International Monetary Fund. Western Hemisphere Dept.
This 2014 Article IV Consultation highlights that Brazil’s growth has decelerated in recent years. The boost from decade-old reforms, expanding labor income, and favorable external conditions, which enabled consumption and credit-led growth and underpinned sustained poverty reduction, has lost steam. Investment has been sluggish, reflecting eroding competitiveness, a worsening business environment, and lower commodity prices. The IMF staff projects negative output growth of 1 percent in 2015, with some drag from tighter fiscal and monetary policies and from the cuts in investment by Petrobras, adding to the downward momentum in activity carried over from 2014.
This paper analyzes some of the lessons that can be drawn from the experience of Eastern Europe in the process of transition to a market economy that is under way, and examines some key challenges currently facing policymakers in these economies. The paper studies the constraints affecting the general strategy of reform--rapid versus gradual--that was adopted, and the output decline initially experienced and its effect on medium-term growth perspectives. The paper also discusses the implementation of mass privatization schemes, and the type and extent of government intervention in the restructuring process. This is a Paper on Policy Analysis and Assessment and the author(s) would welcome any comments on the present text. Citations should refer to a Paper on Policy Analysis and Assessment of the International Monetary Fund, mentioning the authors) and the date of issuance. The views expressed are those of the author(s) and do not necessarily represent those of the Fund.
Ms. Katrin Elborgh-Woytek and Mr. Julian Berengaut
The paper analyzes the initial output decline in transition economies by estimating a crosssection model stressing two major factors-conflicts and the legacies of the Soviet period. We link the Soviet legacies in place at the outset of the transition to the subsequent path for the development of market-related institutions. Institutional development (as proxied by measures of corruption) is used as an intermediate variable. An instrumental variable approach is followed to derive estimates that are not biased by the possible endogeneity of corruption with respect to output developments. Assuming that the extent of Soviet legacies was positively correlated with the length of the communist rule allows us to use the years under the Soviet regime as an instrument.
International cooperation, economic and financial integration, and technological progress have delivered enormous benefits across the globe during the past decades. Yet, in many countries, these benefits have not been shared adequately to prevent eroding trust in institutions and weakening support for the global system that has made these gains possible.
As the COVID-19 crisis continues to unfold, uncertainty remains exceptionally high. The Fund has provided extraordinary financial support as well as timely analysis and policy advice during the first phase of the crisis, but additional efforts are needed to help members secure a durable exit, minimize long-term scarring, and build a more sustainable and resilient economy. Against this backdrop, and in line with the strategic directions laid out in the Fall 2020 Global Policy Agenda and the International Monetary and Financial Committee (IMFC) Communiqué, this Work Program puts forward a prioritized Board agenda for December 2020 to June 2021, focused on activities of most critical importance to our members.
Policymakers often face difficult tradeoffs in pursuing domestic and external stabilization objectives. The paper reflects staff’s work to advance the understanding of the policy options and tradeoffs available to policymakers in a systematic and analytical way.
The paper recognizes that the optimal path of the IPF tools depends on structural characteristics and fiscal policies. The operational implications of IPF findings require careful consideration. Developing safeguards to minimize the risk of inappropriate use of IPF policies will be essential. Staff remains guided by the Fund’s Institutional View (IV) on the Liberalization and Management of Capital Flows.
As noted in the report, the adoption of the IV represented a major advance in the IMF’s
policy framework to provide advice on capital account liberalization and the management
of capital flows. Before the adoption of the IV, there was no consistent framework to guide
policy advice on these areas. The IV was a major step towards filling the gap existing at the
time. It welcomed the economic benefits of capital flows while recognizing the risks
associated with capital flow volatility, developed a playbook for safe capital account
liberalization, and incorporated capital flow management measures (CFMs) into the policy
toolkit. It also noted the importance of international cooperation on capital flow policies in
allowing countries to harness the benefits of capital flows safely, while minimizing
negative spillovers. It was a demonstration of the institution’s flexibility and willingness to
embrace theoretical advances and lessons from experience.
1. Policymakers can face difficult tradeoffs in managing large and volatile capital flows when confronted with financial and real shocks while pursuing their stabilization objectives. The benefits of capital flows are broadly recognized, but their volatility presents significant challenges. Capital flows to emerging market and developing economies (EMDEs) have exhibited large swings in the last two decades (Figure 1). Several periods of sustained inflows—in many cases driven at least in part by easy monetary conditions in major advanced economies (AEs)—have been interrupted by sharp reversals. Flows to commodity exporters have also been influenced by gyrations in commodity prices. Changes in global financial conditions—and attendant swings in capital flows—present particular challenges for many EMDEs, engendering difficult tradeoffs for monetary policy stemming from relatively shallow markets,1 external borrowing constraints, and other vulnerabilities. Advanced economies are not necessarily immune to these shocks either.