With every twist and turn in the global financial crisis that started in 2007, the International Monetary Fund (IMF) has been at the heart of efforts to restore financial stability and return the world economy to sustainable growth. This year was no exception. The Fund was focused intensely on providing the financing, policy advice, and technical assistance that members need to manage economic and financial risks and achieve lasting growth. New nonconcessional financing arrangements were initiated for seven countries. At the same time, the institution was pursuing many strands of work to strengthen its approach to surveillance and policy design, to improve the instruments in its lending toolkit, and to improve the governance structure of the organization.
After a major setback in late 2011, global economic prospects gradually improved in early 2012, but concerns over the strength of the recovery resurfaced in the second quarter. Stronger activity in the United States and policies in the euro area in response to its deepening economic crisis helped to address the sharp deterioration in financial conditions and boost market confidence in the first few months of 2012. However, downside risks remained elevated at the end of FY2012, and markets were jittery as concerns about sovereign debt in parts of Europe and pressure on the European banking sector resurfaced.
The IMF continued in FY2012 to respond flexibly to members’ financing needs in an environment of heightened global uncertainty. The demand for Fund resources remained strong and commitments increased further, although at a slower pace compared to the previous year.
Faced with lower fiscal buffers than before the onset of the crisis in 2008, and given uncertain prospects for donor assistance in the future, low-income countries remained highly exposed during FY2012 to global shocks. The IMF worked on several fronts to help low-income countries deal with these and other ongoing challenges they face. In addition to the concessional financing the Fund provided to low-income countries during the year, and the additional concessional resources it secured through use of windfall gold sale profits (see Chapter 3), as well as new borrowing agreements signed to support financing for low-income countries (see Chapter 5), the Executive Board took up a number of issues particularly pertinent to low-income countries during the year. Debt issues were addressed in Board reviews of the HIPC Initiative and MDRI, as well as of the IMF–World Bank debt sustainability framework for low-income countries. Additionally, the Board examined ways of managing global growth risks and commodity price shocks in these countries.
Quota subscriptions (see Web Box 5.1) are a major source of the IMF’s financial resources. The IMF’s Board of Governors conducts general quota reviews at regular intervals (at least every five years), allowing the IMF to assess the adequacy of quotas in terms of members’ financing needs and its own ability to help meet those needs, and to modify members’ quotas to reflect changes in their relative positions in the world economy, thus ensuring that the decision-making mechanism of the international financial system evolves with the changing structure of the global economy. The most recent of these reviews, the Fourteenth General Review of Quotas, was concluded in December 2010.
Muhammad Yunus, Raghuram G. Rajan, Henry M. Paulson, Jr., Johnson Simon, James Kwak, and Andrew Sheng
Asia Leading the Way explores how the region is moving into a leadership role in the world economy. The issue looks at Asia's biggest economy, China, which has relied heavily on exports to grow, and its need to increase domestic demand and to promote global integration if it is to continue to thrive. China is not the only Asian economy that heavily depends on exports and all of them might take some cues from the region's second-biggest economy, India, which has a highly developed services sector. Min Zhu, the new Special Advisor to the IMF's Managing Director, talks about Asia in the global economy, the global financial crisis, correcting imbalances, and the IMF in Asia. And "People in Economics" profiles an Asian crusader for corporate governance, Korea's Jang Hasung. This issue of F&D also covers how best to reform central banking in the aftermath of the global economic crisis; the pernicious effects of derivatives trading on municipal government finances in Europe and the United States; and some ominous news for governments hoping to rely on better times to help them reduce their debt burdens. Mohamed El-Erian argues that sovereign wealth funds are well-placed to navigate the new global economy that will emerge following the world wide recession. "Back to Basics" explains supply and demand. "Data Spotlight" explores the continuing weakness in bank credit. And "Picture This" focuses on the high, and growing, cost of energy subsidies.
Over the last decade, the Eastern Caribbean Currency Union (ECCU) macroeconomic performance has deteriorated relative to the rest of the Caribbean. Tourism accounts for three-fifths of exports, and the import content of consumption and investment is high. The ECCB-operated quasi-currency board arrangement (CBA) has continued to deliver price and exchange rate stability. The region has strong social indicators, but poverty, health, and crime remain concerns. Despite the implementation of ambitious revenue reforms, limited progress has been made toward fiscal consolidation. Credit has continued to expand rapidly.
International Monetary Fund. Western Hemisphere Dept.
Extended Credit Facility Arrangement. The arrangement was approved on June 26, 2014 and the third review completed on November 25, 2015. Disbursements equivalent to SDR 8.04 million (about US$11.5 million) have been made to Grenada so far under the arrangement and the equivalent of SDR 2 million (about US$2.9 million) will be made available upon Executive Board completion of the fourth review. Debt Restructuring. Grenada's comprehensive public debt restructuring is nearing completion. The debt exchange with Grenada's largest private creditor group was implemented and an agreement reached with Paris Club creditors. The authorities have also made important progress restructuring domestic debt.