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Transcending Neoliberalism through Pro-Poor and Democratic Economic Development Strategies

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This chapter examines the pro-poor (democratic) macroeconomic policy framework, and the scope for its deployment as a progressive alternative to Washington Consensus-type (mainstream, or neoliberal) policies. Despite their regressive outcomes, these mainstream economic policies have been implemented consistently in most Arab and developing countries during the last 30 years; alarmingly, their hegemony has escaped virtually unscathed even the ravages of the ongoing global economic crisis. The chapter also contributes to the development of the literature on pro-poor policies through the integration of recent heterodox works in the areas of industrial and social policy and democratic economic policymaking.

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This chapter introduces the objective, which is to compare the development of the Arab World and East Asia and posits that development occurs in the shadow of a cordon sanitaire strategically serving the security concerns of US-led imperialism. It tackles the problem of East Asia and the Arab World as representing two cases of imperilist practice and their corresponding policies leading to different developments. It concludes that the way to approach comparatives is not by spotting the infinite heterogeneity of actuality so that no conclusions can be drawn. It stresses that the apparent parallels or departures between the development courses of the Arab World and East Asia are not the result of good or bad capitalism, because there is only one capitalism whose practice of the law of value assumes different measures of repression reducing the value of labour power way below the wages paid out to the working class. Unless the comparative is posited in terms of class history as the practice of the law of value, all comparisons would be confined to an epiphenomenon in which only differences are the rule.
Article
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This paper attempts to explain the concept of pro-poor growth, and argues that it represents a major departure from the "trickle-down"phenomenon. It proposes a new indicator— the pro-poor growth index— that measures the degree to which growth can be considered to be pro-poor. The new indicator is used to analyze the nature of economic growth in three countries, namely, Lao PDR, Thailand and Korea.
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The relationship between economic growth and poverty has been studied extensively. A large amount of cross-country evidence suggests that growth and poverty reduction are strongly posi- tively correlated. The countries that have experienced high growth over a sustained period have made a greater reduction in poverty. This result is consistent with the "trickle down" theory that some benefits of growth will always trickle down to the poor. Thus, the incidence of poverty can diminish with growth even if the poor receive only a small fraction of the total benefits. The cross-country evidence also suggests that there can be large variation in poverty reduction for the same growth rate. It means that some countries have more pro-poor growth than other coun- tries. What explains these differences? How can we measure the degree of pro-poorness of growth? Under what circumstances should governments pursue growth-maximizing policies or focus on direct poverty reduction policies? When are government policies pro-poor (or not pro- poor)? How can we evaluate the pro-poorness of government policies? How can government policies be reformed to achieve a maximum reduction in poverty? These are the broad questions that are of great importance from the point view formulating poverty reduction strategies. This paper attempts to touch upon these questions using the unit record data from four countries in Asia. The countries selected are Lao People's Democratic Republic, Repub- lic of Korea (henceforth Korea), Thailand and the Philippines. 2: Trickle-down Development and Pro-poor Growth Trickle down was the dominant development thinking in the 1950s and 1960s. It implies a vertical flow from the rich to the poor that happens of its own accord. The benefits of economic growth go to the rich first, and then in the second round the poor begin to benefit when the rich start spending their gains. Thus, the poor benefit from economic growth only indirectly through a vertical flow from the rich. It implies that the proportional benefits of growth going to the poor will always be
Article
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Proponents and critics alike agree that the policies spawned by the Washington Consensus have not produced the desired results. The debate now is not over whether the Washington Consensus is dead or alive, but over what will replace it. An important marker in this intellectual terrain is the World Banks Economic Growth in the 1990s: Learning from a Decade of Reform (2005).With its emphasis on humility, policy diversity, selective and modest reforms, and experimentation, this is a rather extraordinary document demonstrating the extent to which the thinking of the development policy community has been transformed over the years. But there are other competing perspectives as well. One (trumpeted elsewhere in Washington) puts faith on extensive institutional reform, and another (exemplified by the U.N. Millennium Report) puts faith on foreign aid. Sorting intelligently among these diverse perspectives requires an explicitly diagnostic approach that recognizes that the binding constraints on growth differ from setting to setting.
