This paper reviews commercial bank debt restructuring based on the recent experience of Bulgaria. While the deal is shown to have generated substantial debt relief at a remarkably low cost, several lessons are drawn that may be of broader relevance to countries restructuring bank debt. As, from time to time, it has been suggested that Bulgaria should have held out for more favorable treatment, or that it should now seek further debt reduction, the likely costs of these options are identified. Looking ahead, key policy issues are discussed that will determine growth prospects and debt sustainability over the medium term. It is argued that the deal’s success remains to be underpinned in particular by judicious fiscal and debt management policies.
This paper argues that many developing countries may find it difficult to buttress disinflation programs purely through the adoption of traditional credibility-enhancing devices (such as monetary anchors and central bank independence), owing to “technical problems” (for example, high instability of money demand, increased capital mobility) and an insufficient endowment of credibility in the political institutions. In these cases, borrowing credibility from an outside agency like the International Monetary Fund may be the most effective solution. The paper discusses the different options that would allow the Fund to support programs aimed not at external adjustment—the Fund’s traditional role—but at disinflation.
Gupta S., McDonald C., Schiller C., Verhoeven M., Bogetić Ž, and Schwartz G.
This paper presents a preliminary analysis of the likely social impact of the economic crisis and the reform programs in three Asian countries—Indonesia, Korea, and Thailand. The focus is on likely changes in real consumption expenditures arising from higher inflation and increases in unemployment. The current social policy measures adopted in the reform programs should provide significant social safety nets for the poor. However, if the social impact turns out to be larger than projected, it would be worthwhile to assess cost-effective and efficient alternatives for expanding social safety nets. The paper presents some options that could be considered.
International Monetary Fund. Strategy, Policy, & Review Department
The coverage of risks has become more systematic since the Global Financial Crisis (GFC): staff reports now regularly identify major risks and provide an assessment of their likelihood and economic impact, summarized in Risk Assessment Matrices (RAM). But still limited attention is paid to the range of possible outcomes. Also, risk identification is useful only so much as to inform policy design to preemptively respond to relevant risks and/or better prepare for them. In this regard, policy recommendations in surveillance could be richer in considering various risk management approaches. To this end, progress is needed on two dimensions: • Increasing emphasis on the range of potential outcomes to improve policy design. • Encouraging more proactive policy advice on how to manage risks. Efforts should continue to leverage internal and external resources to support risk analysis and advice in surveillance.