For a decade or more, we at the IMF have grappled with the idea that very large capital flows into successful emerging market countries were almost inevitable and would prove extremely difficult to manage. Since these topics were first broached at a theoretical level, we have witnessed developments in a number of emerging economies in Europe that reinforce the concerns and underscore the implications for policy. Two lessons may be learned from the experience. First, the choice between fixed and flexible exchange rates is important, but perhaps not for reasons that are usually put forward. Second, monetary policy—and policy to stabilize the economy more generally—needs substantial reinforcement.
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…)