Article
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This article reviews the 'pro-poor' macroeconomic policy alternative to the Washington consensus. The pro-poor approach draws heavily on heterodox economic theory, and offers a compelling view of an alternative economic strategy oriented primarily to the satisfaction of the basic needs of the majority of the population, the equitable distribution of income, wealth and power, and the preservation of macroeconomic stability. These aims point to a specific set of fiscal, monetary, trade and exchange rate policies. The paper argues that such policies should be supported by social programmes designed to achieve the desired pro-poor outcomes as rapidly as possible.
Article
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This paper investigates the shortcomings of the “early warning systems” (EWS) that are currently being promoted with such vigour in the multilateral and academic community. It then advocates an integrated “trip wire-speed bump” regime to reduce financial risk and, as a consequence, to reduce the frequency and depth of financial crises in developing countries. Specifically, this paper achieves four objectives. First, it demonstrates that efforts to develop EWS for banking, currency and generalized financial crises in developing countries have largely failed. It argues that EWS have failed because they are based on faulty theoretical assumptions, not least that the mere provision of information can reduce financial turbulence in developing countries. Second, the paper advances an approach to managing financial risks through trip wires and speed bumps. Trip wires are indicators of vulnerability that can illuminate the specific risks to which developing economies are exposed. Among the most significant of these vulnerabilities are the risk of large-scale currency depreciations, the risk that domestic and foreign investors and lenders may suddenly withdraw capital, the risk that locational and/or maturity mismatches will induce debt distress, the risk that non-transparent financial transactions will induce financial fragility, and the risk that a country will suffer the contagion effects of financial crises that originate elsewhere in the world or within particular sectors of their own economies. It argues that trip wires must be linked to policy responses that alter the context in which investors operate. In this connection, policymakers should link specific speed bumps that change behaviours to each type of trip wire. Third, the paper argues that the proposal for a trip wire-speed bump regime is not intended as a means to prevent all financial instability and crises in developing countries. Indeed, such a goal is fanciful. But insofar as developing countries remain highly vulnerable to financial instability, it is critical that policymakers vigorously pursue avenues for reducing the financial risks to which their economies are exposed and for curtailing the destabilizing effects of unpredictable changes in international private capital flows. Fourth, the paper responds to likely concerns about the response of investors, the IMF and powerful governments to the trip wire-speed bump approach. The paper also considers the issue of technical/institutional capacity to pursue this approach to policy. The paper concludes by arguing that the obstacles confronting the trip wire-speed bump approach are not insurmountable.
Article
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This paper uses the term, capital management techniques, to refer to two complementary (and often overlapping) types of financial policies: policies that govern international private capital flows and those that enforce prudential management of domestic financial institutions. The paper shows that regimes of capital management take diverse forms and are multi-faceted. The paper also shows that capital management techniques can be static or dynamic. Static management techniques are those that authorities do not modify in response to changes in circumstances. Capital management techniques can also be dynamic, meaning that they can be activated or adjusted as circumstances warrant. Three types of circumstances trigger implementation of management techniques or lead authorities to strengthen or adjust existing regulations: changes in the economic environment, the identification of vulnerabilities, and the attempt to close loopholes in existing measures. The paper presents seven case studies of the diverse capital management techniques employed in Chile, China, Colombia, India, Malaysia, Singapore and Taiwan Province of China during the 1990s. The cases reveal that policymakers were able to use capital management techniques to achieve critical macroeconomic objectives. These included the prevention of maturity and locational mismatch; attraction of favoured forms of foreign investment; reduction in overall financial fragility, currency risk, and speculative pressures in the economy; insulation from the contagion effects of financial crises; and enhancement of the autonomy of economic and social policy. The paper examines the structural factors that contributed to these achievements, and also weighs the costs associated with these measures against their macroeconomic benefits. The paper concludes by considering the general policy lessons of these seven experiences. The most important of these lessons are as follows. (1) Capital management techniques can enhance overall fi
Article
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The incomes of the poor may have been hurt because of adjustment costs or low-wage competition following trade deregulation and because of increased macroeconomic volatility following capital account liberalization. Greater trade volumes that disproportionately benefit low-income households in the short run, though, may offset these adverse effects. Using data from the World Bank, the IMF, and the UN, we find that capital and current account deregulation hurts the poor in the short run, and that trade offsets some of these adverse effects. Further, trade and openness have no significant impact on longrun growth, which could have offset adverse short-run effects.
