Escaping the Resource Curse


By Mauricio Villafuerte

(Version in عربي)

It reads like a script for a Hollywood movie—a poor protagonist happens upon an opportunity that has the potential of bestowing riches, but an evil curse threatens to spoil it all.

Unfortunately, it’s not a movie script. The scenario plays out repeatedly in many parts of the real world all the time. For many developing countries, managing natural resources and the increased revenues they bring is a tough haul.

Cue the extensive literature on the “resource curse” and the lack of consensus on how to run fiscal policy and manage budgets in resource-rich countries.

In some respects, this is like the “all-too-similar” sequel, because the tribulations associated with how to best manage natural resources, such as oil, minerals, and gas, seem to endure so that resource-rich developing countries are never quite free of them.

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Global Safety Nets: Crisis Prevention in an Age of Uncertainty


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

Learning from the Crisis: Future IMF Lending Role


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.

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Emerging Europe: Managing Large Capital Flows


By Marek Belka

Conventional wisdom has been that capital flows are a blessing to emerging economies, bringing needed funds to countries where investments are most productive. But if history is any guide, capital flows have proven to be highly volatile—surging in good times and collapsing in gloomy ones.

The global financial crisis has renewed the debate over the desirability of capital flows to emerging economies. Adding fuel to this debate is the fact that two of the world’s largest emerging economies—China and India—have experienced strong growth and relatively limited fallout from the crisis, all the while maintaining hefty restrictions on the flow of foreign capital.

What can be done to ensure that emerging economies still benefit from productive foreign capital, while reducing the risks associated with highly volatile flows? Can we throw out the bathwater, but keep the baby?

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