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International Monetary Fund. External Relations Dept.

03/84: IMF Managing Director’s Visit to Mexico for Brady Bond Ceremony, June 12

Mr. Luc E. Leruth, R. Paris, and Mr. I. Ruzicka

This paper examines the role and impact of taxation on sustainable forest management. It is shown that fiscal instruments neither reinforce nor substitute for traditional regulatory approaches and can actually undermine sustainability. The paper uses the reasoning at the root of the Faustmann solution to draw conclusions on the incentives for sustainable tropical forest exploitation. It proposes a bond mechanism as an alternative market-based instrument to encourage sustainable forest logging while reducing monitoring costs.

A. R. Prest

From the Foreword to the first issue: “Among the responsibilities of the International Monetary Fund, as set forth in the Articles of Agreement, is the obligation to ‘act as a center for the collection and exchange of information on monetary and financial problems,’ and thereby to facilitate ‘the preparation of studies designed to assist members in developing policies which further the purposes of the Fund.’ The publications of the Fund are one way in which this responsibility is discharged. “Through the publication of Staff Papers, the Fund is making available some of the work of members of its staff. The Fund believes that these papers will be found helpful by government officials, by professional economists, and by others concerned with monetary and financial problems. Much of what is now presented is quite provisional. On some international monetary problems, final and definitive views are scarcely to be expected in the near future, and several alternative, or even conflicting, approaches may profitably be explored. The views presented in these papers are not, therefore, to be interpreted as necessarily indicating the position of the Executive Board or of the officials of the Fund.” The authors of the papers in this issue have received considerable assistance from their colleagues on the staff of the Fund. This general statement of indebtedness may be accepted in place of a detailed list of acknowledgments. Subscription: US$6.00 a volume or the approximate equivalent in the currencies of most countries. Three numbers constitute a volume. Single copies may be purchased at $2.50. Special rate to university libraries, faculty members, and students: $3.00 a volume; $1.00 a single copy. Subscriptions and orders should be sent to: THE SECRETARY International Monetary Fund 19th and H Streets, N.W. Washington, D. C. 20431

International Monetary Fund. External Relations Dept.

Current Developments in Monetary and Financial Law, Volume I, prepared in the IMF’s Legal Department, is the most recent addition to its series of books, previously entitled Current Legal Issues Affecting Central Banks. The new series title reflects an expansion of the topics under review. As part of the IMF’s ongoing efforts to increase transparency, the book explains how the organization makes decisions. It analyzes international financial crises, financial sector developments, governance of central and commercial banks, and payment systems developments, as well as criminal activities that affect the financial world. The book—a valuable annotated reference source—presents international perspectives from almost fifty authors, including officials of international financial organizations, central bankers, attorneys, academicians, and economists.

Mr. Andrew Feltenstein

The aim of this paper is to analyze the extent to which public spending crowds out private production and capital formation. The analysis is carried out within the context of an intertemporal general equilibrium model, and a computational version of the model is developed and applied to Australia. The approach is especially relevant for policy analysis because it allows the consideration of disaggregated fiscal measures, such as changes in individual tax rates, and at the same time incorporates macro-economic aspects of fiscal policy, such as rules for deficit financing and the interaction between government deficits, interest rates, and inflation. In addition, by disaggregating the private sector, a comparison can be made of the extent to which individual industries are affected by public sector spending policies. Crowding out has usually been examined in two different but related contexts. In the first, the public sector purchases large quantities of goods and finances them either by taxes or by borrowing. To the extent that the goods purchased are used to produce public goods, they will no longer be available for private sector production, which will therefore be forced to decline. The second context is “financial crowding out,” which occurs when the government increases its borrowing requirements and thereby drives up the interest rate. Credit is thus made more expensive for the private sector, which is forced to curtail any capital formation that is not self-financed. (Indirect crowding out may also occur because rising interest rates may cause current consumption, and hence demand for the output of the private sector, to fall.)

International Monetary Fund. External Relations Dept.

The global financial system has remained resilient despite heightened geopolitical tensions and a hesitant and uneven global economic recovery, according to the latest issue of the IMF’s Global Financial Stability Report.The weakness of the recovery is due, in part, to the continued efforts of financial markets and the real economy to work off excesses in the wake of the bursting of the equity price bubble in 2000 and corporations’ reluctance to boost capital spending. Investors’ doubts about the pace of recovery in output and corporate earnings have weighed on mature equity markets, but high-yielding bonds, including those of emerging markets, have attracted investors seeking higher yields.

International Monetary Fund. External Relations Dept.

Broadening global economic growth and low inflationary expectations have fostered an increasingly favorable environment for financial markets, according to the IMF’s September 2004 Global Financial Stability Report (GFSR). In mature markets, strong economic growth has boosted corporate and financial sector earnings, helped strengthen balance sheets, and improved credit quality. Emerging markets have also benefited from stronger growth prospects and credit quality, as well as easier access to external financing at relatively low cost. Still, more must be done to address structural sources of instability and increase resilience to shocks, and the currently favorable environment affords a useful opportunity to do just that.

Shirley Boskey

This paper analyzes the IMF’s Convention for Settlement of Investment Disputes. In March 1965, the Executive Directors of the IMF approved a Convention for submission to governments, together with a report commenting on the Convention’s principal features. The Convention establishes the International Centre for Settlement of Investment Disputes as an autonomous international institution “to provide facilities for conciliation and arbitration of investment disputes.” It will “provide facilities,” because the Centre will not itself engage in conciliation or arbitration activities.

International Monetary Fund. External Relations Dept.

The IMF’s proposal for a Sovereign Debt Restructuring Mechanism (SDRM) to improve the way countries’ unsustainable debt is restructured continues to generate heated debate as time draws near for its consideration at the spring meetings of the IMF’s International Monetary and Financial Committee. In an effort to further spell out the proposal, the IMF hosted a conference on January 22 to exchange views with the private sector, emerging markets, nongovernmental organizations, legal experts, and academics. Participants generally agreed that something needed to be done about unsustainable sovereign debt and they welcomed the IMF’s consultative approach, but they differed sharply on solutions. What follows is coverage of that conference, along with excerpts from a speech by Jack Boorman, Special Advisor to the IMF’s Managing Director, and coverage of an IMF training seminar on the SDRM held on January 6 by Peter Kenen of Princeton university.

International Monetary Fund. Monetary and Capital Markets Department
The Financial Sector Assessment Program (FSAP) carried out a focused review of the non-banks in the United Kingdom and systemic liquidity. It reviewed five areas: (i) The overall NBFI system, its links to banks and the rest of the world; (ii) NBFI direct lending to the U.K. economy; (iii) Sterling investment funds (OEFs, AIFs, and MMFs); (iv) CCPs; and (v) Systemic liquidity. The NBFIs are defined as all non-deposit-taking corporations, listed in Figure 1, and with the following limited coverage: Pension Funds and Insurance Companies are covered to the extend they lend to the economy and interact with CCPs; Investment funds only to the extent of Sterling Funds; and broker-dealers only to the extent they interact with CCPs. Regulatory aspects of NBFIs are covered in a parallel Technical Note (TN).