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International Monetary Fund. External Relations Dept.

This paper reviews the influence of the tropical climate on economic development. The paper highlights that the effect of climate is clearly not the only ruling constraint on economic development. It is claimed that climatic factors severely hamper development through their impact on both human beings and their agriculture. Human economic activity is directly and adversely affected through the widespread extent and impact of diseases; and tropical agriculture suffers in the quality of its soils, its rainfall, and its multiplicity of pests and diseases.

A. Javier Hamann and Mr. Alessandro Prati

This paper describes the importance of luck, timing, and political institutions in beating inflation. The paper highlights that countries experiencing high inflation typically make several disinflation attempts, some of which succeed only temporarily. If a country trying to stabilize prices and wages is unlucky enough to be exposed to severe external shocks—for example, a decline in demand for its exports—during its disinflation, the likelihood of failure is increased. A shock such as an increase in U.S. interest rates makes failure more likely for a country with an open capital account.

International Monetary Fund. External Relations Dept.

Following the dramatic events of Ukraine’s 2004 “Orange Revolution,” in which more than a million people gathered in Kiev’s harsh winter weather to overturn a manipulated presidential election, the incoming administration of President Viktor Yushchenko moved quickly to articulate a new policy vision. That vision focused on accelerating Ukraine’s institutional transition toward a modern market economy, with much of the new agenda anchored in a strategy of greater integration with the European Union (EU) and the World Trade Organization.

José M. Cartas and Ricardo Cervantes

'Wising Up to the Costs of Aging' looks at how falling fertility and rising life expectancy have combined to threaten the ability of many countries to provide a decent standard of living for the old without imposing a crushing burden on the young. In our lead article, Ronald Lee and Andrew Mason say that while population aging in rich industrial countries as well as in some middle- and lower-income countries will challenge public and private budgets in many ways, a combination of reduced consumption, postponed retirement, increased asset holdings, and greater investment in human capital should make it possible to meet this challenge without catastrophic consequences. Neil Howe and Richard Jackson publish a fascinating ranking of which countries are best and worst prepared to meet the needs of the growing wave of retirees. We also have articles on a broad range of current topics, including Middle East unemployment, the economic repercussions of the earthquake and devastating tsunami in Japan, and banking in offshore financial centers such as the Cayman Islands. Carmen Reinhart and Jacob Kirkegaard look at how governments are finding ways to manipulate markets to hold down the cost of financing huge public debts, and, in Straight Talk, the IMF's Min Zhu talks about the long-term challenges now facing emerging markets. Prakash Loungani speaks to Nobel Prize winner George Akerlof, and we discuss with three other laureates-Michael Spence, Joseph Stiglitz, and Robert Solow-what the global economic crisis has taught us. Back to Basics explains economic models, and Picture This highlights the great variations in the cost of sending money back home.

David M. Sassoon

The World Bank Group may now be expected to increase its lending to the mining sector. The pressure to find and develop new mineral resources is increasing the risk of mining ventures at every stage. The author, a Bank attorney, discusses previous lending for mining in the context of guarantees both to mining companies and to the developing countries where the mines are located.

Vicente Galbis

The economic size of a country has consequences for economic policy: it imposes certain constraints and can provide particular opportunities. Most “economic news” is made by the policies and activities of large countries, since their performance largely determines the state of the world economy. Yet most of the world’s individual economies are small, although small economies do not constitute an economic grouping as such. There are many criteria for judging the size of an economy. A convenient and frequently used criterion is population. Another, related, measure is the gross national product. Using population figures (which, unlike GNP data, are available for all countries), and making arbitrary, but not unreasonable, assumptions as to what constitutes smallness, it can be observed that small economies (most of them developing) make up over half of all countries and territories. According to the 1983 World Bank Atlas • 62 countries and territories had a population of less than one million; • Another 39 countries had a population of between one and five million. The articles that follow, each using particular criteria of smallness, discuss various implications of small size for economic policy. An article in a subsequent issue will consider some of the advantages of small size.

Carol C. Bertaut, Steven B. Kamin, and Charles P. Thomas

This paper addresses three questions about prospects for the U.S. current account deficit. First, is it sustainable in the long term? Projections of a detailed model of the U.S. balance of payments suggest that the current account deficit will resume widening and external indebtedness will continue to expand. Second, how long will it take for indebtedness to rise sufficiently to prompt some pullback by global investors? We project that external debt, net investment income, and the share of U.S. claims in foreigners’ portfolios will take many years to reach levels that would test global investors’ willingness to extend financing. Finally, if and when levels of sustainable debt burden are breached, how readily would asset prices respond and the current account start to narrow? We find little evidence that, as countries’ indebtedness rises, the changes in asset prices and exchange rates needed to correct the current account materialize all that rapidly.