Acting Collectively: A Better Way to Restructure Government Debt


By Sean Hagan 

(version in Español)

To restructure or not to restructure? That is a question few governments would like to face. Yet, if a country does find itself with an unsustainable debt burden, one way or another, it will have to be restructured. And if that time comes, it is better for the debtor, creditors, and the entire financial system that the restructuring be carried out in a prompt, predictable, and orderly manner.

The global financial crisis ushered in a new wave of sovereign debt crises that has reinvigorated discussions over the current framework for sovereign debt restructuring. The experience with Greece’s debt restructuring in 2012 and the ongoing litigation involving Argentina, in particular, provide a salutary reminder that vulnerabilities remain.

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Portfolio Investment in Emerging Markets: More Than Just Ebb and Flow


Evan PapageorgioBy Evan Papageorgiou

When the U.S. Federal Reserve first mentioned in 2013 the prospect of a cutback in its bond buying program, markets had a “taper tantrum.” Many emerging markets saw large increases in volatility, even though outflows from their domestic markets were small and short-lived. Now the Fed has ended its bond buying and is looking ahead to rate hikes, and portfolio flows continue to arrive at the shores of emerging market economies. So everything’s fine, right? Not quite.

In our latest Global Financial Stability Report, we show that the large concentration of advanced economy capital invested in emerging markets acts as a conduit of shocks from the former to the latter.

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What a Drag: The Burden of Nonperforming Loans on Credit in the Euro Area


By Will Kerry, Jean Portier, Luigi Ruggerone and Constant Verkoren 

High and rising levels of nonperforming loans in the euro area have burdened bank balance sheets and acted as a drag on bank profits. Banks, striving to maintain provisions to cover bad loans, have had fewer earnings to build-up their capital buffers. This combination of weak profits and a decline in the quality of bank assets, resulting in tighter lending standards, has created challenging conditions when it comes to new lending.

We took a closer look at this relationship and the policies to help fix the problem in our latest Global Financial Stability Report because credit is the grease that helps the economy function.

The stock of nonperforming loans has doubled since the start of 2009 and now stands at more than €800 billion for the euro area as whole (see chart). Around 60 percent of these nonperforming loans stem from the corporate loan book.

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Portugal: Completing the Job


Subeer LallBy Subir Lall

(Version in Português)

Today the IMF released a report on Portugal’s progress under the country’s Economic Adjustment Program. What is the latest assessment?

A strong start

There is no doubt that Portugal has made remarkable progress over the past three years. When the sovereign lost access to international bond markets in 2011, the outlook was grim. The economy was facing large domestic and external imbalances and dismal growth prospects. Unprecedented official financing from Portugal’s European partners and the IMF provided a window of opportunity to address the weaknesses at the root of the crisis and regain market confidence. While constrained by formal and informal strictures, the authorities rose to the occasion.

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How To Make A Graceful Exit: The Potential Perils of Ending Extraordinary Central Bank Policies


Erik Oppers MCMBy Erik Oppers

This spring monetary policy is the talk of the town.  It is everywhere you look, it’s unique, and you’ve never seen anything quite like it before: short-term interest rates at zero for several years running, and central bank balance sheets swelling with government bonds and other assets in the euro area Japan, the United Kingdom, and the United States.

But the meteoric rise of this once dusty topic can’t last.  The end of these unconventional monetary policies will come and may pose threats to financial stability because of the length and breadth of their unprecedented reign.  Policymakers should be alert to the risks and take gradual and predictable measures to address them.

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India’s Slowdown May Have a Silver Lining


By Roberto Guimarães and Laura Papi

The extent of the recent slowdown in India’s growth rate has surprised most India watchers even in the face of ongoing international financial market volatility, high and volatile oil prices, and the uneven global recovery.

GDP growth fell throughout 2011, from a high of 7.8 percent at the beginning of the year to 6.1 percent in the quarter ending in December. The slowdown in the economy has affected the industrial sector particularly hard and has extended to 2012 as shown by the 3.5 percent contraction (y/y) in March industrial production. For 2012/13, we at the IMF project that GDP growth is likely to be about 7 percent.

While India has been affected by the worldwide slowdown, many observers have started to question the inner strength of the Indian growth story.

By international standards 7 percent growth is still very robust, but it sometimes feels like underachievement for a country that was growing at more than 9 percent just a few years ago.

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No Country is an Island: Ireland and the IMF


by iMFdirect

Speaking to the pain and anger of the Irish people at the toll the economic adjustment has taken on their daily lives, the IMF’s mission chief Ajai Chopra was clear during a press conference today in Dublin:  the end goal is to protect the poor and most vulnerable people in society while restarting the economy.

“We would all agree the key objective is to get growth going again, to create jobs, and bring down unemployment and that will be the true mark of success,” said Chopra.

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