With the global economic crisis as a backdrop, some of the world’s leading economists will soon join us here in Washington, D.C. for two days of intense, scholarly debate. Not surprisingly, the papers submitted for the IMF’s Jacques Polak Annual Research Conference are colored by the events of the past two years.
In this year of global recession, fiscal policy has been able to play a supportive role in some countries of the Latin America and Caribbean (LAC) region. Even as the downturn caused fiscal revenues to fall, many governments were able to avoid cutting expenditure, and some were able to provide a sizable positive fiscal impulse, actively raising expenditure to provide a boost to domestic demand and GDP.
Although this time the external shocks were very strong in this year of global crisis, the Latin American and Caribbean (LAC) region has performed notably better than in the past, and also better than many other emerging market countries. This improvement can be attributed to the fact that the region faced the crisis equipped with economic policy frameworks that were more solid and credible than in the past, and with smaller financial, external, and fiscal vulnerabilities.
Latin America and the Caribbean During the Global Crisis: Better than the Past, Better than Other Regions
In contrast to what happened in past episodes of world recession, this time the fall in growth of the Latin American and Caribbean (LAC) region has not exceeded that of the world economy. In fact, the performance of the region has been as good as, or better than, many other emerging market economies.
The IMF has just finished its Annual Meetings in Istanbul, the traditional start of the old silk road and the gateway to Central Asia. Strategically located between East Asia and Europe, and South Asia and Russia, Central Asia is rich in resources and faces tremendous opportunities—yet to be made the most of.
By Masood Ahmed
The IMF’s latest regional economic outlook for the Middle East compares the performance of Islamic banks in the countries of the Gulf Cooperation Council (GCC) with conventional ones during the global financial crisis.
Islamic banks were less affected during the initial phase of the crisis, reflecting a stronger first-round impact on conventional banks through mark-to-market valuations on securities in 2008. But, in 2009, data for the first half of the year indicate somewhat larger declines in profitability for Islamic banks, revealing the second-round effect of the crisis on the real economy, especially real estate.
Going forward, Islamic banks overall are better poised to withstand additional stress, according to the IMF analysis.
Islamic banks have grown substantially in recent years, with their assets currently estimated at close to $850 billion. Overall, the risk profile of Islamic banks is similar to conventional banks in that the risk profile of Shariah-compliant contracts is largely similar to that in conventional contracts, and credit risk is the main risk for both types of banks.
Unlike conventional banks, however, Islamic banks are not permitted to have any direct exposure to financial derivatives or conventional financial institutions’ securities—which were hit most during the global crisis.
By Masood Ahmed Middle East oil exporters are squarely facing the worst financial crisis since the Great Depression head on. Despite the sharp drop in oil prices last year, the oil exporters rightly decided to maintain spending by drawing upon reserves amassed during the boom years. High public spending and exceptional anticrisis financial measures have not only cushioned oil exporters’ own economies but are also contributing to sustaining global demand. They have also helped the interlinked economies of neighboring oil importers. Facing this boom-bust cycle Between 2004 and 2008, Middle East oil-exporting countries grew by about 6 percent a year and accumulated $1.3 trillion in foreign assets. With the striking drop in oil prices—from a peak of $147 per barrel in mid-2008 to around $30 per barrel at the beginning of 2009—the countries of the Gulf Cooperation Council (GCC) have been hardest hit. Iraq and Saudi Arabia are expected to see the most pronounced drops in oil GDP growth—8 and 15 percentage points, respectively—this year.
During the precrisis boom years, banks had lent substantial amounts for real estate and equity purchases and made large profits. With the onset of the crisis, asset values fell sharply and the global deleveraging led to a severe tightening of credit conditions, especially in the GCC. Banks’ balance sheets have come under pressure credit growth has slowed sharply—up to 40 percentage points in Qatar.
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. (more…)
The bags are packed, the shuttle buses are waiting, and the conference center here in Istanbul is slowly emptying. More than 15,000 people have come and gone. Now is the time to take stock and figure out how to move forward on the big decisions coming out of Istanbul.
The IMF’s Managing Director, Dominique Strauss-Kahn, called them exactly that in his final speech at the plenary on October 6: "The Istanbul Decisions." So what are they? The IMF’s policy steering committee, the International Monetary and Financial Committee (IMFC), asked the IMF to move forward in four areas:
- Updating the IMF’s mandate in light of the big changes in the global economy witnessed during the past decade
- Reviewing the IMF’s financing role, possibly beefing up its role as a lender of last resort
- Rethinking multilateral surveillance, with the idea of introducing peer review of economic policies
- Giving more voice and representation to dynamic emerging market and developing countries
These Istanbul Decisions, Strauss-Kahn said, will be a focal point for the IMF’s work in the coming year.