Chart of the WeekGlobal Financial Safety Net—A Lifeline for an Uncertain World
When crises hit, such as a global health pandemic, countries have a number of financial resources—both internal and external—to draw on.
Region on the Rise
August 30,2018
(photo: Michael Waraksa)
SREYNITH HAK, 25, MOVED to Phnom Penh eight years ago to pursue a bachelor’s degree in media management. […]
The Economic Scars of Crises and Recessions
By Valerie Cerra and Sweta C. Saxena
March 21, 2018
Version in 日本語 (Japanese), Português (Portuguese)
New study finds that all types of recessions lead to permanent losses in output and welfare (photo: Peshkov/iStock by GettyImages).
Economic recessions are typically described as short-term periods of negative economic growth. According to the traditional business cycle view, output moves up and down around its long-term upward trend and after a recession, it recovers to its pre-recession trend. Our new study casts doubt on this traditional view and shows that all types of recessions—including those arising from external shocks and small domestic macroeconomic policy mistakes—lead to permanent losses in output and welfare. […]
Better thy Neighbor? Cross-border Effects of Fiscal Actions
By Patrick Blagrave, Giang Ho, Ksenia Koloskova, and Esteban Vesperoni
September 27, 2017
Versions in عربي (Arabic), 中文 (Chinese), Español (Spanish), Français (French), 日本語 (Japanese), Русский (Russian)
Domestic fiscal policies, such as public spending, can generate meaningful spillovers to neighboring countries (Photo: Ymgerman/iStock by GettyImages)
In the wake of the global financial crisis, fiscal stimulus was advocated widely to help mitigate the recession. The thinking at the time was that fiscal stimulus would be particularly effective because its impact on activity tends to be larger when demand falls short of supply and central banks keep interest rates low. This, in turn, would lead to larger positive cross-border effects—or spillovers—on other countries.
Five Lessons from a Review of Recent Crisis Programs
By Vivek Arora
Version in 中文 (Chinese), Español (Spanish)
IMF lending increased to unprecedented levels in the aftermath of the global financial crisis. As difficulties emerged, we extended financial support to countries across the world—in the euro area, Africa, Asia, the Middle East, and emerging economies in Europe.
The IMF tried to draw lessons in real time as the crisis evolved in order to adapt our operations. We reviewed individual programs and, from time to time, paused and took stock of our experience across countries.
Financial Crises: Taking Stock
Those who cannot remember the past are condemned to repeat it.
The world has been littered with many financial crises over the centuries, yet many a time these lessons are ignored, and crises recur. Indeed, there are many clear lessons on the causes of past crises, the severity of their consequences, and how future crises can be prevented or better managed when they occur.
This applies to the 2007-09 global financial crisis that brought colossal disruptions in asset and credit markets, massive erosions of wealth, and unprecedented numbers of bankruptcies. Six years after the crisis began, its lingering effects are still visible in advanced and emerging markets alike. It is, therefore, a good time to take stock.
To Owe or Be Owned—Depends on How You Tax It
Corporate tax codes in the United States, most of Europe, Asia and elsewhere in the world, create a significant bias toward debt finance over equity. The crux of the issue is that interest paid on borrowing can be deducted from the corporate tax bill, while returns paid on equity—dividends and capital gains—cannot.
This debt distortion is not new. What is new, however, is that we have come to realize that excessive debt (or leverage) is much more costly than we had. The global financial crisis was a stark lesson about the risks of excessive leverage ratios in financial institutions.
Designing a better system will ultimately pay off. And now is the time for change. A recent IMF Staff Discussion Note offers two alternatives that reduce or eliminate the more favorable tax treatment of debt.