When corporations have too much debt and need to restructure it, creditors often end up exchanging bonds or loans for stocks. They trade the guaranteed payout of a fixed-income investment for an equity position whose return depends on the company’s future results. […]
October 9, 2018
The latest World Economic Outlook report projects that global growth will remain steady over 2018–19 at last year’s rate of 3.7 percent. This growth exceeds that achieved in any of the years between 2012 and 2016. It occurs as many economies have reached or are nearing full employment and as earlier deflationary fears have dissipated. Thus, policymakers still have an excellent opportunity to build resilience and implement growth-enhancing reforms.
Debt is central to the functioning of a modern economy. Firms can use it to finance investments in future productivity. Households can use it to finance lumpy purchases, such as big consumer durables, or a home. Sometimes, however, firms’ investments do not pan out or a household’s main earner loses his or her job. Countries’ legal systems generally recognize that in these cases, debtors and creditors alike—along with society at large—may be better off if there is an orderly procedure for reorganizing debts. […]
by Jeff Hayden
(Version in عربي)
One of my favorite car trips in the United States heads east out of Los Angeles and runs through the windswept San Gorgonio Pass, gateway to the Mojave and Sonoran deserts. I’m a fan of the drive on Interstate 10 not only because it affords access to a dramatic desert landscape but also because the funnel-like pass at San Gorgonio prompts thoughts about the planet’s energy future.
The pass—one of the windiest places in the United States—is home to the San Gorgonio Pass Wind Farm, an array of more than 4,000 turbines that harness wind to produce “clean”—non-fossil-fuel-based—energy. It’s a stunning sight, and I always wonder, is this what a sustainable energy future looks like? Can thousands of turbines sprawled over the landscape be part of society’s answer to a most pressing question: how to balance the massive need for energy to power economic growth and development while addressing our urgent need to sharply reduce carbon emissions, a chief contributor to climate change.
The question fuels intense debate—one that has become increasingly polarized and that frequently puts growth and sustainable energy in opposition. But are the two—growth and a more […]
The debate continues on why businesses aren’t investing more in machinery, equipment and plants. In advanced economies, business investment—the largest component of private investment—has contracted much more since the global financial crisis than after previous recession. And there are worrying signs that this has eroded long-term economic growth.
Getting the diagnosis right is critical for devising policies to encourage firms to invest more. If low investment is merely a symptom of a weak economic environment, with firms responding to weak sales, then calls for expanding overall economic activity could be justified. If, on the other hand, special impediments are mainly to blame, such as policy uncertainty or financial sector weaknesses, as some suggest, then these must be removed before investment can rise.
By Sean Hagan
(version in Español)
To restructure or not to restructure? That is a question few governments would like to face. Yet, if a country does find itself with an unsustainable debt burden, one way or another, it will have to be restructured. And if that time comes, it is better for the debtor, creditors, and the entire financial system that the restructuring be carried out in a prompt, predictable, and orderly manner.
The global financial crisis ushered in a new wave of sovereign debt crises that has reinvigorated discussions over the current framework for sovereign debt restructuring. The experience with Greece’s debt restructuring in 2012 and the ongoing litigation involving Argentina, in particular, provide a salutary reminder that vulnerabilities remain.
The global crisis—which challenged paradigms about the functioning of financial markets and had significant consequences in other markets—and the sluggish recovery since 2009, are a reminder of the importance of understanding interconnections and risks in the global economy. The increasing trend in global trade, and even more significant, in cross-border financial activities, suggests that spillovers can take many different forms.
The understanding of transmission channels of spillovers has become essential, not only from an academic perspective, but also policymaking. The challenges faced by policy coordination after the initial response to the crisis in 2009—illustrated by the debate on the impact of unconventional monetary policy in emerging economies—raise wide ranging issues on fiscal, monetary, and financial policies.