THE TRANSFORMATION of the international monetary system since 1971 has provided governments of member countries of the International Monetary Fund with a far wider range of choice with regard to their exchange rate regimes than had previously existed. Before 1971 most member countries of the Fund had a declared par value for their currencies, with margins of 1 percent and the obligation to maintain the par value unless a “fundamental disequilibrium” could be shown to have arisen. There were, however, a small number of countries that did not maintain stable par values. Some member countries in Latin America experienced rapid rates of domestic inflation that necessitated gradual depreciation of their exchange rates in relation to their intervention currencies, and both Lebanon and Canada had extensive experience with floating exchange rates. Since 1971, and especially since 1973, several different types of exchange arrangements emerged, and they were formally legalized as possible choices in the Second Amendment of the Fund’s Articles of Agreement on April 1, 1978. Countries could adopt a link to an external standard by pegging to another currency, to the SDR, or to a self-selected basket of currencies. Those countries wishing for greater flexibility could choose “clean” floating, “managed” floating with various degrees of intervention, or a rule for officially controlling the movement in the exchange rate according to objective indicators. Variants of those schemes have also appeared—such as pegging to an undisclosed basket of currencies, but with the authorities’ reserving the right to make occasional shifts in the rate or to operate the scheme within fairly wide margins.
Exchange rate regimes in emerging markets have been discussed in a number of Middle Eastern and North African (MENA) countries, especially in the aftermath of the Asian crisis. A number of MENA countries have made progress in liberalizing trade, opening up their financial systems, and adopting market-based monetary policy instruments. Exchange rate regimes in the region currently range from a hard peg (Djibouti) to variants of float (Iran, Egypt, and Yemen), but pegged regimes are predominant (see Table 1). The six members of the Gulf Cooperation Council (GCC; Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) have agreed to establish a monetary union by 2010 with a single currency pegged to the U.S. dollar.
This paper reviews the exchange regimes of five emerging market countries in the Middle East and North Africa region-Egypt, Jordan, Lebanon, Morocco, and Tunisia-and one oil-exporting country-Iran-to see whether they need to consider adopting more flexible arrangements as they further open their economies to trade and capital flows.
Mr. Jose Martelino, Mr. S. Nuri Erbas, Mr. Adnan Mazarei, Ms. Sena Eken, and Mr. Paul Cashin
This paper provides background information on the Lebanese economy, based on an analysis of the economic consequences of war, and discusses several issues that will be central to Lebanon's prospects for recovery
Competing hypotheses about what causes excessive exchange rate volatility—speculative bubbles or “fundamental” economic variables—are examined for the Lebanese pound during its protracted depreciation from end-1982 to November 1987 and its marked appreciation over the following six months. Reduced–form and time–series models of the exchange rate are estimated and tested for nonstationarity. The results suggest that much of the pound’s volatility was consistent with excessive growth in domestic-versus foreign-currency-denominated liquidity rather than speculation.[JEL 431]
This 2007 Article IV Consultation highlights that economic developments in Lebanon in 2006 were significantly affected by the July–August conflict with Israel. Real GDP is estimated to have been flat, with strong growth in the first half of the year offset by the disruptions during and after the conflict. Inflation increased, mainly reflecting supply shortages during the conflict and the ensuing blockade. Executive Directors have welcomed the authorities’ success in containing the primary fiscal deficit in the first half of 2007.
In the June 2016 issue of IMF Research Bulletin, Eugenio Cerutti interviews Lars E.O. Svensson. Lars, a professor at the Stockholm School of Economics, was a Visiting Scholar at the IMF. In the interview, he discusses monetary policy, financial stability, and life at the IMF. The Bulletin also features a listing of recent Working Papers, Staff Discussion Notes, and key IMF publications. The table of contents from the latest issue of IMF Economic Review is also included.
The economic performance of Lebanon was significantly better despite difficult political conditions under the Emergency Post-Conflict Assistance (EPCA). With lackluster growth and fiscal tightness, the external current account deficit needs to be improved. There is limited scope for fiscal policy actions. The government faces substantial gross financing needs and remains vulnerable to changes in regional liquidity and demand. Increased inflation could worsen the fiscal outlook. In view of this, the authorities have expressed interest in continued quarterly monitoring of Lebanon’s economic policies and performance by the IMF.
Lebanon recovered from the financial shock triggered by Prime Minister Hariri’s assassination. Executive Directors supported the strategy of debt reduction through sustained fiscal adjustment. They welcomed the proactive stance of banking sector supervision and encouraged adoption of a strong securities regulator with adequate legal protection to enhance the stability of the stock market. They stressed the need to strengthen the environment for private sector activity by reducing red tape and corruption, reactivating the liberalization and privatization of the telecom sector, strengthening contract enforcement, and accelerating structural reforms.