Latvia Beat the Odds—But the Battle Is Far From Over


By Mark Griffiths

Latvia, a nation of about 2.2 million people bordering the Baltic Sea, went through the most extreme boom-bust cycle of the emerging market countries of Europe, and was among the first to ask for financial assistance from the international community.

Back in the dark days of December 2008, many doubted that Latvia—which joined the European Union in 2004 together with its Baltic neighbors Estonia and Lithuania—would be able to stick to the tough economic program it had just agreed with the IMF and the European Union. But it did. Against the odds, it successfully completed its IMF-supported program in December 2011.

Over the past three years, I have worked closely with the Latvian authorities in my capacity as IMF mission chief. Worked with them—but learnt from them too.

A successful comeback

Today, Latvia is one of the fastest growing economies in the European Union. Real GDP grew by 5½ percent in 2011, and is now projected to expand by 3½ percent in 2012, a number that possibly will come out even higher.

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The Logic and Fairness of Greece’s Program


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) dealthe 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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Lagarde: “World Economy Not Out of Danger Zone”


Although a derailing of the global recovery has been avoided, the world economy is still not out of the danger zone, IMF Managing Director Christine Lagarde said after the conclusion of the Group of 20 Finance Ministers and Central Bank Governors meeting in Mexico City.

“Over the last two days, we discussed the challenges facing the world economy and continued our deliberations over next steps and actions,” she said in a February 26 press statement.

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IMF Welcomes New Eurozone Understanding on Greece


The IMF has welcomed the agreement by Eurozone finance minister on a new support package for Greece.

After talks that went on until the early hours of the morning in Brussels, IMF Managing Director Christine Lagarde said on February 21 she welcomed the “proposed understandings reached today by the Euro Group to support Greece.”

“The combination of ambitious and broad policy efforts by Greece , and substantial and long-term financial contributions by the official and private sectors, will create the space needed to secure improvements in debt sustainability and competitiveness,” she said in a statement. “These actions, together with a significant strengthening of the financial sector, will pave the way for a gradual resumption of economic growth.”

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Lagarde in Davos: How to Avoid an Economic Deep Freeze


By iMFdirect

Amid the heaviest snowfall in Davos for decades, IMF chief Christine Lagarde has been making her case for urgent action to resolve the eurozone crisis, which is at the center of current global economic concerns. The Fund recently sharply revised downward its forecast for global economic growth and in a speech in Berlin Lagarde mapped a way forward.

Policy priorities

Lagarde has taken her messages to the Alpine resort in Switzerland, where global leaders are gathered for the 42nd Annual Meeting of the World Economic Forum. At the top of the agenda is the need to find and implement the policy solutions to avoid a downward economic spiral—or what Lagarde as has called a “1930s moment.” She set out some of the policy priorities in a video interview and stressed the need for policy action to be “coordinated, cooperative and comprehensive”. The main goal is to get growth going again “because that’s most needed. There is too much unemployment around the world,” Lagarde said. Continue reading

Toughing It Out: How the Baltics Defied Predictions


By Christoph Rosenberg

Two years ago, the eyes of the financial world were not on Europe’s Western periphery but on its North-Eastern corner. The three Baltic states—Estonia, Latvia and Lithuania—were among the first victims of the global financial crisis.

After a spectacular boom, with several years of Chinese-style growth rates, these small and open economies faced an equally spectacular bust. Credit―and with it property prices, consumption, and investment―collapsed. Exports were hit by the global depression. And the financial sector came under severe stress. Indeed, Latvia was forced to nationalize its largest domestic bank and had to ask for a bailout from the European Union and the IMF.

The conventional wisdom at the time was that these three countries would have to give up their long-standing currency pegs against the euro and devalue. After all, this is what countries facing a trade and financial shock most often choose to do.

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Global Economy: Continuing Recovery But Clouds on the Horizon


By Olivier J. Blanchard 

The macroeconomic forecasts in the IMF’s latest  World Economic Outlook update reflect two opposing forces. Looking back, say over the first half of the year, numbers about economic activity have come in strong, indeed somewhat stronger than we had forecast. These would give reasons to be more optimistic than we were earlier.

Looking forward, however, strong clouds have appeared on the horizon.  They present real dangers and serious policy challenges, and give reasons to be less optimistic than we were earlier.

Assessing the balance of these two forces is a difficult exercise. Our forecast for world growth in 2010 is about 4½ %, a bit higher than our April forecast of around 4¼ %. This revision largely reflects the stronger activity during the first half of the year. Our forecast for 2011 is broadly unchanged, at about 4¼ %.

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