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Mr. Tito Cordella, Luca Antonio Ricci, and Marta Ruiz-Arranz

Do highly indebted countries suffer from a debt overhang? Can debt relief foster their growth rates? To answer these important questions, this article looks at how the debt-growth relation varies with indebtedness levels, as well as with the quality of policies and institutions, in a panel of developing countries. The main findings are that, in countries with good policies and institutions, there is evidence of debt overhang when the net present value of debt rises above 20–25 percent of GDP; however, debt becomes irrelevant above 70–80 percent. In countries with bad policies and institutions, thresholds appear to be lower, but the evidence of debt overhang is weaker and we cannot rule out that debt is always irrelevant. Indeed, in such countries, as well as in countries with high indebtedness levels, investment does not depend on debt levels. The analysis suggests that not all countries are likely to profit from debt relief, and thus that a one-size-fits-all debt relief approach might not be the most appropriate one.

Mr. Paul Collier, Rick Van Der Ploeg, Michael Spence, and Anthony J. Venables

This paper addresses the efficient management of natural resource revenues in capital-scarce developing economies. It departs from usual prescriptions based on the permanent income hypothesis and argues that capital-scarce countries should prioritize domestic investment. Because revenue streams are highly volatile, governments should protect consumption from shocks by increasing it only cautiously. Volatility in domestic investment can be moderated by a buffer of international liquidity, but it is also important to structure investment processes to be able to cope efficiently with substantial fluctuations. To date, most of the resource-rich countries of Africa have not had investment rates commensurate with their rate of resource extraction.

International Monetary Fund. External Relations Dept.

With asset prices falling in many key markets, soaring energy and commodity prices stoking inflation, and global growth on a downturn, the world faces some difficult policy choices, IMF First Deputy Managing Director John Lipsky said in a wide-ranging speech, “Perspectives on the Global Economic Landscape and the Role of the Dollar.”

Mr. Thomas Helbling

Major oil-producing and oil-consuming countries met in Jeddah, Saudi Arabia, on June 22 to identify the causes of the recent oil price increases and suggest policies to improve oil market stability.

International Monetary Fund. External Relations Dept.

Countries can use a combination of monetary, trade, and fiscal responses to stave off and adjust to the damaging impact of high food and fuel prices, according to a new IMF study.

Mr. Hamid Faruqee

Global economic imbalances appear to have peaked in 2006-07 and are now projected to narrow faster than earlier forecast, but more remains to be done to correct a worrying disequilibrium in the world economy, according to IMF analysis.

Ms. Laura Wallace

John Lipsky, the IMF’s First Deputy Managing Director, sees world growth slowing because of a combination of higher world oil prices, recent financial market turbulence, and a U.S. slowdown. He says in an interview that it is more urgent than ever that key economies take action to reduce global imbalances.

International Monetary Fund. External Relations Dept.

Saudi Arabia, buoyed by record-high oil prices, is enjoying solid growth and low inflation, a trend that is expected to continue over the medium term. The main downside risk is the unlikely event of a decline in global oil demand, says the IMF in its annual health check of the Saudi economy.

International Monetary Fund. External Relations Dept.

The IMF plans to follow up on its first multilateral consultation, aimed at reducing imbalances in the global economy while maintaining robust world growth, by monitoring the policy commitments of the five major players involved: China, the euro area, Japan, Saudi Arabia, and the United States.