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This critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive, first-order relationship between financial development and economic growth. The body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow, responding passively to economic growth. Many gaps remain, however, and the paper highlights areas in acute need of additional research.
Book
The sharpening poverty contradictions and their links to a larger governance reality is the theme of this book. Enhanced understanding of the security and human rights situation in South Asia has also led to identification of alternative possibilities for innovative policy at both the micro and macro levels. Action research, which provides the material basis for formulating sustainable policy, differentiates this work from conventional development thinking and action. This material basis is provided by learning from the survival struggles of the poor themselves and new social movements in South Asia, and not from a priori theorizing and received wisdom from distant contexts. The book identifies critical elements in a more holistic interdisciplinary and analytical methodology. Another methodological innovation reflected in this work is the dialogical method and social praxis which permits various stakeholders to bring about transformative social change through collective reflection, unlearning social mobilization processes as well as an accumulation process by the poor. The cases illustrate how the process mediates the main contradictions as well as creates conditions where growth, human development and equity need not necessarily be trade offs. This work stresses that the poor are not the problem and can be a part of the solution when rigorous social mobilization takes place and they are conscientised, building their own organizations as a new efficient countervailing power. These critical elements have been knit together into a transitional pro poor growth oriented strategy, deepening political and economic democracy at the base of South Asian societies. © Ponna Wignaraja, Susil Sirivardana and Akmal Hussain, 2009. All rights reserved.
Chapter
The partnership between rich and poor countries takes many forms, but its most explicit expression is embodied in foreign aid-formally known as official development assistance, or ODA. Foreign aid is a coin with two faces: one side deals with issues associated with “money changing hands”; the other side addresses the aspects of “ideas changing minds.”
Chapter
I would like to discuss improvements in our understanding of economic development, in particular the emergence of what is sometimes called the ‘post-Washington Consensus’. My remarks elaborate on two themes. The first is that we have come to a better understanding of what makes markets work well. The Washington Consensus held that good economic performance required liberalized trade, macroeconomic stability and getting prices right (see Williamson, 1990). Once the government dealt with these issues -essentially, once the government ‘got out of the way’ — private markets would allocate resources efficiently and generate robust growth. To be sure, all of these are important for markets to work well: it is very difficult for investors to make good decisions when inflation is running at 100 per cent a year and highly variable. But the policies advanced by the Washington Consensus are not complete, and they are sometimes misguided. Making markets work requires more than just low inflation; it requires sound financial regulation, competition policy and policies to facilitate the transfer of technology and to encourage transparency, to cite some fundamental issues neglected by the Washington Consensus.
