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Redefining the role of international economics organisations:
Poverty, debt, trade and transition— Papers —
Blejer ¦ Buiter: 1 + 2 | Favaro | Geiger | Hdez. Cata | Iguiñiz | Nagy | Papageorgiou | Sibert | Vujcic
Mario I. Blejer, Managing the Argentine Financial Crisis - 2002 + Additional Slides (P. Point)
Willem Buiter and Steven Fries, What should the multilateral development banks do?
Their name suggests that the multilateral development banks (MDBs) should provide finance for investments in human and physical capital that promote development. The interpretation of this broad mandate, however, has changed significantly over time. One reassessment occurred when the European Bank for Reconstruction and Development was established following the fall of the Berlin Wall and given a mandate to foster the transition to a market economy by investing primarily in private sector projects. Another is ongoing with the strong focus on achieving the international development goals to reduce extreme poverty to one-half its 1990 level by 2015. This paper assesses the role of MDBs in fostering development or transition through the institutional mechanisms that the MDBs possess for the selection, monitoring and enforcement of loans and other financing agreements and through the use of subsidies that they receive from their shareholders and other sources. We conclude that a useful direction for MDB reform is to exploit more effectively the potential complementarities between the public and private sector financing operations. We disagree with the view that the MDBs should become at least in part fiscal agencies for the allocation of grants either for the purpose of international redistribution or for the financing of international public goods.
Willem H. Buiter and Mark Schankerman, Blended Finance and Subsidies:An Analytical Framework for Operational Policy
The paper provides an economic analysis of the appropriate use of subsidies, including technical cooperation (TC) funds, in projects financed by multilateral development banks (MDBs). Special attention is paid to the EBRD. Most of its projects are in the private sector. EBRD projects must have ‘transition impact’, satisfy ‘sound banking principles’ and be ‘additional’ with respect to alternative, private sources of finance. We show that there is an economic cost to TC funds and how it can be measured in practice, and we analyze how blended finance (involving project finance and technical cooperation funds or other subsidies) should be treated in order to comply with sound banking principles and transition impact objectives. We develop proposals for a more comprehensive accounting of costs incurred in investment projects, and an analytical framework for determining the appropriate repayment of TC by a private sector client.
Willem H. Buiter, Mark Schankerman and Maria Vagliasindi, Blended Finance and Grants: An Accounting Framework for Enhanced Transparency in the Use of Grants in Projects
Willem H. Buiter, Fiscal Sustainability
This lecture reviews some of the key fiscal sustainability issues faced by developing countries and early emerging market economies. The key conclusions and recommendations include the following.
· Fiscal sustainability should focus on the fiscal- financial-monetary programme of the sovereign (the state), that is, the consolidated general government and central bank.
· It should include all present and future contingent claims owed and owned by the state. In addition to these contractual obligations, non-contractual current and future outlays and revenues must be accounted for exhaustively and comprehensively: nothing is offbudget or off-balance sheet. The special purpose vehicle veil must be torn away.
· For countries with weak economic and political institutions, the safe level of the net public debt to GDP ratio is likely to be low. If the re is a history of sovereign default, the safe level of public debt is likely to be even lower. Weak borrowers will have to generate larger and earlier primary surpluses than more credit-worthy borrowers.
· The attractions of hard currency borrowing during normal times are apt to turn into major disadvantages during periods of financial turmoil.
· Privatisations should be undertaken primarily for efficiency reasons rather than for deficit financing or debt reduction reasons.
· The permanent balance rule for government deficits, where the state raises its net debt to GDP ratio when spending (of any kind) is temporarily high and lowers it when spending is temporarily low, has much to recommend it.Willem H. Buiter, To Purgatory and Beyond When and how should the accession countries from Central and Eastern Europe become full members of the EMU?
Edgardo M. Favaro, "Managing Volatility in Small States"
E. Hdez-Cata, "Output and Productivity in Cuba: Collapse, Recovery, and Muddling Through to the Crossroads"
More than a decade after the collapse of central planning in most former communist countries and the disintegration of the USSR, Cuba remains an "island of socialism" in the Caribbean sea, 90 miles from the United States. All along, and in spite of massive economic difficulties, the survival, of "socialism" has been the authorities' explicit objective. So far they have achieved their goal through a combination of political determination, some good and some very bad economic policies, and a steep deterioration in the living standards of the Cuban population. This paper tries to explain the behavior of output and productivity in Cuba in the period since 1989, with particular emphasis on the role of macroeconomic and structural policies, and attempts to provide some basis for evaluating the outlook for the Cuban economy under alternative policy scenarios.
