This review examines experience in implementing the lessons drawn in the 2011 Board paper on the Fund’s engagement with countries in post-conflict and fragile situations (more commonly referred to as fragile states (FS)) and the ensuing 2012 Guidance Note. The focus is on capacity building, Fund facilities and program design, and policy support. The review identifies scope to improve the Fund’s engagement in selected areas.
The Q&A in this issue features seven questions about policy options for emerging market countries (by Marcos Chamon, Chris Crowe, and Jun Il Kim); research summaries on “Does Trade and Financial Globalization Cause Income Inequality?” (by Chris Papageorgiou) and “The Current Account of Oil-Exporting Countries (by Irineu E. de Carvalho Filho); an article on the launch of the IMF’s new research journal, IMF Economic Review, and the contents of the upcoming IMF Staff Papers, which the new the new journal will succeed in 2010; an article on the upcoming Tenth Annual Jacques Polak Research Conference; a listing of visiting scholars at the IMF during July–September 2009; and listings of recent IMF Working Papers and Staff Position Notes.
The External Evaluation Group faced a very difficult task and has produced a document which raises all the relevant issues which should help the Board shape the future work of the IEO. While I agree with much of the Report, there are areas where I do not agree with the Group’s assessment and my reactions on these points are outlined below (page references indicated).
1. Some five years after the Independent Evaluation Office (IEO) was established, it is appropriate, as was envisaged then, to consider how the IEO is functioning, what it has achieved, and how it can be improved. The perspective of a disinterested, external panel can be valuable in this regard, and the present report will surely contribute to a lively Board discussion of this important topic. Staff appreciate the Panel’s attention to maintaining a high quality IEO staff and improving the quality and effectiveness of IEO reports.
1. The IEO welcomes the report and its recommendations. It particularly welcomes the confirmation that the IEO is a necessary aspect of the good governance of the IMF, retaining strong support in many quarters; and the conclusion that the office has met most of the expectations raised at the time of its creation. One aim in setting up the office was to ensure as much independence as possible matched by full transparency, both inside and outside the IMF; it is therefore important that the report concludes that the office has established itself as an independent body.
We analyze the relationship between international trade and the quality of economic institutions, such as contract enforcement, rule of law, and property rights. In our model, firms differ in their preferences for institutional quality, which is determined endogenously in a political economy framework. We show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters who prefer to maintain bad institutions. The detrimental effect of trade on institutions is most likely to occur when a small country captures a sufficiently large share of world exports in sectors characterized by economic profits.
The paper focuses on distributional consequences of macroeconomic adjustment. The preferences of economic agents over the level of the real exchange rate derived from standard models are monotonic, with agents favoring either an infinitely appreciated or depreciated rate. To generate less extreme preferences, a model is presented where appreciation would depress economic activity, while a large depreciation would hit the tradable sector by limiting the availability of labor, offsetting the favorable price effect. The model is in the spirit of the dependent economy model, but built on explicit microfoundations. The results can be used to analyze political economy aspects of macroeconomic adjustment.