Posted on May 27, 2011 by iMFdirect
By Aditya Narain and İnci Ötker-Robe
Folklore is riddled with tales of a lone actor undoing a titan: David and Goliath; Heracles and Atlas; Jack and the Beanstalk, to name a few.
Financial institutions seen as too important to fail have become even larger and more complex since the global crisis. We need look no further than the example of investment bank Lehman Brothers to understand how one financial institution’s failure can threaten the global financial system and create devastating effects to economies around the world. (more…)
Filed under: Financial Crisis, Financial regulation, Financial sector supervision, International Monetary Fund | Tagged: bailout, Basel III, capital requirements, crisis prevention, financial disclosure, financial institutions, financial stability, financial supervision, global financial system, investment bank, market discipline, moral hazard, resolution regime, systemic collapse, systemic risk, too big to fail, too important to fail | 3 Comments »
Posted on May 24, 2011 by iMFdirect
By Antoinette M. Sayeh
(Version in Français)
Sub-Saharan Africa’s “frontier markets”—the likes of Ghana, Kenya, Mauritius, and Zambia—were seemingly the destination of choice for an increasing amount of capital flows before the global financial crisis. Improving economic prospects in these countries was a big factor, but frankly, so too was a global economy awash with liquidity.
Then the crisis hit. And capital—particularly in the form of portfolio flows—was quick to flee these countries as was the case for so many other economies.
Fast forward to 2011. Capital flows are coming back to the frontier, but in dribs and drabs. (more…)
Filed under: Africa, Economic outlook, IMF, International Monetary Fund | Tagged: capital controls, capital flows, capital inflows, equity investments, fixed-income investments, foreign direct investment, frontier markets, global financial crisis, liquidity conditions, Macroeconomic policies, macroprudential policies, net private capital flows, portfolio flows, Regional Economic Outlook: Sub-Saharan Africa, shallow financial markets, Sub-Saharan Africa | 1 Comment »
Posted on May 23, 2011 by iMFdirect
By Masood Ahmed
Most policymakers in the Middle East and North Africa agree that stronger economic growth is a crucial component of any strategy to address the region’s persistently high levels of unemployment and raise its living standards. One question that arises is: What role can the financial sector play?
It is well known that a dynamic and vibrant financial sector will improve economic outcomes for a country, leading to faster and more equitable economic growth. The key to answering this question, therefore, is to look to the past and examine how the financial sector has contributed historically to growth in the region. (more…)
Filed under: Economic outlook, Employment, growth, IMF, International Monetary Fund, Middle East | Tagged: bank credit, bank intermediation, banking competition, banking sector, credit information, economic growth, equity, financial depth, financial sector, financial services, financial shallowness, macroeconomic stability, Regional Economic Outlook: Middle East and North Africa, stock market, unemployment | 7 Comments »
Posted on May 18, 2011 by iMFdirect
By Antonio Borges
(Versions in Español, Français, Português, Русский)
With all the anxiety generated by the troubles of Portugal, Greece, and Ireland, it is easy to forget that a different part of Europe was in the spotlight two years ago, facing equally dire predictions of bank runs, fiscal ruin, and devaluation.
Today, many economies in emerging Europe are quietly staging a strong comeback. Most impressive is the turnaround in the three Baltic countries, which suffered record deep recessions in the wake of the 2008/09 financial crisis. Take Lithuania, which grew an eye-catching 14.7 percent in the first quarter of 2011. But many other countries in the region are seeing strong growth as well. (more…)
Filed under: Economic outlook, Emerging Markets, Europe, IMF, International Monetary Fund | Tagged: asset price bubbles, boom-bust cycle, capital inflows, consumption, credit default swaps, current account deficits, domestic demand, economic growth, economic output, exports, growth potential, investment, Macroeconomic policies, markets, structural policies | 2 Comments »
Posted on May 13, 2011 by iMFdirect
By Ruud de Mooij
In February, President Obama said “Companies are taxed heavily for making investments with equity; yet the tax code actually pays companies to invest using leverage”. And he is right: the corporate tax code in the United States creates a significant bias toward debt finance over equity.
