Combating the Crisis: How Have IMF Programs Fared?


By Reza Moghadam

We’ve released a new paper earlier this week assessing the effectiveness of IMF-supported loan programs in combating the crisis in emerging markets. Although it is a bit early to be evaluating these programs, “real-time” cross-country reviews are important. In today’s blog, I want to pick up a few takeaways from our latest review.

First, there is the sheer scale of the challenges the program countries, and the IMF, have faced. In Chart 1 below, each bubble is a Fund program—its size being the amount of lending and the vertical distance being the GDP loss associated with the crisis. You can see how, after a few quiet years while emerging markets boomed, the crisis hit hard: multiple simultaneous crises involving severe output crashes, and massive Fund financing. From our perspective at the IMF, it’s been quite a challenge to manage all these new programs, some of which were put in place within weeks of the crisis hitting. (click on each chart for a larger image)

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The World Goes to Istanbul


By Caroline Atkinson

In early October, economic policymakers representing the entire membership of the IMF, 186 countries in total, will gather in Istanbul for the Annual Meetings. More formally, the 2009 Annual Meetings of the Boards of Governors of the World Bank Group and the IMF will be held in Istanbul, Turkey on October 6-7, 2009. Many others—including private sector executives, academics, and civil society representatives—will also come to Istanbul during this period to discuss issues of global concern. 

And where they go, so goes this blog. For the next week or so, the blog will be coming “live” from Istanbul, providing a real time account of the many events and debates.

Istanbul at sunset (photo: Graham Dwyer/IMF)

Istanbul at sunset: economic policymakers representing the entire membership of the IMF, 186 countries in total, will gather in Istanbul for the Annual Meetings (photo: Graham Dwyer/IMF)

There’s a lot going on. We will have the formal meetings of the Boards of Governors of the World Bank Group and the IMF, discussing the next steps in overcoming the global financial crisis and getting growth going again. The IMF will unveil its latest forecasts and present its World Economic Outlook (WEO) and Global Financial Stability Report (GFSR). We will discuss how the IMF has responded to the crisis, looking at how crisis lending reveals more flexible terms, and focuses more on the social impact. 

 

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Reserve Currencies in the Post-Crisis International Monetary System


By Reza Moghadam

The dollar has been the cornerstone of the international monetary system since the Second World War. It is the most important reserve currency, accounting for at least two-thirds of reserve assets, according to the IMF’s Composition of Foreign Exchange Reserves database. Among central banks that do not report this information to the IMF, it is estimated (e.g. by Brad Setser) that 70 percent is held in dollar assets.

The bulk of foreign exchange transactions involve dollars, and significantly more trade gets settled in dollars than involves the United States. Goldberg and Tille examined 23 advanced and emerging economies in Asia and Europe and found that all settled a greater proportion of their trade in dollars than their trade with the United States. The divergence was particularly stark for emerging Asia, where trade with the United States only accounted for about 20 percent of total trade but the bulk of total trade was settled in dollars. ( “Vehicle Currency Use in International Trade,”  Journal of International Economics, Issue 76, Vol. 2, pp. 177-192, December 2008).

The recent crisis has prompted an abundance of commentary on the future of the international monetary system and potential alternative reserve currencies. Those calling for a re-examination of the dollar’s role include Italian economy minister Giulio Tremonti, People’s Bank of China Governor Zhou Xiaochuan, Ousmène Jacques Mandeng of Ashmore Investment Management Limited, and Nobel Laureate Joseph Stiglitz. What does all this mean for the future of the international monetary system and the role of the dollar? 

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High International Reserves: An Embarrassment of Riches?


By Reza Moghadam

Once upon a time, those tracking international reserves focused on simple measures of reserve adequacy—enough to cover, say, 3 months of imports or all of the external debt maturing over the next year. However, the relevance of such yardsticks evaporated as a number of countries accumulated reserves that far surpass such levels, partly in reaction to emerging market financial crises of the 1990s and early part of this decade. Brazil’s reserves now exceed $200 billion, while Russia’s are more than $400 billion—and even these numbers are dwarfed by China’s reserves, which top $2,000 billion

Reserves are rising, driven by emerging markets and, increasingly, low-income countries

SPRblog3chart1

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Freedom of IMFormation


By Reza Moghadam

With the global financial crisis, the world is increasingly looking to the International Monetary Fund—not just for financing but as the global institution charged with overseeing members’ economies and policies (what we call surveillance). It’s easy to forget that only 10 years ago the Fund was a secretive institution. That’s no longer the case. Communicating and engaging with the world at large is now a normal and essential part of the Fund’s business.

The IMF today is a very open institution. The vast majority of our reports are published. The public can search the IMF’s archives. And we are making lots of effort to reach out to external stakeholders.

The benefits of this increased transparency, both for the Fund’s surveillance and lending activities, are indisputable. Transparency allows us to engage with the public and to build a broader understanding and support of what we do. It benefits the quality of our advice by subjecting our analysis to outside scrutiny. And more generally, it makes us more accountable for our advice and financial decisions. In all, it makes us a more effective and legitimate institution.

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IMF: A Big Enough Safety Net?


By Reza Moghadam

As the financial crisis pulled the rug from under the emerging markets, analysts and policymakers alike began to question the adequacy of Fund resources.  This worry was neither new nor surprising. For decades, private international capital flows had grown at a much faster rate than those of the IMF, rendering our institution too small to be able to deal with systemic crises. 

As one country after another approached the Fund for financial assistance, it become clear that the international community needed to act decisively. Thus in April, the leaders of the G-20 industrial and emerging market countries, supported by the entire IMF membership, called for a tripling of the IMF’s lending resources from $250 billion to $750 billion. By early September, individual country pledges, including from many non-G20 countries, had reached the promised $500 billion in contingent resources that could be called by the Fund if needed. 

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IMF Helping Africa Through the Crisis


By Antoinette Sayeh

I believe that Africa’s needs must be fully reflected in any global response to this unprecedented recession. With similar intentions, leading policymakers and stakeholders in Africa gathered in Tanzania last March to discuss how to work with the IMF on this. Under the leadership of President Kikwete and IMF Managing Director Strauss-Kahn, the participants agreed to build a new, stronger partnership.

More than just rhetoric, these common goals included the IMF seeking more resources for Africa and reacting more rapidly, responsively, and flexibly. While much remains to be done, I think it is a fair to say that we have achieved a remarkable amount on both fronts—more in fact than I could have imagined when I started in my job just a little over a year ago.

My colleague, Hugh Bredenkamp has done a fine job detailing the IMF’s response to the needs of low-income countries. In  this post, I would like to talk a little about what it all means for Africa.

Sorting cashew nuts in Tanzania

Sorting cashew nuts in Tanzania

As a reminder, the IMF agreed to mobilize $17 billion through 2014 for lending to low income countries, mostly in Africa—trebling our lending capacity to these countries. This goes far beyond the promise given by our Managing Director in Tanzania to seek a doubling of concessional resources. The financial terms of IMF support have also become more concessional, with zero interest until the end of 2011, and will remain more concessional thereafter.

And the IMF has moved quickly to deploy these resources in Africa. Among international institutions, it has an extraordinary capacity to react early to a country’s needs, as I know from my own experience as a policymaker in my home country of Liberia. Indeed, in the first eight months of 2009, we committed over $3 billion in new resources to countries in sub-Saharan Africa, trebling the total stock of outstanding commitments this year alone.

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