Preventing The Next Catastrophe: Where Do We Stand?

Posted on May 3, 2013 by iMFdirect

David RomerGuest post by David Romer
University of California, Berkeley, and co-host of Rethinking Macro II: First Steps and Early Lessons

(Versions in 中文, 日本語, and Русский)

As I listened to the presentations and discussions, I found myself thinking about the conference from two perspectives. One is intellectual: Are we asking provocative questions? Are interesting ideas being proposed? Are we talking about important issues? By that standard, the conference was very successful: the discussion was extremely stimulating, and I learned a great deal.

The second perspective is practical: Where do we stand in terms of averting another financial and macroeconomic disaster? By that standard, unfortunately, I fear we are not doing nearly as well. As I will describe, my reading of the evidence is that the events of the past few years are not an aberration, but just the most extreme manifestation of a broader pattern. And the relatively modest changes of the type discussed at the conference, and that in some cases policymakers are putting into place, are helpful but unlikely to be enough to prevent future financial shocks from inflicting large economic harms.

Thus, I believe we should be asking whether there are deeper reforms that might have a large effect on the size of the shocks emanating from the financial sector, or on the ability of the economy to withstand those shocks. But there has been relatively little serious consideration of ideas for such reforms, not just at this conference but in the broader academic and policy communities.

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Filed under: Advanced Economies, Economic Crisis, Economic research, Emerging Markets, Europe, Finance, Financial Crisis, Financial regulation, Fiscal policy, growth, IMF, International Monetary Fund, Latin America, Public debt | Tagged: , , , , , , , , , , , , , , , , , , , | 5 Comments »

IMF’s Christine Lagarde on the U.S. Fiscal Cliff

Posted on December 11, 2012 by iMFdirect

by iMFdirect

The head of the IMF Christine Lagarde has weighed in on the ongoing U.S. fiscal cliff debate. Three weeks before a series of automatic tax increases and spending cuts are due to kick in if lawmakers don’t reach a new deal, Lagarde said she favors a comprehensive fix, rather than a quick one.

“My view is that the best way forward is to have a balanced approached that takes into account both increasing revenues and cutting spending as well.”

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Filed under: Advanced Economies, Economic Crisis, Employment, Fiscal policy, growth, IMF, International Monetary Fund | Tagged: , , , , , , , , , , , , , | 7 Comments »

Building on Latin America’s Success

Posted on December 6, 2012 by iMFdirect

Christine Lagarde

By Christine Lagarde

(Version in Español)

Next week, I will travel to Latin America—my second visit to the region since November 2011. I return with increased optimism, as much of Latin America continues its impressive transformation that started a decade ago.

The region remains resilient to the recent bouts in global volatility, and many countries continue to expand at a healthy pace. An increasing number of people are escaping the perils of poverty to join a growing and increasingly vibrant middle class.

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Filed under: Economic Crisis, Emerging Markets, Español, Fiscal policy, growth, IMF, Inequality, International Monetary Fund, Latin America, Public debt | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 5 Comments »

Debt in a Time of Protests

Posted on October 16, 2012 by iMFdirect

by Nemat Shafik

As the world economy continues to struggle, people are taking to the streets by the thousands to protest painful cuts in public spending designed to reduce government debt and deficits. This fiscal fury is understandable.

People want to regain the confidence they once had about the future when the economy was booming and more of us had jobs.

But after a protracted economic crisis, this will take planning, fair burden-sharing, and time itself.

If history is any guide, there is no silver bullet to debt reduction. Experience shows that it takes time to reduce government debt and deficits. Sustained efforts over many years will ultimately lead to success.

Most countries have made significant headway in rolling back fiscal deficits. By the end of next year in more than half of the world’s advanced economies, and about the same share of emerging markets, we expect deficits —adjusted for the economic cycle—to be at the same level or lower than before the global economic crisis hit in 2008.

But with a sluggish recovery, efforts at controlling debt stocks are taking longer to yield results, particularly in advanced economies. Gross public debt is nearing 80 percent of GDP on average for advanced economies—over 100 percent in several of them—and we do not expect it to stabilize before 2014-15.

So what can governments do to ease the pain and pave the way for successful debt reduction?

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Filed under: Advanced Economies, Annual Meetings, Asia, Economic Crisis, Emerging Markets, Employment, Europe, Finance, Fiscal policy, growth, IMF, Inequality, International Monetary Fund, Politics, Public debt, recession | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , | 9 Comments »

Taking Stock: Public Finances Now Stronger in Many Countries

Posted on October 9, 2012 by iMFdirect

By Carlo Cottarelli

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

The slow global recovery is making fiscal adjustment more difficult around the world, but this doesn’t mean that little has been accomplished.

In fact, significant progress in many countries has been made during the past two years in strengthening their fiscal accounts after the 2008–09 deterioration.  The IMF’s latest Fiscal Monitor takes stock of this progress.

Deficits are lower, and in many cases debt is too

Let me first say something about advanced economies, which is where the most urgent fiscal problems exist.

