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Mr. Prakash Kannan and Mr. Selim A Elekdag
This paper develops a simple procedure for incorporating market-based information into the construction of fan charts. Using the International Monetary Fund (IMF)'s global growth forecast as a working example, the paper goes through the theoretical and practical considerations of this new approach. The resulting spreadsheet, which implements the approach, is available upon request from the authors.
International Monetary Fund

Abstract

This paper presents the international financial markets aspects of the current turbulence in emerging markets. The ongoing international diversification of institutional portfolios, the return of flight capital, and the cyclical developments in industrial countries combined to generate a significant volume of capital flows into emerging markets in the developing world. In keeping with developments in global markets, these flows have increasingly been in the form of purchases of tradable bonds, equities, and money market instruments—securities that can readily be sold when sentiments change. The volume of financial wealth that can flee a developing country is now sufficiently large that it can overwhelm any attempt to maintain an exchange rate incompatible with fundamentals. Thus the possibility for investors—domestic and foreign—to exert discipline over policy has strengthened significantly. The resolution of sovereign debt-servicing difficulties has become more complicated with the changes in instruments and participants in international markets.

International Monetary Fund

Abstract

This paper presents the IMF’s annual survey of developments, prospects, and key policy issues in international capital markets. It focuses on how to manage the restructuring of capital markets in an environment of wide-ranging liberalization, intense competition, and growing securitization—in a way that avoids a systemic crisis as well as moral hazard risks and budgetary costs associated with public sector support of weak financial institutions. A key feature of the new financial environment is the competition-driven disintermediation from banking systems—particularly from wholesale banking—into securitized money and capital markets. The more creditworthy corporate borrowers in major industrial countries are increasingly able to satisfy their liquidity, risk-management, and financing needs directly in liquid securities markets. Securitization is forcing adjustments across the entire spectrum of activities and institutions in financial markets. The loss of traditional balance sheet business has led to cost cutting and to consolidation in the wholesale banking sector and to an expansion in off-balance sheet activities, including backup lines of credit and forward interest rate and foreign exchange contracts.

International Monetary Fund

Abstract

This paper presents the annual survey of international capital market developments and prospects. It summarizes recent developments in capital market flows and asset prices, including the initial impact of the Middle East crisis, and reviews the main ongoing structural changes in financial markets. A sharp fall in net investment in foreign securities by Japanese institutions in 1990, in the face of narrowing interest rate differentials and, in some cases, the need to cover losses stemming from the fall in the Japanese stock market. In contrast, the importance of net direct investment outflows as a counterpart to the current account surplus began increasing as from 1989. The crisis in the Middle East resulted in a further tightening of market conditions, especially for less creditworthy borrowers. A general preference for safer and more liquid financial instruments was reflected in increased spreads between corporate and government securities on national markets and between private sector Eurobonds and government securities denominated in the same currency on international markets.

Mr. D. F. I. Folkerts-Landau

Abstract

The 1990s have witnessed a dramatic revival and expansion in capital flows to developing countries and significant changes in the composition of these flows. Many Asian countries, building on their strong economic performances of the latter half of the 1980s, attracted increasing levels of inflows. Major countries in the Western Hemisphere experienced a reversal of previous outflows of flight capital and renewed access to international capital markets, as debt problems of the 1980s were resolved and strong economic adjustment programs and structural reforms created opportunities and suitable climates for investment and growth. At the same time, the external environment for developing country financing improved, with the slowdown in economic activity in the industrial countries and regulatory changes that facilitated developing country access to capital markets. Foreign direct investment flows surged, accounting for a large part of the increase in inflows to developing countries, particularly those in Asia.

International Monetary Fund

Abstract

This report presents the International Monetary Fund’s annual survey of developments, prospects, and key policy issues in international capital markets. This year the focus is on how to manage the restructuring of capital markets in an environment of wide-ranging liberalization, intense competition, and growing securitization—in a way that avoids a systemic crisis as well as moral hazard risks and budgetary costs associated with public sector support of weak financial institutions.

Mr. D. F. I. Folkerts-Landau

Abstract

International capital markets have once again passed through an eventful period since the last report on capital markets surveillance in September 1994. The re-evaluation of prospects for emerging markets by foreign investors, which accompanied the cyclical upswing in industrial countries in 1994—gathering momentum in the aftermath of the Mexican crisis at the end of December—left few developing country markets untested. Barely a little more than a decade after the Mexican debt-service moratorium opened the first chapter in the previous developing-country debt crisis, key emerging markets were again being supported by international loan packages intended to reduce the risk of a regional or global economic disruption. Meanwhile, the possibility that derivatives-related losses by firms such as Barings and Metallgesellschaft, as well as by Orange County, could have had serious spillovers suggests that there is room for further improvement in the international regulatory and supervisory infrastructure.

International Monetary Fund

Abstract

This report presents the annual survey of international capital market developments and prospects. It summarizes recent developments in capital market flows and asset prices, including the initial impact of the Middle East crisis, and reviews the main ongoing structural changes in financial markets. Against this background, the study examines three key issues that emerge from recent developments. These are, first, indications of “financial fragility” in a number of industrial countries; second, concerns about a shortage of global savings relative to prospective investment demands; and third, recent developments with regard to spontaneous capital market financing for developing countries and the process of market re-entry by some countries with recent debt-servicing difficulties. The study also considers public policy responses to financial strains, in particular, attempts by authorities to ensure systemic safety and soundness and to maintain the cost effectiveness of official safety nets as the process of financial market liberalization and innovation continues.

Mr. D. F. I. Folkerts-Landau

Abstract

Banks now actively participate in derivative markets, especially in the largely unregulated over-the-counter (OTC) derivative markets. They also now operate in a global financial environment in which new products, new pricing techniques, and new risk-management techniques are being introduced continuously and at breakneck speed. During the last few years, regulators and leaders in the financial industry have been engaged in a process of designing a new, more relevant set of regulatory capital requirements for banks that operate in this high-risk and fast-changing environment. In effect, structural changes in financial markets led regulators to reconsider the traditional approaches to supervision and regulation and to develop new more flexible approaches to bank regulation. Through this process, regulators have come to recognize private internal risk management as the foundation for ensuring the safety and soundness of individual financial institutions, and in reducing systemic risk.

International Monetary Fund

Abstract

This section discusses developments in 1989–90 in gross and net international capital flows through banking and securities markets, devoting special attention to the initial effects of the outbreak of the Middle East crisis on financial markets. Developments in this period illustrated both the ability of international financial markets to transmit the effects of macroeconomic and political shocks rapidly across national borders and the key role these markets have continued to play in financing the large fiscal and current account imbalances in industrial countries.