End the Credit Rating Addiction


By John Kiff

One of the earliest take aways from the global financial crisis was the importance of access to information for effectively functioning financial markets. And, in that regard, credit ratings can serve an incredibly useful role in global and domestic financial markets—in theory.

In practice, credit ratings have inadvertently contributed to financial instability—in financial markets during the recent global crisis and more recently with regard to sovereign debt. To be fair, the problem does not lie entirely with the ratings themselves, but with overreliance on ratings by both borrowers and creditors.

In one of the background papers for the Fall 2010 Global Financial Stability Report that I prepared with IMF colleagues, we recommend that regulators should reduce their reliance on credit ratings. Markets need to end their addiction to credit ratings. Continue reading

Forewarned Is Forearmed: How the Early Warning Exercise Expands the IMF’s Surveillance Toolkit


By John Lipsky

“Never again can we let ourselves be caught unprepared by an economic and financial crisis of such global magnitude.” This was the spirit in which G-20 Finance Ministers in late 2008 tasked the IMF and the newly-formed Financial Stability Board to jointly develop an Early Warning Exercise (EWE), to be ready by the IMF’s 2009 Istanbul Annual Meetings.

The inspiration was clear: In the wake of the September 2008 onset of unprecedented financial turmoil, policymakers recognized that earlier danger signs had not been synthesized into an actionable warning. The EWE was intended to fill the analytical gap: the goal is to produce an effective “call to arms” as threats emerge—but well before crises erupt. Continue reading

Making up for Lost Time: Getting Back on Track to the Millennium Development Goals


By Hugh Bredenkamp and Catherine Pattillo

Many of the world’s macroeconomists—including here in the IMF—are currently busy reading the daily tea-leaves, attempting to divine whether the sputtering recovery in the advanced economies will hold, and gradually pick up steam, or fall back into the notorious “double dip.”

There is a huge amount at stake here, not only for the millions of unemployed in the developed world, but also for the many hundreds of millions of our fellow global citizens in developing countries who live in dire poverty, without access to proper health, education, or sanitation. The world’s economies are now closely interconnected, and the fate of those in poor countries is tied, increasingly, to that of the richest. Continue reading

Saving the Lost Generation


By Dominique Strauss-Kahn

(Version in عربي | Español | Français | Norwegian | Русский)

Oslo was the scene this week of a remarkable event that brought together global leaders from government, business, trade unions, and academia to discuss what many of them said is the biggest issue facing the world today: the jobs crisis.

They spoke of the 210 million people currently out of work worldwide—the highest level of official unemployment in history. They spoke of the human impact in terms of persistent loss of earnings, reduced life expectancy, and lower educational achievement for the children of the unemployed. And they spoke of a potentially “lost generation” of young people whose unemployment rates are much higher than for older groups.

Fortunately, they also spoke of what can be done to save this lost generation.

The Oslo Conference—hosted by Prime Minister Jens Stoltenberg of Norway and co-sponsored by the International Labor Organization (ILO) and the International Monetary Fund (IMF)—the first such joint endeavor in 66 years—attracted extraordinary participation. Continue reading

Global Safety Nets: Crisis Prevention in an Age of Uncertainty


By Reza Moghadam

Though the recent global crisis started in the advanced economies, most emerging markets came under pressure; it seemed that no country, especially those most interconnected, was immune from tremendous economic strain. Now, as the crisis abates, there is an emerging consensus that something needs to be done. A better safety net is needed to enable countries with good policies to insure against bad outcomes, especially when they are innocent bystanders caught up in a financial turmoil.

Last week, the IMF took another step toward meeting this need by enhancing its country insurance facilities. Continue reading

Watch This (Fiscal) Space: Assessing Room for Fiscal Maneuver in Advanced Countries


By Jonathan D. Ostry

Public debt sustainability in most advanced economies used to be a non-issue, or at most a back-burner one. A couple years back, if the topic came up, most people associated it with developing or emerging market countries. Defaults, rising sovereign risk premia, getting shut out from capital markets were, let’s face it, not really imagined to be possibilities for advanced economies. Of course there were fiscal challenges, demographic pressures being the obvious one, but these were issues for the long term, not the here and now.

But today, fiscal problems are a key concern of policy makers in many industrial countries, and a reassessment of sovereign risk is a palpable threat to global recovery. While the financial crisis may be a convenient scapegoat for the debt blowout in the advanced countries, blame lies elsewhere, in how fiscal policy was managed before the great recession, not during it. And, more sobering still, taming public debt will require steadfast policy efforts over the medium term: quick fixes will not do the trick.

What is the worry? At the heart of the issue is the extent to which governments have room for fiscal maneuver—“fiscal space”—before markets force them to tighten policies sharply and, relatedly, the size of adjustments needed to restore or maintain public debt sustainability.

Yet, surprisingly, much of the talk about fiscal space—how to measure it and the policy implications—has so far been rather fuzzy. A new staff position note, which I co-authored with several IMF colleagues, aims to remedy this, providing an operational definition of the fiscal space concept as well as empirical estimates of available fiscal space for 23 advanced economies.

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