I am just back from Istanbul, where I was part of the light entertainment laid on for the anxious international financial community gathered at the Annual Meetings of the International Financial Institutions.
Speaking on a panel entitled the world beyond the crisis, convened by President Robert B Zoellick of the World Bank, presupposes a degree of hopefulness that may be misplaced. But for the poorest countries, the profound changes arising from the crisis have not just created immediate problems: they have worsened the long-term landscape.
Zoellick was right to pose the question, but what is the answer? One legacy of the crisis is that the appetite of international investors for risk has collapsed. The result has been a flight to safety. The most remarkable manifestation of this flight to safety has been the flood of money into dollars: the epicentre of global financial ruin has benefited from its folly because despite its humiliation it is still seen as the safest haven in a storm. By the same logic, investors have fled from Africa because it has perennially been rated as the riskiest region. Money has retreated back to the rich OECD economies where, although risks have clearly risen, they are nevertheless seen as lower than the historically high risks of Africa.
The flight of finance from Africa is already across the spectrum. African exporters can no longer even get the short-term finance for trade, the age-old system known as "letters of credit", because our fine international banks no longer trust their unknown African counterparts.
This collapse in letters of credit has hit Africa far harder than any other region. If the finance of African trade is now seen as too risky, imagine what is happening to the finance of fixed investment. Again, the decline in the appetite for risk has stood the evidence on its head. Even prior to the crisis, the rate of return on investment in Africa was higher than that in any other region.
The crisis has further reduced the return on investment in the advanced economies, and East Asia is now so awash with investment that the return there is also crashing. Yet the flight from risk will shift investment from Africa to the supposedly lower-risk environments where likely returns have fallen.
Why does this matter? It matters because Africa desperately needs more investment. For decades Africa has been investing only around 20 per cent of national income, whereas Asia is investing around 40 per cent. At these rates, almost regardless of returns, Africa will continue to fall further behind the emerging market economies. Yet Africa simply cannot afford to finance a substantial increase in investment from its internal resources. A domestically financed increase in investment could only come at the expense of consumption.
So if international finance is essential and private international finance is fleeing, the only option is international public finance. Indeed, this is the hour for which the international financial institutions were invented. To date, despite the fury of the street protests in Istanbul, they have "had a good war", being well-led and scaling up their provision of finance enormously. But almost all of that finance has been to the emerging market economies and eastern Europe. The poorest countries have been further marginalised by the crisis.
The underlying reason is not reluctance of the World Bank and the IMF to help, but the way that the G20 have structured their increase in finance. Extra aid, which has traditionally been the source of public finance for the poorest countries, has basically been off the table. Money has been found for the IMF through the issue of Special Drawing Rights (SDR), and for the World Bank through the issue of more IBRD loans, but these instruments have traditionally been largely confined to middle-income countries.
If the countries of the bottom billion are to benefit, the criteria for disbursement will need to be changed. The potential is considerable. Surplus SDRs could be reassigned from the many rich countries that do not need them to the poor countries that do: the French government has already led the way. Flows from the International Bank for Reconstruction and Development (IBRD) to middle-income countries are so enormous that even a modest share would be equivalent to a large increase in aid: it is for this that Zoellick rightly seeks a capital increase for the Bank.
Street protesters should be screaming their support. Yet using SDRs and the IBRD would carry serious risks. Unlike aid, both have to be paid back. Unless the money was well used, resorting to them would have the makings of a new debt crisis without an obvious exit strategy.
What does "well used" actually mean? It is not synonymous with the conventional aid concern that the money should "reach poor people". It means using the money only for investment, which poor people would be highly unlikely to do. And it means investing the money productively. Each of these steps would be a new departure for many African governments.
For the first step, use of the new financing instruments has to be accompanied by a credible way in which governments commit themselves to their own citizens not to spend borrowed money on consumption. This implies that governments need to be able to tie their hands, for example through explicit legislated medium-term budget commitments to investment supported by legal recourse.
For the second step, before spending money they need a prior phase of building the capacity of the society to invest. Civil service capacity to plan and implement projects needs to be enhanced. Impediments to private sector investment need to be reduced.
Scaled-up international public finance for the bottom billion through an extension of IBRD and SDRs is about as good as we can realistically hope for. It comes with a silver lining: the potential of a new seriousness in how African governments use international money. But there is no disguising the risks: in two decades we could need a new Jubilee campaign.
Paul Collier is professor of economics at Oxford University. His most recent book is 'Wars, Guns and Votes: Democracy in Dangerous Places'