Capital controls in the 21st century
Barry Eichengreen, Andrew K Rose, 5 June 2014
Since the global financial crisis of 2008–2009, opposition to the use of capital controls has weakened, and some economists have advocated their use as a macroprudential policy instrument. This column shows that capital controls have rarely been used in this way in the past. Rather than moving with short-term macroeconomic variables, capital controls have tended to vary with financial, political, and institutional development. This may be because governments have other macroeconomic policy instruments at their disposal, or because suddenly imposing capital controls would send a bad signal.
Capital controls are back. The IMF (2012) has softened its earlier opposition to their use. Some emerging markets – Brazil, for example – have made renewed use of controls since the global financial crisis of 2008–2009.
Topics: International finance
Tags: capital, capital controls, capital flows, global financial crisis, IMF, Macroprudential policy
The IMF’s preferred creditor status: Questions after the Eurozone crisis
Susan Schadler, 28 April 2014
The IMF has had a preferred creditor status throughout the history of its lending. This implies that borrowing countries are expected to give priority to meeting their obligations to the IMF over other creditors. This column reviews the onset of this preferred status, its purpose, and the way it changed after the recent Eurozone crisis. By lending €30 billion to Greece in 2010, the IMF introduced the option to permanently waive the requirement that a borrowing country is on the path to stability. This option increases the chance of moral hazard and undermines the strong framework for the preferred creditor status.
Throughout the history of IMF lending, the institution has had preferred creditor status – that is, distressed countries borrowing from the IMF are expected to give priority to meeting their obligations to the IMF over those to other creditors.
Topics: Global crisis, Global governance, International finance
Tags: Eurozone crisis, IMF, preferred creditor status
The Ukraine-Russia deal
Charles Wyplosz, 24 December 2013
The Ukraine-Russia deal involves politics as much as economics. This column argues that the economics of the deal will eventually lead to problems for one or both.
As the price to deter a westward move of Ukraine, Russia has made an offer that the Ukrainian president has found impossible to turn down, if he ever contemplated seriously tying his country to the EU. This is generally hailed as a master coup by President Putin and a great relief for President Yanukovych. In fact, this coup is likely to end in tears for both countries.
Topics: International finance
Tags: IMF, Ukraine
Smart governance: solutions for today’s global economy
Nemat Shafik, 14 December 2013
Crises expose weaknesses in rules and institutions, and provide impetus for reform. Macroeconomic policy coordination was strong early in the financial crisis, but momentum slowed. There has been significant progress on financial regulation, yet major challenges remain. International safety nets have been reinforced – including a trebling of IMF resources. This column argues that ensuring the future effectiveness and legitimacy of the IMF, its member countries will need to agree on greater voice and representation for emerging market countries in the interest of a better managed global economy.
Making the case for smart governance
Global economic crises tend to reignite discussions of global governance and international cooperation. This is because crises lay bare the shortcomings of existing international rules and institutions. The recent crisis has been no different.
Topics: Global governance
Tags: financial crisis, global crisis, global governance, IMF
Revisiting sovereign bankruptcy
Lee C. Buchheit , Beatrice Weder di Mauro, Anna Gelpern, Mitu Gulati, Ugo Panizza, Jeromin Zettelmeyer, 12 November 2013
Sovereign bankruptcies occur regularly and violently. The nature of sovereign-debt problems has changed in comparison to ten years ago. This column discusses policy proposals to better resolve debt crises and prevent them from happening in the future. Such proposals are given both for the Eurozone, and at a global level.
Sovereign-debt crises occur regularly and often violently. The recent debt crisis in Greece almost led to the collapse of the euro. Yet, there is no legally and politically recognised procedure for restructuring the debt of bankrupt sovereigns.
Topics: EU institutions, Global economy
Tags: eurozone, IMF, sovereign debt crisis
Unemployment, labour-market flexibility and IMF advice: Moving beyond mantras
Olivier Blanchard, Florence Jaumotte, Prakash Loungani, 18 October 2013
The state of labour markets in advanced economies remains dismal despite recent signs of growth. This column explains the IMF’s logic behind the advice it provided on labour markets during the Great Recession. It argues that flexibility is crucial both at the micro level, i.e. on worker reallocation, and at the macro level, e.g. on collective agreements. It suggests that the IMF approach is close to the consensus among labour-market researchers.
Growth in advanced economies is gaining some speed. The IMF projects these economies will grow 2% next year, up from an expected 1.2% this year. The average unemployment rate in advanced economies is expected to inch down from its peak of 8.3% in 2010 to 8% next year. This is progress, but it is clearly not enough. The state of labour markets remains dismal for a number of reasons.
Topics: Labour markets, Welfare state and social Europe
Tags: collective bargaining, EZ crisis, IMF, institutions, labour-market flexibility, trust, unemployment, Unemployment insurance
The IMF and the legacy of the euro crisis
Susan Schadler, 15 October 2013
The IMF loans to Greece, Ireland and Portugal are considered controversial by some analysts. This column argues that these loans – granted without having agreed on convincing paths to manageable debt levels – constituted a substantial departure from IMF principles. The situation is costly for Europe and, having now permanently changed the principles guiding large IMF loans, it will be costly for crises to come. A serious rethink of the management and decision-making structure of the IMF is needed.
The IMF will live with the legacy of its role in the European debt crisis for years — if not decades.
Topics: Global governance, International finance
Tags: debt, EZ crisis, IMF
Who profits from trade-facilitation initiatives?
Bernard Hoekman, Ben Shepherd, 3 June 2013
Making international trade easier and less bureaucratic – trade facilitation in WTO jargon – is one of the few areas where WTO talks are still making progress. This column discusses recent research that looks at the distribution of gains from trade facilitation among exporters of different sizes. Firm-level data from many developing countries show that firms of all sizes export more in response to improved trade facilitation.
Analyses continue to accumulate that demonstrate that the global gains from trade facilitation – understood as measures that reduce the overall costs of the international movement of goods – are potentially very large (Hufbauer et al 2012).
Topics: International trade
Tags: IMF, trade facilitation
A pro-growth economic plan
Richard Wood, 11 May 2013
The world economy seems to be acting in unexpected ways. This column argues that austerity and quantitative easing do not seem to be working out as advertised. There is an urgent need to review the effectiveness of alternative macroeconomic policy approaches, and prepare an internationally agreed pro-growth plan to reflate distressed economies. The outlines of one such plan are presented.
There are similarities in the nature of the economic problems facing affected economies around the world:
Topics: Global crisis
Tags: austerity, Eurozone crisis, IMF, recovery
The 'Good Global Citizen' remit for the international community: A novel responsibility for the IMF
Biagio Bossone, Roberta Marra, 16 March 2013
Since 2008, we have learned that the root causes of global economic instability are more than the sum of domestic instabilities. This column calls for a broad reconsideration of the principles underpinning current global economic governance; arguing that in a globalised world, isolated domestic economic policymaking is not enough. The international community needs to adhere to a ‘Good Global Citizen’ remit – housed by the IMF – if we are to tackle global economic policy under collective responsibility.
A fundamental lesson from the Great Recession is that global instability is more than the sum of domestic instabilities of single countries (Borio 2011). Not only do country exposures to global factors matter a lot: those same global factors, while they are considered to be exogenous from each country, are in fact endogenous to their collective behaviour.
Topics: Global crisis, Global governance
Tags: globalisation, Group of Lecce, IMF