Of course, the U.S. is not unique. In most of Europe, Asia and elsewhere in the world, the tax advantages of debt finance are even bigger than in the U.S.
The crux of the issue is that interest paid on borrowing can be deducted from the corporate tax bill, while returns paid on equity—dividends and capital gains—cannot.
The debt distortion is not new. What is new, however, is that we have come to realize that excessive debt (or leverage) is much more costly than we have always thought. (more…)
Filed under: Advanced Economies, Financial Crisis, Fiscal policy, International Monetary Fund | Tagged: capital gains, corporate income tax, corporate profits, debt bias, debt finance, dividends, equity, financial crises, global financial crisis, interest deductiblity, investment, leverage, tax avoidance, tax deduction, tax incentives | Leave a Comment »
Posted on May 12, 2011 by iMFdirect
By Antonio Borges
(Versions in Español, Français, Português, Русский)
Banks―and the loans they provided in the run-up to the crisis―are at the heart of Europe’s problems today.
Yet it would be wrong to conclude that the crisis was caused by too much financial integration. In fact, the real problem may have been that there was too little financial integration.
Policies to promote deeper integration of Europe’s banks―including through cross-border merger and acquisitions―should be part of the solution. (more…)
Filed under: Economic outlook, Europe, IMF, International Monetary Fund | Tagged: banks, capital flows, cross-border mergers and acquisitions, current account deficits, European Union, external debt, financial integration, financial sector, fixed exchange rates, foreign exchange risk, interest rates, market failures, Regional Economic Outlook: Europe, regulatory and supervisory frameworks, sovereign debt, sustainable growth, the euro | 3 Comments »
Posted on May 11, 2011 by iMFdirect
By Anoop Singh
Much of the debate over global rebalancing has focused on the U.S.-China trade imbalance. But that’s missing the bigger picture.
With the growth of cross-border supply chains—a signature feature of Asia’s trade in recent decades—it would be misleading to focus on bilateral imbalances and exchange rates.
Instead of specializing in producing certain types of final goods, Asian exporters increasingly have specialized in certain stages of production and become vertically integrated with each other. So, as Asia’s economies strive to rebalance their growth models, we need to understand better how the regional supply chain affects the way exchange rates and shifts in global demand work. (more…)
Filed under: Asia, Economic outlook, International Monetary Fund | Tagged: Asian integration, capital goods, competitiveness, cross-border supply chains, economic imbalances, effective exchange rate, exchange rates, global rebalancing, intermediate good imports, intermediate inputs, production disruptions, Regional Economic Outlook: Asia and Pacific, regional integration, trade integration, trade partners, vertical integration | 1 Comment »
Posted on May 9, 2011 by iMFdirect
By Dominique Desruelle and Catherine Pattillo
(Versions in 中文, Português, Español, Русский)
The so-called BRIC nations—Brazil, Russia, India and China—could be a game changer for how low-income countries build their economic futures.
The growing economic and financial reach of the BRICs has seen them become a new source of growth for low-income countries (LICs).
LIC-BRIC ties—particularly trade, investment and development financing—have surged over the past decade. And the relationship could take on even more prominence after the global financial crisis, with stronger growth in the BRICs and their demand for LIC exports helping to buffer against sluggish demand in most advanced economies.
The potential benefits from LIC-BRIC ties are enormous.
But, so too are challenges and risks that must be managed if the LIC-BRIC relationship to support durable and balanced growth in LICs. (more…)
Filed under: Emerging Markets, growth, International Monetary Fund, Low-income countries | Tagged: balanced and sustainable growth, Brazil, BRICs, China, commercial financing, commodity trap, concessional lending, development financing, government debt, growth drivers, India, infrastructure development, investment, investment financing, macroeconomic stability, manufacturing, Russia, structural changes, tax incentives, trade, trade preferences, transparency | 5 Comments »