Posted on February 10, 2011 by iMFdirect
By Dominique Strauss-Kahn
(Version in Español Français 日本語)
The international monetary system (IMS) is a topic that encompasses a wide range of issues—reserve currencies, exchange rates, capital flows, and the global financial safety net, to name a few. It is one of the key issues on the G-20’s work agenda for 2011, and a topic that is eliciting lively discussion—for instance the recent, insightful report of the group chaired by Michel Camdessus, called the “Palais-Royal Initiative”.
Some are of the view that the current system works well enough. While not perfect, they point to its resilience during the crisis, citing the role of the U.S. dollar served as a safe haven asset. And now that the global recovery is underway, they see little reason to worry about the IMS. In other words, “if it ain’t broke, don’t fix it”.
I take a less sanguine view. Continue reading
Filed under: Advanced Economies, Economic Crisis, Emerging Markets, G-20, Global Governance, Globalization, International Monetary Fund, Low-income countries, Multilateral Cooperation | Tagged: capital controls, capital flows, early warning exercise, exchange rates, Flexible Credit Line, FSAP, G-20 mutual assessment process, global financial safety net, global imbalances, international monetary cooperation, international monetary system, macrofinancial linkages, policy coordination, precautionary credit line, regional financing mechanisms, reserve currencies, Special Drawing Rights, surveillance | 17 Comments »
Posted on December 13, 2010 by iMFdirect
By Nicolás Eyzaguirre
(Version in Español)
Ahead of my arrival today in Mexico with the IMFs Managing Director Dominique Strauss-Kahn, I can’t help but reflect on how things have changed for the better in Mexico over the past decade in the sphere of economic policy. At the same time, I am struck by the importance of the task ahead for Mexico: grasping the opportunities offered by the changing global scene.
Mexico’s economic institutions have been very substantially strengthened. The balanced budget fiscal rule has supported fiscal discipline and a reduction in public debt. Moreover the structure of this debt has been radically improved—Mexico has created a deep domestic bond market and extended maturities. The introduction of inflation targeting has cemented the credibility of Banxico and fostered a reduction in inflation—that most unequal of taxes on the poorest—to low single digit levels. Meanwhile, the deep commitment to the flexible exchange regime has created an important safety valve for the economy. Continue reading
Filed under: Economic Crisis, Economic outlook, Emerging Markets, Financial Crisis, Fiscal policy, International Monetary Fund, Latin America, Public debt | Tagged: competition, FCL, Flexible Credit Line, labor markets, Mexico, public services, Strauss-Kahn, transformation | Leave a comment »
Posted on September 9, 2010 by iMFdirect
By Reza Moghadam
Though the recent global crisis started in the advanced economies, most emerging markets came under pressure; it seemed that no country, especially those most interconnected, was immune from tremendous economic strain. Now, as the crisis abates, there is an emerging consensus that something needs to be done. A better safety net is needed to enable countries with good policies to insure against bad outcomes, especially when they are innocent bystanders caught up in a financial turmoil.
Last week, the IMF took another step toward meeting this need by enhancing its country insurance facilities. Continue reading
Filed under: Economic Crisis, Economic research, Emerging Markets, Financial Crisis, G-20, IMF, International Monetary Fund | Tagged: capital flows, contagion, country insurance facilities, emerging market spreads, Flexible Credit Line, global financial safety net, precautionary credit line, regional financial safety nets, reserves, surveillance, systemic crisis, systemic shocks | 5 Comments »
Posted on April 22, 2010 by iMFdirect
By Reza Moghadam
Let’s rewind the tape to October 2008. Barely a couple of weeks have passed since Lehman filed for bankruptcy, and emerging markets are selling off like crazy. The vaunted “decoupling” theories—hailed as visionary only a few months before—lie in tatters as investors flee in droves. With its mandate to foster global economic stability, the IMF comes under the spotlight: many observers question whether the institution has what it takes to stop contagion and help emerging markets cope with global deleveraging.
With strong support from its membership, the IMF did not hesitate to come to the rescue. It provided large and upfront financial assistance to help countries weather the crisis. It overhauled its lending toolkit, notably by establishing the Flexible Credit Line (an instrument allowing countries with very strong policies to tap IMF resources unconditionally). And, importantly, its membership, building on the political momentum of the G-20, committed to tripling its resource base. These actions helped put out the fire, setting emerging market spreads on a downward trajectory.
Filed under: Economic Crisis, Economic research, Financial Crisis, Financial regulation, International Monetary Fund | Tagged: capital flows, central bank swap lines, contagion, countercyclical lending, Decoupling, deleveraging, emerging market spreads, Flexible Credit Line, moral hazard, reserves, systemic shocks | 1 Comment »
Posted on February 1, 2010 by iMFdirect
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.
Filed under: Economic Crisis, Europe, Fiscal Stimulus | Tagged: currency pegs, currency regime, euro, European Monetary Union, fixed exchange rates, Flexible Credit Line, labor mobility | 3 Comments »
Posted on January 11, 2010 by iMFdirect
By John Lipsky
The economic and financial crisis of the past two years has placed in high relief profound changes in global economic and financial realities. Most notably, the crisis has underscored the shift in relative economic weight in favor of dynamic emerging market economies. In response, the G-20— a grouping that includes both advanced and large emerging economies—has stepped forward as the premier political venue for addressing economic and financial policy challenges.
These changes are exerting significant influence on the evolution of global governance, and they directly involve the IMF in two concrete ways. First, new advances are taking place in multilateral economic policy cooperation, with Fund participation. Second, realignment of Fund governance has been put on a fast track, with delivery scheduled for January 2011.
Filed under: Advanced Economies, Annual Meetings, Economic Crisis, Emerging Markets, Global Governance, Multilateral Cooperation | Tagged: crisis prevention, economic forecasts, Flexible Credit Line, IMF quota shares, Pittsburgh Summit, sustainable growth | Leave a comment »
Posted on September 23, 2009 by iMFdirect
By Reza Moghadam
Once upon a time, those tracking international reserves focused on simple measures of reserve adequacy—enough to cover, say, 3 months of imports or all of the external debt maturing over the next year. However, the relevance of such yardsticks evaporated as a number of countries accumulated reserves that far surpass such levels, partly in reaction to emerging market financial crises of the 1990s and early part of this decade. Brazil’s reserves now exceed $200 billion, while Russia’s are more than $400 billion—and even these numbers are dwarfed by China’s reserves, which top $2,000 billion.
Reserves are rising, driven by emerging markets and, increasingly, low-income countries
Filed under: Economic Crisis, Emerging Markets, Financial Crisis | Tagged: economic imbalances, Flexible Credit Line, official financing, reserve adequacy, Special Drawing Rights | 2 Comments »
Posted on September 15, 2009 by iMFdirect
By Reza Moghadam
As the financial crisis pulled the rug from under the emerging markets, analysts and policymakers alike began to question the adequacy of Fund resources. This worry was neither new nor surprising. For decades, private international capital flows had grown at a much faster rate than those of the IMF, rendering our institution too small to be able to deal with systemic crises.
As one country after another approached the Fund for financial assistance, it become clear that the international community needed to act decisively. Thus in April, the leaders of the G-20 industrial and emerging market countries, supported by the entire IMF membership, called for a tripling of the IMF’s lending resources from $250 billion to $750 billion. By early September, individual country pledges, including from many non-G20 countries, had reached the promised $500 billion in contingent resources that could be called by the Fund if needed.
Filed under: Economic Crisis, Emerging Markets, Financial Crisis, recession | Tagged: capital flows, conditionality, Flexible Credit Line, IMF lending, IMF resources | 1 Comment »