Article
The paper analyses the nature, the determinants, and the impacts of net capital inflows surging in Thailand after the 1997 currency and financial crises. After the crises, the composition of the net capital inflows was changed from the ones dominated by short-term flows to direct foreign investment. However, in recent years, huge net inflows of short-term loans and portfolio investment have returned. While direct foreign investment found mostly in the manufacturing export sector gains from real depreciation of domestic currency, short-term loans and foreign investment in debt and equity were attracted by real exchange rate appreciation together with high returns on investing in Thailand as well as in the emerging Asian region as a whole. As a result of the surge of total net capital inflows, asset prices increased somewhat, foreign reserves grew rapidly as domestic currency appreciated both in nominal and real terms. The study suggests policies which seek to balance the impacts of capital inflows on real exchange rates and the accumulation of foreign reserves. An attempt should also be made to allow for capital to flow out more freely mitigating the adverse effects of the net capital inflow surges. Over a short span of thirty years, Malaysia has made a remarkable transition from a predominantly agrarian to a successful middle-income economy on the threshold of a final push towards "developed economy" status. The financial sector played an important role in facilitating growth - initially as a passive concomitant of the development strategy, subsequently taking on a proactive role as the economy deregulated and grew. Until the onset of the Asian financial crisis of 2007, macroeconomic stability and a gradualist approach to financial liberalization helped insulate the economy from the vicissitudes of global financial markets. Since then the challenges of transforming into a developed economy have manifested themselves. The Malaysian experience appears to epitomize the "middle income" economy trap. Despite several policy initiatives to develop venture capital industry, knowledge based firms are yet to gain traction. The banking sector is still fragmented, with foreign banks demonstrating superior performance. Bank holding companies are yet to realize the benefits of consolidation of commercial banking, investment banking, finance companies and insurance firms. The falling rate of capital formation has stalled growth of capital markets. While there have been improvements in corporate governance, reforms of government linked enterprises is a work in process. Reforms in the political economy of finance, especially portfolio restrictions and directed credit resulting from the Bumiputera policy could yield considerable dividends.
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However you define it, poverty is not directly the result of international trade. Rather poverty reflects low earning power, few assets, poor access to communal resources, poor health and education, powerlessness and vulnerability. It does not matter what causes these features so long as they exist, nor what relieves them if they can be relieved. Trade policy matters only to the extent (a) that it affects the direct determinants of poverty and (b) that, relative to the whole range of other possible policies, it offers an efficient policy lever for poverty alleviation (more poverty bang for your buck of foregone opportunities). Trade liberalisation may have adverse consequences for some – including some poor – that should be avoided or ameliorated to the greatest extent possible. However, my fundamental belief is that trade liberalisation aids growth which, in turn, aids poverty alleviation. I also believe that a widespread reform will contain enough positive elements that, in general, only a few people will end up as net losers. Trade policy should therefore generally not be closely manipulated with an eye on its direct poverty consequences, but set on a sound basis overall (with recognition that some modification may be inevitable for political and other reasons) with poverty being treated by general anti-poverty policies. Trade reform and poverty International trade scholars have long understood that although for small countries trade interventions are generally inefficient and wasteful, their inefficiency is usually dominated quantitatively by their redistributive effects. That is, the net loses from intervention will generally comprise large positive effects for some people/households and large negative effects for others. Correspondingly, although removing interventions will generally be income-enhancing overall, it is likely to generate both winners and losers 2 . For example, liberalising an import sector typically redistributes real income from producers to consumers as prices fall, and between different factors of production so that some gain while other lose more heavily than average.
Book
This book is part of a larger effort undertaken by the World Bank to understand the development experience of the 1990s, an extraordinary eventful decade. Each of the project’s three volumes serves a different purpose. Development Challenges in the 1990s: Leading Policymakers Speak from Experience offers insights on the practical concerns faced by policymakers, while At the Frontlines of Development: Reflections from the World Bank considers the operational implications of the decade for the World Bank as an institution. This volume, Economic Growth in the 1990s: Learning from a Decade of Reform, provides comprehensive analysis of the decade’s development experience and examines the impact of key policy and institutional reforms of growth.Economic Growth in the 1990s confirms and builds on the conclusions of an earlier World Bank book, The East Asian Miracle (1993), which reviewed experiences of highly successful East Asian economies. It confirms the importance of growth of fundamental principles: macro stability, market forces governing the allocation of resources, openness, and the sharing of the benefits of growth. At the same time, it echoes the finding that these principles translate into diverse policy and institutional paths, implying the economic policies and policy advice must be country-specific and institutional-sensitive if they are to be effective. The authors examine the impact of growth of key policy and institutional reforms: macroeconomic stabilization, trade liberalization, deregulation of finance, privatization, deregulation of utilities, modernization of the public sector with a view to increasing its effectiveness and accountability, and the spread of democracy and decentralization. They draw lessons both from a policy and institutional perspective and from the perspective of country experiences about how reforms in each policy and institutional area have affected growth.
