asset booms and busts.

The Facts

 

The late 1990s and 2000s witnessed the emergence and substantial growth of large and persistent current account surpluses in some countries and large current account deficits in others, often referred to as global imbalances. Not even the global financial crisis of 2008 has managed to do away with these imbalances. While the crisis initially shrank the imbalances as global output and trade collapsed in 2009, global imbalances started widening once again following the recovery in 2010. These, as well as the debate on their origins and ways to resolve them, are now back on the international finance agenda.

 

So far, the discussion about global imbalances has chiefly focused on Asia and the United States. While Europe’s current account has been broadly in balance, the cumulative current account surplus in China has amounted to about 2.3 trillion dollars while the rest of emerging Asia has accumulated another 1.5 trillion dollars in surpluses since 1990.[2] Japan, outpaced by China, has run substantial current account surpluses as well, about 3 trillion dollars. When taken together the surplus of all emerging Asia, including China, doe...

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