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International Monetary Fund. Strategy, Policy, & Review Department
The scenario planning exercises help to draw out the surveillance priorities and stress- test the robustness of those priorities to uncertainties in the decade ahead. To inform the two priorities on confronting risks and uncertainties and mitigating spillovers, the scenarios illustrate how different shocks and alternative policy approaches carry their own risks and can have both positive and negative spillovers. The scenarios also illustrate some of the complex economic and non-economic factors that feed into the priority on economic sustainability and demonstrate how resource constraints and changing economic structures underpin the need for a unified policy approach.
International Monetary Fund. Finance Dept. and International Monetary Fund. Legal Dept.
This paper presents to the Executive Board for information the second set of new borrowing agreements for the Poverty Reduction and Growth Trust.
Mr. Itai Agur
The deferred recognition of COVID-induced losses at banks in many countries has reignited the debate on regulatory forbearance. This paper presents a model where the public's own political pressure drives regulatory policy astray, because the public is poorly informed. Using probabilistic game stages, the model parameterizes how time consistent policy is. The interaction between political motivations and time consistency is novel and complex: increased policy credibility can entice the politically-motivated regulator to act in the public's best interest, or instead repel it from doing so. Considering several regulatory instruments, the paper probes the nexus of political pressure, perverse bank incentives and time inconsistent policy.
Ms. Deniz O Igan and Thomas Lambert
In this paper, we discuss whether and how bank lobbying can lead to regulatory capture and have real consequences through an overview of the motivations behind bank lobbying and of recent empirical evidence on the subject. Overall, the findings are consistent with regulatory capture, which lessens the support for tighter rules and enforcement. This in turn allows riskier practices and worse economic outcomes. The evidence provides insights into how the rising political power of banks in the early 2000s propelled the financial system and the economy into crisis. While these findings should not be interpreted as a call for an outright ban of lobbying, they point in the direction of a need for rethinking the framework governing interactions between regulators and banks. Enhanced transparency of regulatory decisions as well as strenghtened checks and balances within the decision-making process would go in this direction.
International Monetary Fund. Middle East and Central Asia Dept.
The countries in the Caucasus and Central Asia (CCA) have recorded significant macroeconomic achievements since independence. These countries have grown more rapidly-—on average by 7 percent over 1996–2011—-than those in many other regions of the world and poverty has declined. Inflation has come down sharply from high rates in the 1990s and interest rates have fallen. Financial sectors have deepened somewhat, as evidenced by higher deposits and lending. Fiscal policies were broadly successful in building buffers prior to the global crisis and those buffers were used effectively by many CCA countries to support growth and protect the most vulnerable as the crisis washed across the region. CCA oil and gas exporters have achieved significant improvements in living standards with the use of their energy wealth.
Mr. Ashoka Mody and Mr. Abdul d Abiad
Despite stops, gaps, and reversals, financial reforms advanced worldwide in the last quarter century. Using a new index of financial liberalization, we conclude that influential events shook the status quo, inducing both reforms and reversals, while learning, more so than ideology and country structure, shaped and sustained widespread reforms. Among shocks, a decline in global interest rates and balance of payments crises strengthened reformers; banking crises were associated with reversals, while new governments brought about both reforms and reversals. Learning occurred domestically-initial reforms raised the likelihood of further reforms-and through observing regional reform leaders. Among structural features, greater openness to trade appears to have increased the pace of financial reform.
Mr. Alex Mourmouras, Anna Ivanova, Mr. George C. Anayotos, and Mr. Wolfgang Mayer
This paper assesses the implementation of IMF-supported programs using measures of program interruptions, compliance with conditionality, and the share of committed funds disbursed. The econometric model allows an evaluation of the importance for program implementation of political conditions in borrowing countries, IMF effort, conditionality, as well as initial and external conditions. The paper concludes that program implementation depends primarily on borrowing countries' domestic political economy. Strong special interests, political instability, inefficient bureaucracies, lack of political cohesion, and ethno-linguistic divisions weaken program implementation. IMF effort, the extent and structure of conditionality, and initial and external conditions do not materially influence program prospects.
Mr. James M. Boughton and Mr. Alex Mourmouras
IMF lending is generally conditional on specified policies and outcomes. These conditions usually are negotiated compromises between policies initially favored by the Fund and by the country's authorities. In some cases the authorities might be satisfied enough with the outcome to take responsibility for it ("own" it) even though it was not their original preference. In other cases, they might accept the outcome only to obtain financing, in which case weak commitment might lead to poor implementation. This paper reviews the theoretical basis for the importance of ownership, summarizes what is known about its empirical effects, and suggests a strategy for strengthening it.