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Ms. Catherine A Pattillo, Ms. Anne Marie Gulde, Mr. Kevin J Carey, Ms. Smita Wagh, and Mr. Jakob E Christensen

Abstract

Financial sectors in low-income sub-Saharan Africa (SSA) are among the world’s least developed (see Appendix 3, Table A1). The range of institutions is narrow, and assets in most low-income African countries are smaller than those held by a single medium-sized bank in an advanced economy. Most people do not have access to even basic payment services or savings accounts, and the largest part of the productive sector cannot obtain credit. Some middle-income African countries perform notably better, however.

Ms. Catherine A Pattillo, Ms. Anne Marie Gulde, Mr. Kevin J Carey, Ms. Smita Wagh, and Mr. Jakob E Christensen

Abstract

Institutional coverage is limited, with a strong dominance of the banking system. Most banking systems in Africa are open to foreign entry, and foreign banks have a large market share.

Ms. Catherine A Pattillo, Ms. Anne Marie Gulde, Mr. Kevin J Carey, Ms. Smita Wagh, and Mr. Jakob E Christensen

Abstract

Access to financial services—savings and loans—is lower in Africa than in other LICs. Constrained by limited physical access to bank branches, high bank charges and/or administered interest rates, most households cannot afford to accumulate savings in a formal institution. Given lack of collateral, access to loans is even more constrained.

Ms. Catherine A Pattillo, Ms. Anne Marie Gulde, Mr. Kevin J Carey, Ms. Smita Wagh, and Mr. Jakob E Christensen

Abstract

Many SSA countries have been taking measures to address some of the financial sector challenges, but problems remain. Reforms are often undertaken in response to surveys—at times in the context of a country’s participation in the Financial Sector Assessment Program—that have identified a wide range of obstacles. Financial sector reforms are also increasingly part of IMF-supported program conditionality.33 These reforms follow up on an earlier generation of financial sector liberalization efforts where some progress was registered in a few countries (Box 5). But, overall, the effects of these reforms have remained limited largely due to incomplete coverage, inappropriate sequencing, and initiation in the context of macro-economic instability (see Appendix 1).

Ms. Catherine A Pattillo, Ms. Anne Marie Gulde, Mr. Kevin J Carey, Ms. Smita Wagh, and Mr. Jakob E Christensen

Abstract

Africa needs better financial sectors to provide the population with services and help achieve higher growth. Renewed reform efforts should depart from lessons learned in earlier reform rounds and focus as a priority on the identified key bottlenecks.

Ms. May Y Khamis and Mr. Abdelhak S Senhadji
Departmental papers are usually focused on a specific economic topic, country, or region. They are prepared in a timely way to support the outreach needs of the IMF’s area and functional departments.
Einars Repše

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.

International Monetary Fund. External Relations Dept.
Asia Rising -- explores Asia's role in the world economy, the challenges faced from globalization, the quest for greater regional financial integration, the problem of lagging investment, and why East Asia performed so much better than Latin America. It also looks at the recovery of Japan and the rise of India and China. The economies of the ASEAN-4 come under the microscope in Country Focus. Other articles examine financial sector reform in Africa and the remaining hurdles to financial integration in the European Union. People in Economics profiles Paul Krugman, Back to Basics focuses on hedge funds, and the Straight Talk column looks at the problem of underdevelopment.
International Monetary Fund

Abstract

The past year has been a remarkable one in the international capital markets as the Asian emerging markets have experienced turbulence unseen since the debt problems of the heavily indebted emerging markets at the beginning of the 1980s.1 Even though the financial crisis has been largely confined to Asia, Japan’s growing economic weaknesses and banking problems have spilled over outside the region and the crisis has produced a reevaluation of the risks and vulnerabilities in emerging markets outside Asia. The mature financial markets in North America and Europe have not thus far been very adversely affected by the crisis because of their generally relatively small and well-provisioned on-balance-sheet banking sector exposures to the Asian emerging markets in “crisis” (Indonesia, Korea, Malaysia, and Thailand2), and the avoidance of widespread defaults as a result, in part, of the prompt response of the international community. Indeed, several mature markets have benefited to some extent from a “flight to quality” and the implications of weaker Asian economic activity and lower commodity prices for inflation. A continued favorable performance is not, however, assured and the outlook could change if Japan’s problems are not quickly addressed, the difficulties in emerging markets deepen or spread, or the current very high valuations in the U.S. and many European equity markets are subject to sharp downward revision. The consequences for global capital markets of these risks unfolding could be severe.

International Monetary Fund

Abstract

Having successfully weathered several bouts of speculative pressures, the Bank of Thailand on July 2, 1997 let the baht float. Its immediate depreciation triggered, in relatively quick succession, the depreciations of several of the regional currencies—the Philippine peso, the Malaysian ringgit, and the Indonesian rupiah. Early characterizations of this first round of currency devaluations were as exchange rate “corrections” that were expected to lead to manageable external adjustment. At that point, no one predicted the large depreciations that would fundamentally call into question the underlying assumptions on which past cross-border borrowing, lending, and investment decisions had been based, and provoke a massive retrenchment of capital flows. Outside the region, the rest of the emerging markets remained relatively insulated from the events in Southeast Asia until late October 1997. Then, what began as a localized disturbance in Hong Kong SAR’s foreign exchange and equity markets was transmitted rapidly and forcefully across the emerging markets, bringing strong pressures to bear, most notably on Brazil and Argentina in Latin America, on Russia, and in Asia on Korea. It resulted in an across-the-board external liquidity squeeze for emerging market borrowers and a deepening of pressures on the already affected countries in Asia.