Most advanced economies have made good progress lowering their fiscal deficits (the imbalance between spending and revenues). Deficits, adjusted for the economic cycle, fell by about ¾ of a percentage point of GDP in 2011 and 2012, and are projected to do so by about 1 percentage point of GDP in 2013.

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Filed under: Advanced Economies, Africa, Annual Meetings, Asia, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Employment, Europe, Finance, Fiscal policy, Global Governance, Globalization, growth, IMF, Inequality, International Monetary Fund, Investment, Latin America, Low-income countries, Middle East, Multilateral Cooperation, Politics, Public debt | Tagged: , , , , , , , , , , , | 3 Comments »

The Long-term Price of Financial Reform

Posted on September 11, 2012 by iMFdirect

by André Oliveira Santos and Douglas J. Elliott

In response to the global crisis, policymakers around the world are instituting the broadest reform of financial regulation since the Great Depression.

Some in the financial industry claim the long-run economic costs of these global reforms outweigh the benefits. But our new research strongly suggests the opposite—the reforms are well worth the money.

Granted, just as adding fenders, safety belts, airbags, and crash avoidance features can make cars slower, we know that additional safety measures can slow down the economy in years when there is no crisis. The payoff comes from averting or minimizing a disaster.

Five years after the onset of the current crisis, we sadly know all too well the cost in terms of economic growth, so the potential gains in avoiding future crises are very large.

Our study finds that the likely long-term increase in credit costs for borrowers is about one quarter of a percentage point in the United States and lower elsewhere. This is roughly the size of one small move by the Federal Reserve or other central banks. A move of that size rarely has much effect on a national economy, suggesting relatively small economic costs from these reforms.

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Filed under: Advanced Economies, Economic Crisis, Financial Crisis, Financial regulation, growth, IMF, International Monetary Fund | Tagged: , , , , , , , , , , , , , , , , , , , , | 8 Comments »

U.S. Fiscal Policy: Avoiding Self-Inflicted Wounds

Posted on August 8, 2012 by iMFdirect

by Gian Maria Milesi-Ferretti

(Version in Español)

The United States and much of the world economy are still recovering from the devastating global recession that began in 2008. Sometimes crises happen that we cannot foresee or avoid.

But for the U.S. economy, serious risks could come at the end of this year from two potential self-inflicted wounds: the so-called “fiscal cliff” and the debt ceiling.

Let’s start with the fiscal cliff. In simple terms: if U.S. policymakers do nothing, a number of temporary tax cuts will expire and significant across-the-board spending reductions will kick in on January 1, 2013. The combined effect of these measures could result in a huge fiscal contraction, which would derail the economic recovery.

Why is this happening?

The payroll tax break, the Bush tax cuts (enacted in 2001 and 2003, and extended for two years at the end of 2010), as well as exemptions on the Alternative Minimum Tax are set to expire on January 1, 2013.

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

Tackling The Jobs Crisis: What’s To Be Done?

Posted on July 23, 2012 by iMFdirect

by Gerd Schwartz and Ruud de Mooij

Faced with a jobs crisis, policymakers the world over are digging deep into their policy toolkits to generate more employment. A recent study by the IMF’s Fiscal Affairs Department argues that reforms of tax and expenditure policies offer great promise in helping countries confront the jobs crisis, including in the short term.

The study argues that improving employment outcomes, over and above what could be achieved through policies aimed at supporting the demand for goods and services by consumers and investors, requires actively supporting labor demand, strengthening incentives (or reducing disincentives) to work, and expanding training and job assistance, while preserving equity objectives.

The labor market challenge

The economic and social consequences of job losses since the onset of the global crisis have been enormous. However, as bad as the crisis has been for jobs, unemployment was already elevated before the crisis in many advanced and emerging economies. This would suggest that labor market challenges will not go away as the global economy recovers, and that policy measures are needed both to address structural employment issues and to improve the employment outlook in the short term.

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Filed under: Advanced Economies, Economic Crisis, Employment, Europe, Fiscal policy, growth, IMF, International Monetary Fund | Tagged: , , , , , , , , , , , , | 3 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 »

It’s the Years, Not The Mileage: IMF Analysis of Pension Reforms in Advanced Economies

Posted on February 1, 2012 by iMFdirect

By Benedict Clements

Indiana Jones, the fictional character of the namesake movies, once said “It’s not the years, it’s the mileage.” This quote comes to mind as many advanced economies wrestle with pension reform and the best way to ensure both retirees and governments don’t go broke.

Our view, explained in a new study, is that the years do matter.

Our analysis shows that gradually raising retirement ages could help countries contain increases in pension spending and boost economic growth. Further cuts in pension benefits, or raising payroll contributions, are also options countries could consider, although many countries will find many advantages in raising retirement ages.

The challenge is to reform pension systems without hurting their ability to provide income security for the elderly and prevent old-age poverty. (more…)

Filed under: Advanced Economies, Economic Crisis, Employment, Fiscal policy, IMF, International Monetary Fund, Public debt | Tagged: , , , , , , , , , , , , , , , , | 3 Comments »

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