SIA professor and leading economist advises global banks

SIA professor Johannes Fedderke
SIA professor Johannes Fedderke

In November, School of International Affairs professor and economics expert Johannes Fedderke traveled to Basel, Switzerland, to advise leading world bankers on country risk classes.

At the Fifth Joint Bank of International Settlements and World Bank Public Investors Conference, Fedderke spoke about promotion and relegation between country risk classes as maintained by country risk rating agencies in a session chaired by the World Bank. Discussions at the conference were focused on 22 papers, with intensive engagement between academic researchers and policymakers from central banks, treasuries, and multilateral agencies in discussing the implications of the research findings for policy.

“Country risk ratings are important for policymakers since they significantly influence the cost of borrowing through the risk premia that lenders demand,” Fedderke says. “In this context, it is of concern to policymakers when risk ratings appear to be at best very weakly related to macroeconomic fundamentals and the nature of the policy choices that countries adopt. However, once the incentive of policymakers to respond to risk ratings (in order to influence borrowing costs) is recognized, it is possible to demonstrate both theoretically and empirically that good ratings do reflect good policy choices, provided that ratings agencies are responsive to information signals from policymakers. This serves to increase the importance of sound policy choices, but also the importance of credible and transparent communication between policymakers and rating agencies.”

The conference was targeted at experts from the community of central banks and sovereign wealth managers, including commodity savings funds and sovereign pension funds, as well as academics. It facilitated an ongoing dialogue between the reserve, risk, and asset management specialists of the participating organizations, encouraging knowledge-sharing and collaboration across organizations and fostering the development and dissemination of best practices in public-sector portfolio and risk management.

Fedderke is a leading South African economist and a World Bank consultant whose research interests focus on technology and innovation, macroeconomics, economic development, political economy, institutions, and trade. His most recent works study the institutional determinants of economic growth, unbalanced growth paths, and deep roots of economic development.

Fedderke has authored more than 60 peer-reviewed articles and was managing editor of the South African Journal of Economics. In 2006, he was elected to the Academy of Science of South Africa. He has been the director of Econometric Research Southern Africa since 1999, and is an honorary research fellow of the Helen Suzman Foundation.