Global Financial Stability: What’s Still To Be Done?

Posted on April 18, 2012 by iMFdirect

By José Viñals

(Versions in Español, عربي)

The quest for lasting financial stability is still fraught with risks. The latest Global Financial Stability Report has two key messages: policy actions have brought gains to global financial stability since our September report; but current policy efforts are not enough to achieve lasting stability, both in Europe and some other advanced economies, in particular the United States and Japan.

Much has been done

In recent months, important and unprecedented policy steps have been taken to quell the crisis in the euro area. At the national level, stronger policies are being put in place in Italy and Spain; a new agreement has been reached on Greece; and Ireland and Portugal are making good progress in implementing their respective programs. Importantly, the European Central Bank’s decisive actions have supported bank liquidity and eased funding strains, while banks are reinforcing their capital positions under the guidance of the European Banking Authority. Finally, steps have been taken to enhance economic governance, promote fiscal discipline, and buttress the “firewall” at the euro area level.

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Filed under: Advanced Economies, Economic Crisis, Emerging Markets, Europe, Finance, Financial Crisis, Financial regulation, Financial sector supervision, G-20, IMF, International Monetary Fund | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 5 Comments »

Disappearing Deficits

Posted on March 28, 2012 by iMFdirect

By Tim Irwin

Suppose a government must reduce its budget deficit. Perhaps it made a commitment to do so; perhaps investors are beginning to doubt its ability to repay debt. It could cut spending or raise taxes, but that is painful and unpopular. What can it do?

In our work at the IMF, we sometimes discover that governments choose to employ accounting devices that make the deficit smaller without actually causing any pain, and without actually improving public finances.

In ideal accounting, this would not be possible. In real accounting, it sometimes is.

How the devices work

Some governments, for example, have been able to reduce their reported deficits by taking over companies’ pensions schemes. The government’s obligation to make future pension payments has a real cost, but it doesn’t count as a liability in the accounting. So when the government receives a pension scheme’s assets from the company, it can treat the receipt of those assets as revenue that reduces its deficit.

Many other governments have been able to defer spending, without significantly reducing it in the long run, by entering into public-private partnerships. Under these contracts, a private company builds and maintains an asset like a road or a hospital. In return, the government agrees to pay the company for its costs over 20 or 30 years. In a sense, the government has bought the asset on an installment plan, but government accounting seldom counts this obligation as a liability.

In each of the above cases—and in others analyzed in my note, Accounting Devices and Fiscal Illusions—the government’s deficit is lower at first, but only at the expense of bigger future deficits.

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Filed under: Advanced Economies, Economic research, Emerging Markets, Financial sector supervision, Global Governance, Globalization, IMF, International Monetary Fund, Low-income countries, Public debt | Tagged: , , , , , , , , , , | 7 Comments »

The Logic and Fairness of Greece’s Program

Posted on March 19, 2012 by iMFdirect

By Olivier Blanchard

(Version in ελληνικά,  عربي)

To get back to health, Greece needs two things. First, a lower debt burden. Second, improved economic competitiveness. The new program addresses both.

Bringing down the debt

Some countries have been able to work down heavy public debt burdens. Those that were successful did it through sustained high growth. But in Greece’s case, it had become clear that high growth—let alone sustained high growth—was not going to come soon enough. Debt had to be restructured.

The process was long and messy. After all, bargaining between creditors and debtors is rarely a love affair. In the process, foreign creditors were often vilified in Greece as bad guys—rich banks, who could and should be willing to take a hit. But in the end, banks belong to people, many of them saving for retirement, who saw the value of their bank shares go down in value.

All said, the PSI (private sector involvement) deal—the largest ever negotiated write-down of public debt—has reduced the debt burden of every man, woman, and child in Greece by close to €10,000 on average, a sizable contribution on the part of foreign savers.

Greece now has to do its part―with sustained political commitment to implement the difficult but necessary set of fiscal, financial, and structural reforms that have been agreed as part of the program supported by Greece’s partners in the eurozone and the IMF. It is a huge challenge, no doubt. But it is also an opportunity–to take advantage of the economic space opened up by private and official creditors. Will Greece seize it?

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Filed under: Advanced Economies, Economic Crisis, Economic outlook, Employment, Europe, Financial Crisis, Fiscal policy, growth, IMF, Inequality, International Monetary Fund, Public debt, recession | Tagged: , , , , , , , , , , , | 41 Comments »

Avoiding a Lost Generation

Posted on March 15, 2012 by iMFdirect

By Nemat Shafik (Version in  عربي)

Young people were innocent bystanders in the global financial crisis, but they may well end up paying the heaviest price for the policy mistakes that have led us to where we are today.

Young people will have to pay the taxes to service the debts accumulated in recent years.

Moreover, the global economy is threatened by continued strains in the euro area, and unemployment is still climbing in several countries, in particular in Europe. Young people (those aged 15 to 24) are the most affected, and youth unemployment has reached record levels in a number of countries.

If the right policies are not put into place, there is a risk not only of a lost decade in terms of growth but also of a lost generation.

Consider this. In Spain and Greece, nearly half of all young people cannot find jobs. In the Middle East, young people account for 40 percent or more of all unemployed people in Jordan, Lebanon, Morocco, and Tunisia and nearly 60 percent in Syria and Egypt. And in the United States, which traditionally has had a strong job creation record, more than 18 percent of all young job seekers cannot find employment.

Legacy of loss

Youth unemployment has long-term consequences for economic growth because of the loss or degradation of human capital. But it also has many other consequences, both for the individuals affected and for society as a whole.

