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International Monetary Fund. External Relations Dept.

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.

ADOLFO BARAJAS, EMILIANO BASCO, V. HUGO JUAN-RAMÓN, and CARLOS QUARRACINO

The simple answer to both questions in the title of this paper: No. We concentrate on three key aspects of the banking system’s difficulties during the 2001-02 crisis. Two are related to bank behavior (increasing dollarization of the balance sheet and expanding exposure to the government), and the other is related to the degree by which banks were hurt by depositor preferences, specifically, the run on deposits during 2001. We find that there was substantial cross-bank variation, that is, not all banks behaved equally nor were hurt equally by the macroeconomic shocks they faced during the run-up to the crisis. Furthermore, using panel data estimation, we find that depositors were able to distinguish high-risk from low-risk banks, and that individual bank’s exposure to currency and government default risk depended on fundamentals and other bank-specific characteristics. Finally, our results have implications for the existence of market discipline in periods of stress, and for banking regulation, which may have led banks to underestimate some of the risks they incurred. IMF Staff Papers (2007) 54, 621–662. doi:10.1057/palgrave.imfsp.9450022

International Monetary Fund

A considerable degree of macroeconomic stability was achieved by Bolivia, and by the steadfast implementation of structural reforms, most of the distortions that adversely affected the economy in the early 1980s were removed. The Bolivian authorities are committed to fighting poverty. Executive Directors urged the authorities to proceed decisively with the envisaged reform of labor regulations in 2000 to enhance external competitiveness, make Bolivia’s regulations complaint with the norms of the International Labor Organization, and broaden the coverage of the formal economy.

International Monetary Fund

This Selected Issues paper on Bolivia reports that it has experienced major increases in its gas reserves, production, and exports. Not only have their levels increased significantly, but also there have been extensive regulatory changes, which range from the privatization of the mid-1990s to the increase in the government’s tax take from the hydrocarbons industry. The government has reached new agreements with foreign oil companies that will allow foreign companies to continue recovering part of their old investments.

Narendra P. Sharma, Richard Layard, Mr. Olivier J Blanchard, Rudiger Dornbusch, and Paul Krugman

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.

Mr. Hugh Bredenkamp and Ms. Susan M Schadler

Abstract

In the aftermath of the debt crisis of the early 1980s, many of the IMF’s poorest member countries embarked on far-reaching programs of adjustment and economic reform. The severity and structural nature of the economic problems to be addressed suggested a need for longer-term financial support than that available under the IMF’s conventional instrument for members’ use of its resources, the Stand-By Arrangement. At the same time, given the low per capita incomes and typically large external debts of the countries concerned, there was a desire in the international community to ease the burden of new IMF loans by offering them to eligible borrowers on highly concessional terms. Those benefiting would be expected to combine strong macroeconomic policies with extensive reform of their economic systems, to remove distortions, enhance efficiency, and redirect the role of government in the economy. These circumstances led to the creation of the IMF’s Structural Adjustment Facility (SAF) in 1986, followed a year later by its successor, the Enhanced Structural Adjustment Facility (ESAF). By the end of 1994, 36 countries had drawn on the ESAF, in support of 68 multiyear programs.1

Mr. Hugh Bredenkamp

Abstract

The extent of progress with respect to the objectives of the ESAF can be assessed from a variety of perspectives. The most commonly used in evaluations of adjustment programs are:

Ms. Sharmini Coorey

Abstract

The countries under review were among the world’s poorest, with annual per capita GNP averaging about US$400 in the early 1980s (compared with over $1,800 for other developing countries). This gap in income had widened steadily over a 15-year period from 1970 to 1985, most notably in the final decade (Figure 3.1).

Mr. Louis Dicks-Mireaux, Jean Le Dem, Mr. Steven T Phillips, and Ms. Kalpana Kochhar

Abstract

This chapter examines developments in the macroeconomic and structural policies of the ESAF countries during the period under review and takes stock of the progress achieved toward greater macroeconomic stability and more open, flexible, and market-driven economies. Three critical areas are covered: fiscal policy, exchange rate and monetary policies, and structural reform. The analysis of structural reform focuses on five key areas: domestic markets and prices, the exchange and trade system, financial sector reform, public enterprise reform, and fiscal reform. Significant advances, albeit uneven, were made in all three policy areas over the past ten years. Looking ahead, there remains considerable scope for further improvement in some areas.

Ms. Kalpana Kochhar and Ms. Sharmini Coorey

Abstract

The promotion of sustainable economic growth is one of the principal objectives of ESAF-supported programs. This chapter examines the pattern of growth in ESAF countries over the past 10–15 years, drawing comparisons with other developing countries, and seeking to explain differences in growth outcomes among countries and over time. The chapter begins with a brief outline of the stylized facts. It then presents a general overview of the methodology used to examine the empirical behavior of long-term growth and surveys the extensive literature on this subject to identify the various policy-related and other factors that have been found to influence growth. An equation relating growth to these factors is estimated on data for 84 low- and middle-income countries, and it is used to compare the growth performance of ESAF countries with that of other developing countries (information on the data and results is reported in an appendix). A more detailed analysis focuses on the impact of structural policies on growth in ESAF countries. The chapter concludes with a summary of its findings.