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International Monetary Fund

This paper analyzes Bolivia’s growth performance with a focus on the regional and sectoral patterns of growth, and examines the sources of growth. It discusses the evolution of the hydrocarbon sector, its importance in the economy, and reforms. It also analyzes the intergovernmental fiscal relations system and changes to the revenue sharing arrangements, and suggests possible areas for reform. It assesses measures of reserve adequacy in Bolivia and also provides a look at the external debt after the applications of the main debt relief plans in the past 10 years.

PALL R. MASSON, MIGUEL A. SAVASTANO, and SUNIL SHARMA

In a number of industrial countries, the adoption of inflation targeting as a monetary policy framework has enhanced transparency and accountability. Can this framework also be applied to developing countries?

International Monetary Fund

This Selected Issues paper examines a number of potential factors that may have influenced the short-term behavior of the exchange rate between the Chilean peso and the U.S. dollar during the period of floating exchange rate, including the possible impact of developments in Argentina during 2001. The paper investigates whether copper prices can be successfully forecasted over medium-term horizons, emphasizing the properties of copper prices most relevant in the Chilean context, including for fiscal policymaking. The paper also provides a snapshot of the Chilean banking and corporate sectors.

Ms. Anne Marie Gulde, Mr. David S. Hoelscher, Mr. Alain Ize, Mr. Dewitt D Marston, and Mr. Gianni De Nicolo

Abstract

This paper addresses the challenges to prudential supervision in highly dollarized economies, where central banks and supervisors may be constrained in the use of standard money and financial policy tools. The study’s conclusions are the basis of an ongoing policy dialogue with IMF member countries, standard-setters in the financial area, and academia. The paper is part of the policy development work conducted by the IMF’s Monetary and Financial Systems Department.

International Monetary Fund. External Relations Dept.

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

Ms. Anne Marie Gulde, Mr. David S. Hoelscher, Mr. Alain Ize, Mr. Dewitt D Marston, and Mr. Gianni De Nicolo

Abstract

Dollarization, a common feature in many developing and transition countries, can have important implications for financial stability. In a bid to promote financial intermediation and deepening, many countries around the world have openly encouraged or accommodated the growth of financial dollarization—the use of a foreign currency, mainly the dollar, to denominate financial contracts. Neither the phenomenon itself nor the specific financial sector risks that may be associated with it, such as the limitations it poses on the central bank’s lender-of-last-resort functions or the added constraints it may impose on banks’ liquidity management, are new. However, the recent rapid growth in dollarization in many parts of the world (Box 1), the ongoing financial crises in several highly dollarized Latin American countries, and the attendant visible problems for some countries’ banking systems suggest that allowing financial dollarization to spread might involve important trade-offs between financial development and stability.

International Monetary Fund

Abstract

An adjustment program consists of a comprehensive set of economic measures designed to achieve broad macroeconomic goals, such as an improvement in the balance of payments, a better utilization of productive potential, and an increase in the long-term rate of economic growth. These objectives are often linked; for instance, achievement of a stable rate of economic growth requires, among other things, a sustainable structure of the balance of payments. The adoption of such a program may be motivated by the presence in the economy of an imbalance between aggregate demand and aggregate supply that may create inflationary pressures or require unsustainably high levels of external borrowing, or both. In some cases, an external deficit may be latent (in the sense of being suppressed by an unusually low level of domestic economic activity or by an unduly restrictive trade and exchange system) and may reflect structural weaknesses in the economy that preclude the simultaneous achievement of macroeconomic balance and an adequate rate of economic growth. In either of these circumstances, Fund members may seek the advice and financial support of the Fund.

International Monetary Fund

Abstract

In recent years, the appropriate level and structure of interest rates have come to be seen as major issues in connection with stabilization programs undertaken by members. These issues arise from consideration both on the demand side, as interest rates affect the magnitude of aggregate demand, and on the supply side, as they influence the volume and quality of investment and, thus, the growth of output. Attention has also been drawn to interest rate issues by the success achieved in certain countries carrying out programs of financial reform involving adjustment of interest rates.

International Monetary Fund

Abstract

In the negotiation of a Fund-supported program, technical analysis and political processes are intimately linked. This section identifies the various technical and political elements that are important in the design of adjustment programs, especially of Fund-supported programs for developing countries. After describing the accounting framework for economic policy in general and the setting for the use of the Fund’s resources in particular, the section turns to an overview of the objectives and instruments of economic policy relevant to Fund-supported programs, as well as of their relationships and dynamic interactions.