Greece: A Credible Deal Will Require Difficult Decisions By All Sides


blanchBy Olivier Blanchard

(Versions in 中文Françaisελληνικά, عربي, and Español)

The status of negotiations between Greece and its official creditors – the European Commission, the ECB and the IMF – dominated headlines last week.  At the core of the negotiations is a simple question: How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?

In the program agreed in 2012 by Greece with its European partners, the answer was:   Greece was to generate enough of a primary surplus to limit its indebtedness.  It also agreed to a number of reforms which should lead to higher growth.  In consideration, and subject to Greek implementation of the program, European creditors were to provide the needed financing, and provide debt relief if debt exceeded 120% by the end of the decade.

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Cross-Country Analysis of Housing Finance and Real Estate Booms


By Eugenio Cerutti, Jihad Dagher, and Giovanni Dell’Ariccia

Housing finance—considered one of the villains of the recent global financial crisis—was seen, at least until recently, as a vehicle for economic growth and social stability.  Broader access to housing finance promotes home ownership, especially for younger and poorer households; which in turn is often linked to social stability, and ultimately economic growth.

But real-estate boom episodes have often ended in busts with dire economic consequences, especially when the boom was financed through fast credit growth.  Several countries have seen these boom-bust patterns over the last decade, particularly in some of the hardest hit countries during the global financial crises, such as Ireland, Spain, and the United States. Despite having different mortgage market structures, these three countries saw an astonishing increase in house prices and construction on the back of risky lending which was followed by a painful adjustment period—a mortgage credit boom gone bad.

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Raising Long-Run Growth in Latin America and the Caribbean—A Complex(ity) Issue


By Fabiano Rodrigues Bastos and Ke Wang

(Versions in Español and Português)

Growth in Latin America and the Caribbean has weakened significantly over the last few years. Part of this weakness appears to be here to stay, and IMF economists have marked down medium-term growth projections. This story sounds eerily familiar, given the region’s past difficulties to improve its comparative growth performance.

Abstracting from the “golden decade” from 2003 to 2011, when rising commodity prices powered a strong expansion, why has the region been unable to sustain sufficiently high growth rates to catch up with more advanced economies? Part of the answer is Latin America’s modest success in branching out into more sophisticated—or complex—goods.

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U.S. Economy Returning to Growth, but With Pockets of Vulnerability


2014MDNEW_04By Christine Lagarde 

IMF staff have just concluded their annual health check of the U.S. economy, and released their concluding statement.

This year we have also undertaken a Financial Sector Assessment Program with the United States. We conduct these once every 5 years for systemically important countries and it is a comprehensive exercise looking at the whole U.S. financial system.

Given this important work, we have focused our review of the U.S. economy on financial stability risks and the appropriate policies to mitigate them, as well as looking at recent movements in the U.S. dollar and the timing, form, and impact of interest rate normalization by the Fed.

A more detailed report on the U.S. economy and on the financial sector will be available on July 8.

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Latin America and the Fiscal Stimulus: A Mild Hangover, Not Yet an Addiction


Alexander KlemmBy Alexander Klemm

(Versions in Español and Português)

Latin America is heading for tougher times. Regional growth is expected to dip below 1 percent in 2015, partly as a result of the drop in global commodity prices. How well placed is the region for the coming lean times?

Countries face this slowdown from much weaker fiscal positions than when the global financial crisis hit. Then, Latin America responded strongly with expansionary fiscal policies, including explicit fiscal stimulus programs in many countries. But, as growth has recovered, this increase in spending has proved difficult to reverse.

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Ten Take Aways from the “Rethinking Macro Policy: Progress or Confusion?”


blanchBy Olivier Blanchard

On April 15-16, the IMF organized the third conference on “Rethinking Macro Policy.

Here are my personal take aways.

1. What will be the “new normal”?  

I had asked the panelists to concentrate not on current policy challenges, but on challenges in the “new normal.” I had implicitly assumed that this new normal would be very much like the old normal, one of decent growth and positive equilibrium interest rates. The assumption was challenged at the conference.

On the one hand, Ken Rogoff argued that what we were in the adjustment phase of the “debt supercycle.” Such financial cycles, he argued, end up with debt overhang, which in turn slows down the recovery and requires low interest rates for some time to maintain sufficient demand.  Under that view, while it may take a while for the overhang to go away, more so in the Euro zone than in the United States, we should eventually return to something like the old normal.

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Unclogging Euro Area Bank Lending


By Will Kerry and Jean Portier

A year ago our research showed Europe had an €800 billion stock of bad loans.  In our latest Global Financial Stability Report we show that the problem has now grown to more than €900 billion.  This stock of nonperforming loans is concentrated in the hardest hit economies, with two-thirds located in just six euro area economies. The European Central Bank’s Asset Quality Review  confirmed this picture, which revealed that the majority of banks in many of these economies had high levels of nonperforming assets (see chart 1).

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