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Mr. Richard Hemming, Mr. Axel Schimmelpfennig, and Mr. Michael Kell

Abstract

Fiscal problems have long been considered a central feature of financial--that is, currency, debt, and banking--crises. This paper addresses four questions: What are the fiscal causes of crises? Which fiscal vulnerability indicators help to predict crises? Can fiscal variables explain the severity of crises? And what are the fiscal consequences of crises? Its findings are based on statistical analysis of a large data set of fiscal variables for 29 emerging market economies over 1970-2000 and detailed case studies of 11 emerging market crises during the 1990s that focus on structural and institutional dimensions of fiscal vulnerability.

Mr. Richard Hemming, Mr. Axel Schimmelpfennig, and Mr. Michael Kell

Abstract

Fiscal problems have long been considered a central feature of financial (i.e., currency, debt, and banking) crises. However, fiscal problems received less attention at the time of the Asian crisis, because financial and corporate sector vulnerabilities were seen to be more important than fiscal vulnerability.1 But the recent crises in Argentina and Turkey illustrate the continuing importance of fiscal problems in precipitating crises. Moreover, whatever their cause, financial crises always have important fiscal dimensions.

Mr. Richard Hemming, Mr. Axel Schimmelpfennig, and Mr. Michael Kell

Abstract

Financial crises in emerging market economies have been the subject of considerable analysis. This section draws on work to date to provide essential background for the subsequent sections.

Mr. Richard Hemming, Mr. Axel Schimmelpfennig, and Mr. Michael Kell

Abstract

To examine the empirical relationships between fiscal variables and emerging market crises, a large fiscal dataset was constructed. This section describes the dataset and an event study analysis of fiscal variables.

International Monetary Fund. Fiscal Affairs Dept.
Tax policy in Ukraine is engaged in two fronts at once. On one front, very significant work has been done over the years on the gradual improvement and updating of the tax system; on the other, it questions essential tenets of the existing system, exploring fundamental changes to it. While serious efforts have been devoted, for example, to the modernization of the international aspects of the income tax, upgrading the regime to OECD standards, there is a strong push from some quarters of the policy debate to do away with the Corporate Profit Tax (CPT) altogether. The central idea is to replace it with a Distributed Profit Tax (DPT), generally referred to in Ukraine as the Exit Capital Tax (ECT). In essence, this system would not tax profits as they accrue to the corporation, deferring the tax to when the corporation distributes dividends to the shareholder.
Mr. Richard Hemming, Mr. Axel Schimmelpfennig, and Mr. Michael Kell

Abstract

This section summarizes the results of various statistical and econometric analyses of the dataset described in the previous section. First, the extent to which fiscal variables can help to predict crises is examined using two popular EWS models. The second part investigates whether fiscal variables can help to explain the severity of currency crises. Further explanation of the methodologies and detailed results are given in Appendix IV.

International Monetary Fund
In light of the multilateral effort to ensure the adequacy of the financial resources available to the International Monetary Fund (the “Fund”), and with a view to supporting the Fund’s ability to provide timely and effective balance of payments assistance to its members, the Swedish Riksbank (“Riksbank”) agrees to lend to the Fund an SDRdenominated amount up to the equivalent of EUR 2.47 billion, on the terms and conditions set out in this paper.
International Monetary Fund
In discussing the June 2014 paper, Executive Directors broadly supported staff’s proposal to introduce more flexibility into the Fund’s exceptional access framework to reduce unnecessary costs for the member, its creditors, and the overall system. Directors’ views varied on staff’s proposal to eliminate the systemic exemption introduced in 2010. Many Directors favored removing the exemption but some others preferred to retain it and requested staff to consult further with relevant stakeholders on possible approaches to managing contagion. This paper offers specific proposals on how the Fund’s policy framework could be changed, presents staff’s analysis on the specific issue of managing contagion, and addresses some implementation issues. No Board decision is proposed at this stage. The paper is consistent with the Executive Board’s May 2013 endorsement of a work program focused on strengthening market-based approaches to resolving sovereign debt crises.
International Monetary Fund. Fiscal Affairs Dept., International Monetary Fund. Legal Dept., International Monetary Fund. Research Dept., International Monetary Fund. Strategy, Policy, &, and Review Department
This paper proposes the adoption of a framework that would supplement the 1997 Fund’s Guidance Note on the Role of the Fund in Governance Issues, adopted by the Executive Board (the “1997 Governance Policy”). While the 1997 Governance Policy remains an appropriate basis for the Fund’s work in this area, further guidance from the Executive Board is needed to ensure that the objectives of that policy are achieved. Experience over the past 20 years has underscored the critical impact that governance issues can have on the Fund’s work. In particular, there is evidence that corruption can have a pernicious effect on a country’s ability to achieve sustainable, inclusive economic growth. As requested by the Executive Board, the proposed Framework for Enhanced Engagement by the Fund (“Framework for Enhanced Fund Engagement”) is designed to promote more systematic, effective, and candid engagement with member countries regarding those governance vulnerabilities, including corruption, that are judged to be macroeconomically critical. Perhaps most importantly, the application of the Framework for Enhanced Fund Engagement to all members on a systematic basis will enhance evenhandedness. Finally, the Framework is designed to strengthen the global fight against corruption by promoting governmental measures that prevent private actors from offering bribes or providing services that enable the proceeds of corrupt acts to be concealed, particularly in the transnational context.
International Monetary Fund

The Role of the Fund in Governance Issues - Review of the Guidance Note - Preliminary Considerations - Background Notes