E. Hdez-Cata, Growth and Liberalization During the Transition from Plan to Market: An Empirical Analysis
E. Hdez-Cata, "Economic Policy in Cuba" (Power Point)
E. Hdez-Cata, "On Transition: Theory and Empirical Evidence for the former Soviet Union" (Power Point)
J. Iguiñiz, "La pobreza es multidimensional. Un ensayo de clasificación"
In this classificatory essay I present five main types of multidimensionality in the recent literature on poverty and human development. The first is intra-economic multidimensionality. Income, aggregate or individual, is accompanied with distribution, assets, employment, or other dimensions. By the second, non-economic elements are added, usually to income. Two versions of this type are very common and influential. In the first multidimensional factors explaining incomepoverty are introduced. Some of these factors are defined as “capital,” human, physical, social, cultural, symbolic, etc. In the second of them economic and non-economic elements define poverty. In both cases income, alone or accompanied, is still seen as an end. The third type eliminates income from the definition of poverty. The qualitative and quantitative transformation of income in order to define the Human Development Index is one of the ways that it is done, but it is even more explicit in the calculation of the Human Poverty Index by the UNDP where income is not included. The last two types arise out of wider approaches in the fields of political philosophy or moral philosophy. The fourth type consists in the introduction of the modern way of classifying the spheres of life. The “economic,” “political,” “social,” “cultural,” etc. spheres are considered dimensions of development, and also of poverty. The fifth type is more openly philosophical and is based in the explicit analysis of values and their relation to development.
J. Iguiñiz, "Lucha ¿contra qué pobreza?"
In this paper I present one of the origins of what is being called today, the “struggle against poverty”. We extract some of the main aspects of the proposal entitled The Concept of Poverty presented by the Chamber of Commerce of the U.S.A in 1965. Our main point is that the nature of the poverty they try to confront corresponds to that existing in that country, and it is quite different from the one most massively present in underdeveloped countries.
Piroska Nagy, "The Export Credit Agencies, Bilateral Debt Defaults and Paris Club Debt Restructurings" (Power Point)
P. Nagy, "The Basics of Financial Sector Regulation: Basel I & Basel II" (Power Point)
Demetris Papageorgiou, Armeane M. Choksi, Michael Michaely, "Liberalizing Foreign Trade in Developing Countries: The Lessons of Experience"
Willem H Buiter and Anne C Sibert, UDROP: A Small Contribution to the New International Financial Architecture
The purpose of the UDROP proposal is to prevent debt rollover crises for foreign-currency-denominated debt instruments. For such liabilities, there is no international analogue to the domestic lender of last resort or to domestic deposit insurance. UDROP stands for Universal Debt Rollover Option with a Penalty. Our proposal is that all foreign currency loans should have a rollover option attached to them. The ‘pure’ version of the option would entitle the borrower to extend or rollover his performing debt at maturity for a specified period. The pricing of the option would be left to the contracting parties. A number of variants on the basic version are also considered. These make the individual borrower’s ability to exercise his option contingent on the prior declaration of a state of ‘disorderly markets’, by the national central bank, the International Monetary Fund or an indicator of ‘disorderly markets’. All versions of the scheme have the property that no commitment of public money is required, either by national governments or by international agencies such as the IMF or the World Bank. The UDROP proposal is rule-based and general: it is mandatory for all foreign-currency debt and automatic. That is, it is exercised at the discretion of the borrower. This stands in sharp contrast to the current practice of discretionary and politicised refinancing arrangements cobbled together in an ad-hoc manner on a case-by-case basis by the IMF. UDROP is marketoriented: the terms and conditions on any foreign-currency loan and associated rollover option would be negotiated by the lenders and borrowers.
Velimir Sonje & Boris Vujcic, "Croatia In the Second Stage of Transition 1994-1999"
The paper attempts to summarize the important aspects of the transition experience in Croatia, focusing upon the second stage of transition, 1994-1999. The presentation is not historical, but rather links similar problems using international data comparisons and occasionally cross-section econometrics. Many topics are briefly surveyed: 1) relation between money growth, inflation, exchange rate regime and currency substitution; 2) determinants and costs of banking crisis; 3) relation between banking supervision, central bank credibility and exchange rate regime; 4) underlying reasons for the emergence of arrears in economy; 5) relationship between monetary and fiscal policy; 6) reasons for poor export performance and high external imbalance in Croatia; and 7) some basic labor market developments. The paper also draws some policy conclusions.
V. Sosic & E. Kraft, "Floating with a large life-jacket: Monetary and exchange rate policies in Croatia"
Even after a decade of macroeconomic stability, Croatia remains one of the most highly dollarized economies in the world and domestic currency gained only a limited additional role since the introduction of the euro cash. Evidence shows that economic agents still remain cautious about exchange rate fluctuations, even of a small magnitude, and react upon depreciation by shifting rapidly from domestic to foreign currency. Commercial banks protect themselves from liability dollarization by indexing loans to foreign exchange, but in an environment of imperfect pass-through from exchange rate to prices any serious depreciation is likely to induce many defaults by borrowers. Substantial reserve requirements making assets denominated in foreign currency more expensive do not seem to deter banks from taking on such obligations, but reserve requirements play a protective role, reinforced by massive international reserves held by the central bank. Monetary and exchange rate policies in such a setting are not primarily engaged in taming cyclical fluctuations, but rather with smoothing exchange rate movements and safeguarding financial stability.