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In the late 1990s the bilateral and multilateral development agencies placed increasing emphasis on poverty reduction in developing countries. This led to the establishment by the United Nations of the ‘International Development Targets’ for poverty reduction. The target of poverty reduction might be achieved through faster economic growth alone, through redistribution, or through a combination of the two. This article presents an analytical framework to assess the effectiveness of growth and redistribution for poverty reduction. It concludes that redistribution, either of current income or the growth increment of income, is more effective in reducing poverty for a majority of countries than growth alone.
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A central issue in the debate about a new international financial architecture has been whether programs of policy reform supported by the International Monetary Fund work. The Fund claims that “on balance” they do, because of their positive effect on the balance of payments. Others claim that programs are ineffective, and suggest that they should be discontinued. This paper reviews the econometric evidence dealing with the macroeconomic effects of IMF programs. It goes on to provide additional evidence and judges success against alternative criteria. Although the record is not good, the paper argues that it would be unwise for the Fund to cease lending and to abandon conditionality altogether. IMF programs need to be redesigned and refocused. The paper concludes by identifying a number of principles that should underpin reform.
Book
How did the rich countries really become rich? In this provocative new study, Ha-Joon Chang examines the great pressure on developing countries from the developed world to adopt certain "good policies" and "good institutions", seen today as necessary for economic development. Adopting an historical approach, Chang finds that the economic evolution of now-developed countries differed dramatically from the procedures that they now recommend to poorer nations. His conclusions are compelling and disturbing: that developed countries are attempting to "kick away the ladder" by which they have climbed to the top, thereby preventing developing counties from adopting policies and institutions that they themselves used.
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Incl. abstract, bib. In situations characterised by historical injustice in the distribution of economic resources, such as in many southern African 'settler' countries, there is a powerful intuitive case that ameliorative and palliative public policy is insufficient to significantly affect poverty reduction. This is because of the dulling effects on growth caused by significant structural inequality in the distribution of resources. However, the proposition that inequality is a problem for poverty reduction is contentious. This article reviews the neoclassical and structuralist literatures on the relationship between growth, inequality and poverty. It argues that the first is inconclusive and, furthermore, can only be so, while the second requires to be made more relevant to the discussions of how redistribution and inequality relate in legitimate policy and practice. The concept of property regimes can help here, within a more contextual understanding of development in practice as not necessarily involving growth and economic progress, but as being subject to periodic phases of 'de-development', or well-being retrogression. The paper concludes that state-sponsored redistribution policy has an important role to play in changing underlying property regimes for the benefit of the poor in southern Africa. Inequality does matter, and a consideration of radical, redistributive social change is worth rehabilitating as an efficient means of reducing poverty, particularly in situations of low or fluctuating growth. This consideration, in turn, requires a political acceptance of the legitimacy of a broader role for economic public policy and state action.
