The Promise of Islamic Finance: Further Inclusion with Stability


By Mohamed Norat, Marco Pinon and Zeine Zeidane

(Versions in عربي)

Since the global financial crisis, policymakers have sought to press the “reset” button to strengthen financial intermediation that is performed by conventional banks and non-bank financial institutions. The aim has been to address the fault lines that helped trigger one of the most devastating financial crises in a century, and to enable a more inclusive, stable financial system that promotes stability as well as economic development and growth.

Islamic finance offers several features that are consistent with these objectives. Islamic finance refers to financial services that conform with Islamic jurisprudence, or Shari’ah, which bans interest, speculation, gambling and short-sales; requires fair treatment; and institutes sanctity of contracts. And these principles hold the promise of supporting financial stability, since a key tenet of Islamic finance is that lenders should share in both the risks and rewards of the projects and loans they finance. 

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Still Some Hurdles On The Fiscal Path


Martine GuerguilBy Martine Guerguil

(Versions in 中文, Français日本語, Русский, and Español)

Five years into the crisis, the fiscal landscape remains challenging. On the positive side, deficit-cutting efforts and the first signs of recovery reduced the fiscal stress felt in many advanced economies; but debt ratios often remain at historical peaks. At the same time, slowing growth and rising borrowing costs, combined with unabated demands for improved public services, puts pressure on government budgets in emerging market economies.

So we created  an index of ‘fiscal difficulty’ that shows the biggest challenge ahead for advanced economies is to maintain budget surpluses until debt ratios return to lower levels.  We expect this will take several years.

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Building on Latin America’s Success


Christine Lagarde

By Christine Lagarde

(Version in Español)

Next week, I will travel to Latin America—my second visit to the region since November 2011. I return with increased optimism, as much of Latin America continues its impressive transformation that started a decade ago.

The region remains resilient to the recent bouts in global volatility, and many countries continue to expand at a healthy pace. An increasing number of people are escaping the perils of poverty to join a growing and increasingly vibrant middle class.

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Time Not On Our Side: Tough Decisions Needed to Strengthen Financial Stability


By José Viñals

(Versions in  عربي中文EspañolFrançaisРусский日本語)

Recent policy actions in Europe, the United States, in emerging markets, and here in Japan, where I’m attending the IMF-World Bank annual meetings, have improved investor sentiment and helped markets rebound in recent months.

Yet our latest assessment is that confidence is still very fragile and risks have increased, when compared to the IMF’s last report in April. Policymakers need to do more to gain lasting stability.

The principal risk remains the euro area. The forces of financial and economic fragmentation have widened the divide between countries at the core and the “periphery” of the euro zone. Faltering confidence and policy uncertainty have led to a pullback of cross-border private capital flows from the periphery—quite an extraordinary phenomenon within a currency union.

This has driven up funding costs to governments and banks, as well as for companies and households, and, in turn, threatening a vicious downward economic spiral.

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Global Crisis — Top Links from the IMF for Economics and Finance


Our top links for June, 2012 from iMFdirect blog and others:

The Art of Shifting Gear


By Anoop Singh

If you needed further evidence about the fallacy of Asia’s economy “decoupling” from that of the developed world, then this month’s Asia and Pacific Regional Economic Outlook would be a good place to look.

The findings in this new report,  just released in the Malaysian capital, Kuala Lumpur, illustrate how Asia’s economic fate remains heavily dependent on events far beyond its immediate borders.

Consider two possible future scenarios to illustrate this ongoing interconnectedness: if global prospects continue to brighten following recent, concerted policy actions in the euro area and, if there are further indications of recovery in the United States, this will all augur well for trade-dependent Asia.   Against this backdrop, the region could enjoy a boost in demand, fresh capital inflows and even a revival of overheating pressures.

But,  were the financial turmoil in the euro area to escalate and spread globally, this would likely result in a sharp fall in demand for Asia’s exports by advanced economies and a possible retrenchment of credit by stressed foreign banks, all of which would be a severe blow to Asia.

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