International Monetary Fund. External Relations Dept.
With the findings of a recent IMF staff study serving as a starting point, a panel of IMF staff and distinguished outside researchers on May 27 debated financial globalization’s benefits and risks. Panelists were Eswar Prasad (IMF Asia and Pacific Department), Shang-Jin Wei (IMF Research Department)—two of the study’s authors—and C. Fred Bergsten (Director, Institute for International Economics (IIE)), Jeffrey Frankel (Professor, Kennedy School of Government at Harvard University), and Daniel Tarullo (Professor, Georgetown University Law Center). Kenneth Rogoff (IMF Economic Counsellor and Director ofthe Research Department), also an author of the study, moderated. Participants suggested ways to contain the downsides of globalization; two of their recommendations—developing domestic financial sectors and strengthening institutions prior to liberalization—drew wide support.
Nigeria’s 2002 Article IV Consultation highlights that major macroeconomic imbalances had emerged as a result of sharp increases in government spending and expressed concern at the risks of a further acceleration of inflation and continuing instability in the exchange market. The overall fiscal balance deteriorated sharply in 2001, the external accounts worsened, and inflation accelerated. The overall stance of fiscal policy remains highly expansionary in 2002, notwithstanding efforts by the authorities to contain capital spending. Lax financial policies have led to a sharp fall in international reserves.
This paper addresses how public debt should be managed to reduce the cost of private sector bailouts. It uses a tax smoothing model to show that bailouts affect the timing of government deficits and surpluses as well as the composition of public debt. In general, public debt managers will have to monitor the private sector’s leverage and portfolio composition in order to design the tax smoothing policy. This contrasts with Ricardian models where households monitor the government’s debt. The moral hazard aspect of defaults is also shown to be important in determining an optimal government debt strategy.
Contents include: Budget deficit - concepts, measurements, and developments; definition, accounting basis, scope, and coverage. Structural reform issues: privatization; capital market reform; exchange and trade liberalization; other government intervention - investment subsidies and price controls; labor market reform; and land reform. Current account sustainability in Israel: overview of the Israeli economy and its transformation in the 1990s; a model of the current account applied to Israel; and sustainability indicators. Statistical tables.