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2 CD-ROM: 1978-1999 and 1978-2010 (Archives: ask a librarian / En archives: demander au Centre de documentation)
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This paper examines the content of the right to development in the light of human rights as recognized in international law and interprets it in an operational manner. The right to development is the right to a development where all rights can be progressively realized. Both the process of development and the outcomes of the process can be regarded as human rights claimed by the people of a country for the benefit of all individuals. The right is exercised collectively but enjoyed individually. The related obligation is appropriate development policy by the state (the primary duty-bearer) and co-operation by other states and international institutions. The international community that recognizes this right has to support its implementation by co-operating in trade, debt, finance, technology transfer and development assistance. This paper provides illustrative mechanisms for implementing the right, complemented by programmes of international co-operation
Article
The objective of this paper is to assemble on a systematic basis the available data on Asian countries and then analyse the relationship between growth and poverty reduction in a long-term perspective, as well as the impact of different macroeconomic variables on the intensity of this relationship. The results indicate that there is not only a strong positive relationship between growth and poverty reduction, but also that this relationship is highly variable across countries and time periods. The key macroeconomic determinants of the degree of pro-poor growth appear to be the rates of employment and agricultural growth. Inflation, at least up to a certain rate, does not impact poverty negatively, while the role of exports is essentially indirect through the contribution to the overall rate of economic growth. Examination of the change in policy stance of the Asian countries during the 1990s in relation to the 1980s demonstrates that on balance the mix of policies has not been pro-poor. The apparent sacrifice of growth in pursuit of macroeconomic stability has diminished the impact on poverty reduction. Given the relatively weak trade-off between inflation and growth with regard to the impact on poverty and the fact that inflation rates are currently low in the region, it is argued that countries can be more flexible in their policy stance with regard to the adoption of more growth-oriented as opposed to stabilisation policies. In particular, a case is made for resorting to a more expansionary counter-cyclical fiscal policy, led by higher levels of public investment, supported by appropriate monetary and exchange rate policies. The paper concludes with a detailed description of the policies designed to achieve faster agricultural development and greater employment generation.
Article
Today I would I like to discuss improvements in our understanding of economic development.In particular,Iwould like to use this opportunity to discuss the emergence of what is sometimes called the “Post-Washington Consensus.” My remarks elaborate on two themes. The first is that we have come to a better understanding of what makes markets work well.TheWashington Consensus held that good economic performance required liberalized trade, macroeconomic stability, and getting prices right. 1 Once the government handled these issues – essentially, once the government “got out of the way ” – private markets would produce efficient allocations and growth. To be sure, all of these are important if markets are to work. It is very difficult for investors to make good decisions when inflation is running at 100 percent. But the policies advanced by the Washington Consensus are hardly complete – and they are sometimes misguided. Making markets work requires more than just low inflation. It requires sound financial regulation, competition police and policies to facilitate the transfer of technology, and transparency, to name some fundamental issues that the consensus neglects. At the same time that we have improved our understanding of the instruments to promote well-functioning markets, we have broadened the objectives of development to include other goals like sustainable development, egalitarian development, and democratic development. An important part of development today is seeking complementary strategies that advance these goals simultaneously.In our search for these policies, however, we should not ignore the inevitable tradeoffs. This is the second theme of my remarks. Some Lessons of the East Asian Financial Crisis Before discussing my two themes, I would like to address at the outset one issue that is on many people’s minds: the implications of the East Asian crisis for our thinking about development. The observation of the successful, some even say miraculous, East Asian development was one of the motivations for moving
Article
Proponents and critics alike agree that the policies spawned by the Washington Consensus have not produced the desired results. The debate now is not over whether the Washington Consensus is dead or alive, but over what will replace it. An important marker in this intellectual terrain is the World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform (2005).With its emphasis on humility, policy diversity, selective and modest reforms, and experimentation, this is a rather extraordinary document demonstrating the extent to which the thinking of the development policy community has been transformed over the years. But there are other competing perspectives as well. One (trumpeted elsewhere in Washington) puts faith on extensive institutional reform, and another (exemplified by the U.N. Millennium Report) puts faith on foreign aid. Sorting intelligently among these diverse perspectives requires an explicitly diagnostic approach that recognizes that the binding constraints on growth differ from setting to setting.
Article
Malaysia recovered from the Asian financial crisis swiftly after the imposition of capital controls in September 1998. The fact that Korea and Thailand recovered in parallel has been interpreted as suggesting that capital controls did not play a significant role in facilitating Malaysia's rebound. However, the financial crisis was deepening in Malaysia in the summer of 1998, while it had significantly eased up in Korea and Thailand. We employ a time-shifted differences-in-differences technique to exploit the differences in the timing of the crises. Compared to IMF programs, we find that the Malaysian policies produced faster economic recovery, smaller declines in employment and real wages, and more rapid turnaround in the stock market.
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