The Power of Cooperation


by iMFdirect

The planet’s most successful species are the great cooperators: ants, bees, termites, and humans.

In an article in the new issue of Finance & Development magazine, President Bill Clinton shares his experience working with governments, business, and civil society as part of his Clinton Global Initiative.

He says they are making the most progress in places where people have formed networks of creative cooperation where stakeholders come together to do things better, faster and cheaper than any could alone.

Latin American Firms: Keeping Corporate Vulnerabilities in Check


by María González-Miranda

(Version in Español)

Four years after the Lehman Brothers crisis, private companies in the largest and most financially integrated Latin American countries are doing relatively well, despite continuous bouts of global uncertainty. Like firms in other high-performing emerging markets in Asia, companies in Brazil, Chile, Colombia, Mexico, and Peru (the “LA5”) have benefited from abundant external financing, strong domestic credit, and generally robust demand growth.

These favorable conditions have resulted in robust corporate profitability and valuation, reasonably contained debt ratios, and lower short-term maturity exposures than those observed in other emerging markets.

But some vulnerabilities are starting to build up.

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Policy Interest Rates in Latin America: Moving to Neutral?


By Nicolas Magud and Evridiki Tsounta 

(Version in Español)

Many Latin American countries have strengthened their monetary policy frameworks in recent years to keep the rate of inflation in check. Some of them have adopted an inflation target and use the policy interest rate as the main tool to achieve that target.

But how do central bankers know whether monetary policy is expansionary or contractionary? Policymakers would need to know how the current policy rate compares to a benchmark or neutral rate.

The neutral interest rate is the real interest rate consistent with the economy operating at full employment and stable inflation. If the economy is operating above its potential capacity and inflation is rising, policymakers should increase the policy interest rate above the neutral level to cool down the economy. Conversely, if the economy is operating below its full employment level, interest rates may need to be lowered below the neutral level.

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Latin America and the Caribbean: Dealing with Another Food Price Shock


By Luis Cubeddu and Sebastián Sosa

(Version in Español)

World food prices are on the rise again owing mainly to global weather-related shocks. This has led to concern that the rise could result in higher inflation and hurt the most vulnerable.

Two points to note are that the recent increase in food prices has been less acute than the two previous episodes (in mid-2008 and early 2011), and features important differences across commodities. For example, while the price of soybeans, corn and wheat are up sharply, coffee and sugar prices are down. Market projections suggest that corn, soy, and wheat prices will stay high through end-2012, but then decline gradually as supply conditions normalize.

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Global Economy: Some Bad News and Some Hope


By Olivier Blanchard

(Versions in  عربي中文EspañolFrançaisРусский日本語)

The world economic recovery continues, but it has weakened further.  In advanced countries, growth is now too low to make a substantial dent in unemployment.  And in major emerging countries, growth that had been strong earlier has also decreased.

Let me give you a few numbers from our latest projections in the October World Economic Outlook released in Tokyo.

Relative to the IMF’s forecasts last April, our growth forecasts for 2013 have been revised down from 1.8%  to 1.5% for advanced countries, and from 5.8% down to 5.6% for emerging and developing countries.

The downward revisions are widespread.  They are however stronger for two sets of countries–for the members of the euro area, where we now expect growth close to zero in 2013, and for three of the large emerging market economies, ChinaIndia, and Brazil.

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World Faces Weak Economic Recovery


By Olivier Blanchard

(Versions in  عربي中文EspañolFrançaisРусский日本語)

The global recovery continues, but the recovery is weak; indeed a bit weaker than we forecast in April.

In the Euro zone, growth is close to zero, reflecting positive but low growth in the core countries, and negative growth in most periphery countries.  In the United States, growth is positive, but too low to make a serious dent to unemployment.

Growth has also slowed in major emerging economies, from China to India and Brazil.

Downside risks, coming primarily from Europe, have increased.

Let me develop these themes in turn.

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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:

Latin America: Riding the Global Financial Waves


By Gustavo Adler and Camilo E. Tovar

(Version in Español)

Latin America has a long history of accidents that have occurred while navigating turbulent financial international waters. With risks looming over the world economy, should the region worry about new global financial waves?

Global financial markets have seen frequent bouts of severe stress since 2008, although this isn’t really anything new for the region. Global financial shocks have occurred on average every 2½ years since 1990, with significant effects on Latin America.

But how costly are these shocks in terms of domestic output, and is Latin America better placed to cope with them this time?

In Chapter 3 of the IMF’s latest Regional Economic Outlook: Western Hemisphere, we analyze whether changes in underlying fundamentals have made the region more or less vulnerable over time. The analysis, which complements our work on the effects of terms-of-trade shocks, looks at what country features and policies make a difference. We focus here solely on the impact of the financial shocks by isolating the effect from commodity prices and global demand shocks.

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Regional Spillovers in South America: How “Systemic” is Brazil?


By Gustavo Adler and Sebastián Sosa

(Version in Español)

The risks that policies and shocks in major economies can spillover on other countries and regions have become a matter of renewed concern since the global crisis of 2008–09. Brazil is South America’s giant; how important is its influence on neighboring countries?

Brazil accounts for 60 percent of South America’s output and its economic fluctuations are closely correlated with those of many of its neighboring countries. This would appear to suggest that economic activity in Brazil’s neighbors is strongly influenced by Brazil’s business cycle.

But these close comovements could also reflect common global factors that affect all South American countries similarly, such as commodity prices, international financial conditions, and global demand.

Our latest Regional Economic Outlook: Western Hemisphere examines this question, quantifying the importance of spillovers from Brazil to the rest of South America.

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Latin America: Vulnerabilities Under Construction?


By Luis Cubeddu, Camilo E. Tovar, and Evridiki Tsounta

(Version in Español)

Housing construction projects are sprouting up across much of Latin America and mortgage credit is also growing very fast. Does this sound familiar? It should!

Easy external financing conditions and high commodity prices have led to important improvements in living standards and credit deepening in many countries of the region over the past decade. The credit expansion has been particularly impressive in the mortgage sector, where legal reforms and government subsidies have also played a role.

Although mortgage credit in Latin American countries is relatively low by international standards —at just 7 percent of GDP versus over 20 percent in emerging Asia and over 65 percent in the United States—it has grown at an impressive annual average real rate of 14 percent since 2003, with Brazil leading the pack. Home prices have also risen sharply over this period, particularly in countries where mortgage credit has expanded the fastest (for more details see Chapter 5 in our latest Western Hemisphere Regional Economic Outlook).

So, are housing vulnerabilities emerging?

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