Emerging Europe—Lessons from the Boom-Bust Cycle


By Ajai Chopra

Almost unnoticed, amid the difficulties in western Europe, the other half of the continent has begun to recover from the deepest slump in its post-transition period. The emerging economies in central and eastern Europe will grow by 3¾ percent this year and next—a relief after the 6 percent decline in 2009.

Why was the crisis so severe—and how do we avoid a repeat? We consider just that question in our fall 2010 Regional Economic Outlook: Europe. While the crisis was triggered by external shocks, it is clear that domestic imbalances and policies also played a key role. Continue reading

Emerging Market Countries and the Crisis: How Have They Coped?


By Reza Moghadam

How time flies: only a year ago, we were in the throes of the biggest global crisis since the Great Depression. As the extent of the damage to institutions in financial centers became evident—starkly highlighted by the Lehman bankruptcy—and the crisis started to affect emerging market economies (EMs), a timely and coordinated countercyclical response was launched.

This helped stave off the worst of the crisis. The IMF supported the global response by increasing its resources and overhauling its lending framework to help those facing financing pressures. A recovery is now taking hold in many parts of the world.

Six months ago, we took a preliminary look at the design and performance of IMF-supported programs in emerging markets. In a forthcoming paper, we are casting a wider net—examining factors that determined the extent to which a broader group of EMs were affected by the crisis, the policy measures they have taken, factors shaping the ongoing recovery, and sustainability considerations over the medium term.

Continue reading

Getting Ready to Join the Eurozone Club


By Marek Belka

The conventional wisdom is that, when the seas get rough, it’s better to be in a big boat. But being in the European Monetary Union (EMU) hasn’t exactly been smooth sailing for all its members. On the contrary, as I argued in my blog posted January 21, the crisis has highlighted that sound policy frameworks are more important than ever.

Let’s look at this experience from the perspective of the European Union’s new member states in the East, who are still outside the EMU but are set to join sooner or later. Should they accelerate or delay their applications? And what are the conditions for success, once they have gained entry?

Fixers and floaters

The answer to the first question depends in large part on the currency regime. For small and very open countries with fixed exchange rates—the three Baltic republics and Bulgaria—there is really no alternative to seeking EMU membership as fast as possible. They have been particularly hard hit by the crisis, partly because of their currency regime; in fact, Latvia had to rely on massive external support to pull through the crisis. But they all have managed to hold on to their long-standing currency pegs against the euro. Once in EMU, their economic policy frameworks would remain virtually unchanged. At the same time, euro adoption would remove residual currency and liquidity risks, which during the recent crisis have driven up borrowing costs, dented investor and consumer confidence, and contributed to their sharp output contractions. So for the peggers, joining the club is all gain and no (additional) pain.

Continue reading

Life after the Crisis: A Perspective from Emerging Europe and Central Asia


By Caroline Atkinson

The Program of Seminars takes place outside the formal framework of the Annual Meetings. But to many people, they were the main reason for making the trip to Istanbul.

The program’s October 4 offering included a first-hand perspective of how three emerging market countries—Turkey, Slovakia, and Ukraine—have weathered the crisis. We also got a glimpse of the methodology the IMF is using to become better at sounding the alarm if it sees new vulnerabilities building up in the world economy.

More Europe, not less

Ukraine was running a high fiscal deficit at the outset of the crisis, which made it vulnerable when the global economy came unstuck, Vice Prime Minister Hryhoriy Nemyria said. The lack of progress on structural reforms had reinforced the external shock, and had brought home just how dependent the country was on just one sector, steel, which accounts for 40 percent of all export earnings. Continue reading
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