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Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Financial Crisis, growth, IMF, Inequality, Low-income countries, Middle East, Public debt, recession | Tagged: , , , , , , , , , , , , , , , , , | 13 Comments »

2011 In Review: Four Hard Truths

Posted on December 21, 2011 by iMFdirect

By Olivier Blanchard

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

What a difference a year makes …

We started 2011 in recovery mode, admittedly weak and unbalanced, but nevertheless there was hope. The issues appeared more tractable: how to deal with excessive housing debt in the United States, how to deal with adjustment in countries at the periphery of the Euro area, how to handle volatile capital inflows to emerging economies, and how to improve financial sector regulation.

It was a long agenda, but one that appeared within reach.

Yet, as the year draws to a close, the recovery in many advanced economies is at a standstill, with some investors even exploring the implications of a potential breakup of the euro zone, and the real possibility that conditions may be worse than we saw in 2008.

I draw four main lessons from what has happened.

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Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Employment, Europe, Financial Crisis, Fiscal policy, Fiscal Stimulus, G-20, growth, International Monetary Fund, Multilateral Cooperation, Public debt, recession | Tagged: , , , , , , , , , , , , , , , | 57 Comments »

Christine Lagarde on Sovereign Debt, Growth and Social Instability

Posted on July 26, 2011 by iMFdirect

by iMFdirect

The IMF chief gave a speech in New York City today that sets out how the IMF can help countries tackle this troika of challenges to the global economy.

 Watch the speech

 

Filed under: Advanced Economies, Economic Crisis, Employment, Europe, Fiscal policy, growth, IMF, Inequality, International Monetary Fund, Public debt | Tagged: , , , , , , , , , , , , , , , | 1 Comment »

Between a Rock and a Hard Place: U.S. Fiscal Policy

Posted on July 25, 2011 by iMFdirect

By Rodrigo Valdés

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

The United States faces two pressing challenges to fiscal policy: raise the debt ceiling, and begin the arduous process of reducing deficits and debt.

And, right now, this leaves U.S. fiscal policy between a rock and a hard place. How much savings should be found and in what form are crucial questions. So is when to put those savings in effect. (more…)

Filed under: Advanced Economies, Economic Crisis, Employment, Fiscal policy, growth, IMF, International Monetary Fund, Public debt | Tagged: , , , , , , , , , , , | 5 Comments »

Euro Muscles in Brussels: Christine Lagarde on Greece

Posted on July 22, 2011 by iMFdirect

by iMFdirect

The head of the IMF Christine Lagarde was clear during her press conference in Brussels yesterday—European leaders’ deal to help Greece and the euro area is a very constructive and comprehensive package of measures to resolve debt problems.

“What to me is critical—really a game-changing decision—is the leaders’ commitment and determination to provide support to countries until they have regained market access, provided that they successfully implement their programs.”

Watch the press conference:

The 17 heads of state of the eurozone have agreed to provide €109 billion in fresh financing for Greece. Together with voluntary contributions from the private sector and continued support from the IMF, this will close the financing gap in Greece’s budget and give the country the breathing room it needs to restore growth and competitiveness.

Greece has not yet requested a new program from the IMF, but Lagarde said it was the global lender’s intention to be an active participant in helping Greece restore growth, debt sustainability and return to financial markets.

The European leaders also agreed to make the terms of the European Financial Stability Facility more flexible, a measure called for by the IMF in its recent assessment of the euro area.

“This flexibility is a key element, in the view of the IMF,” said Lagarde.

Filed under: Advanced Economies, Economic Crisis, Europe, IMF, International Monetary Fund | Tagged: , , , , , , , , , , , , , | 2 Comments »

Postcard from São Paulo: the Latest Global Fiscal News–and Some of It’s Actually Good

Posted on June 21, 2011 by iMFdirect

By Carlo Cottarelli

(Versions in
عربي,  中文, Español, Français, Português, Русский)

In São Paulo, Brazil last Friday we launched our latest assessment of the state of government finances, debts, and deficits.  While many countries are slogging through a tough fiscal time, there is some good news, including in the United States where the deficit will be lower this year than previously expected.  I will also give you an assessment of how the new information affects our sense of what needs to be done in the future.

Let me start by talking about the advanced economies where, as is well known, the fiscal accounts are generally weaker, reflecting large increases in deficits and debt ratios since the start of the crisis in 2008.  (more…)

Filed under: Advanced Economies, Asia, Economic Crisis, Emerging Markets, Employment, Europe, Fiscal policy, growth, IMF, Latin America, Low-income countries, Public debt | Tagged: , , , , , , , | 1 Comment »

Tough Political Decisions Needed to Fix the Financial System

Posted on June 20, 2011 by iMFdirect

   By José Viñals

(Versions in عربي,  中文, Español, Français, Русский)

It was fitting that I should present our latest assessment of global financial stability in Sao Paulo, the financial center of one of the leading emerging economies. In common with many of its peers in Latin America, Brazil is recovering strongly from the crisis. But new financial stability challenges are emerging in this, and other fast-growing regions.

Let me start with three key messages:

  •  First, financial risks have increased since April.
  • Second, as a result, policymakers in both advanced and emerging economies need to step up their efforts to preserve financial stability and safeguard the recovery.
  • And third, we have entered into a new phase of the crisis – a political phase- when tough political decisions will need to be made, because the window for substantial policy action is closing. Time is of the essence.  (more…)

Filed under: Advanced Economies, Emerging Markets, Europe, Financial Crisis, Financial regulation, IMF | Tagged: , , , , , , , , , , , , , , , , | 5 Comments »

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