Fiscal Costs of Hidden Deficits: Beware—When It Rains, It Pours

By Elva Bova, Marta Ruiz-Arranz, Frederik Toscani, and Elif Ture

(Version in Español)

Budgets can be full of surprises. And not always good ones. Often times, debt increases significantly because an unforeseen obligation materializes. These contingent liabilities, as they are known in the economist’s jargon, can have significant economic and fiscal costs. In fact, on many occasions, large and unexpected increases in debt across the world were due to the materialization of contingent liabilities. That is why they are often called hidden deficits.

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Capital Flows to Asia Revisited: Monetary Policy Options

Capital flows emerging Asia should be high on the ‘watch list’ for policymakers in the region. But, perhaps, not in the way we had previously anticipated. Twelve months ago we were keenly attuned to the risks posed by the foreign capital that flooded into Asia from mid-2009 onwards. Now, what we’re seeing is not really all that “exceptional.” With the recent surge, net overall capital flows to emerging have not surpassed the peaks reached in past episodes of large inflows to the region. Of course, that’s not to say it's all blue skies. The nature of inflows is different this time—dominated by portfolio flows—and that poses new challenges and risks for policymakers.

Listening to and Learning from Asia

In Daejeon, Korea earlier this week, a remarkable event took place that enabled the world to hear the voice of Asia and to learn how the region has been able to show such great resilience in the face of the worst global financial crisis since the 1930s. On July 12 and 13, more than 1,000 officials, economists, bankers, analysts, and media assembled for a conference titled Asia 21: Leading the Way Forward, hosted by the Korean government and the IMF. I personally learned a great deal about Asia’s growing stake in the global economy—and the global economy’s growing stake in Asia. As the world strives to leave the crisis behind, the economic center of gravity is shifting increasingly eastwards, and Asia’s role is more vital than ever before.

Debating the IMF with Students

By Caroline Atkinson

In town for the Annual Meetings, Dominique Strauss-Kahn, our Managing Director, paid a visit to Bilgi University in the heart of Istanbul. He spoke to a gathering of students about the role of the IMF in the current crisis, and took some of their questions. 

The Managing Director likened the IMF to an “economic Red Cross” because its goal is to help solve a country’s economic problems while avoiding social unrest and war. He noted that the relationship between peace and economic stability was well understood by the people who founded the IMF in 1944, in the aftermath of the Great Depression and the second world war. 

Continuing with the medical analogy, he pointed out that countries only need IMF resources when they are “sick”—when they face serious balance of payments problems requiring policy adjustment. If you go to the doctor with a liver problem, he mused, the doctor will treat you, yes, but will also insist that you stop drinking. So policy conditions are necessary. Still, the Managing Director admitted, the medicine had sometimes been too bitter in the past. The IMF had developed a “harsh image”—not paying enough attention to local circumstances, political realities, or social consequences. It was seen as more of a policeman than a doctor. 

Strauss-Kahn at Bilgi University: IMF is like an “economic Red Cross” because its goal is to help solve a country’s economic problems while avoiding social unrest and war (photo: Stephen Jaffe/IMF)

Strauss-Kahn at Bilgi University: IMF is like an “economic Red Cross” because its goal is to help solve a country’s economic problems while avoiding social unrest and war (photo: Stephen Jaffe/IMF)

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By | October 1st, 2009|Annual Meetings, Economic Crisis, Low-income countries|0 Comments
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