Financial statements based on historical costs increasingly depart from current values during an inflationary period and have distorting effects on the measurement of business profits. For this reason, periods of rapid inflation, especially following a major war or economic crisis, have been met in some countries by measures for the revaluation of business accounts for purposes of reports to shareholders and the determination of taxable income.
This paper describes what the limits to growth are. The paper highlights that many critical variables in global society—particularly population and industrial production—have been growing at a constant percentage rate so that, by now, the absolute increase each year is extremely large. Such increases will become increasingly unmanageable unless deliberate action is taken to prevent such exponential growth. The paper also underscores that physical resources—particularly cultivable land and nonrenewable minerals—and the earth’s capacity to “absorb” pollution are finite.
International Monetary Fund. External Relations Dept.
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The word “privatization” entered popular usage only recently, and certainly the activity with which privatization has become most closely associated—the sale of public sector assets—is a distinct phenomenon of the 1980s. However, like the word itself, the various activities that have been described as privatization can claim a longer history.1 Policies designed to stimulate the substitution of private for public provision of various goods and services are not a recent innovation. But the wide range of public sector activities that are now being considered for privatization, the various methods being suggested to achieve this objective, and the enthusiasm with which privatization policy is in some cases being pursued distinguishes current privatization efforts from previous ones.
This study assesses recent trends in international capital markets. It reviews, in particular, the forces currently reshaping the markets of industrial countries and confronting financial institutions with major challenges.1 Against this background, the study reports on private sector financing flows to developing countries and discusses factors likely to influence future flows.2 More broadly, it discusses prospects for the management of financial risks at the systemic level on the basis of an analysis of macroeconomic, structural, and regulatory developments currently influencing those markets. The study concludes with a detailed discussion of the transmission mechanisms and policy reactions associated with the October 1987 instability in global equity markets.
The economic case for privatization is made by reference to public ownership that is more extensive than can be justified in terms of the appropriate role of public enterprises in mixed economies, the poor economic performance of public enterprises compared with private enterprises, and the inherent characteristics of public ownership that give rise to inefficiency. The objectives and performance of public enterprises, and the problems associated with public ownership, are described in this section.
During 1987–88, international capital flows were closely related to large and persistent external imbalances among the major industrial countries, to a reduction in the current account deficit of developing countries from the levels of 1982–86, and to a continuing process of financial market liberalization. The environment within which these flows took place was characterized by considerable financial uncertainty associated with an upturn of interest rates in late 1987 and renewed concern about inflation, with increased exchange rate volatility and sizable official market interventions aimed at stabilizing the value of the U.S. dollar, and with the shock waves of the October 1987 stock market crisis. This section reviews the macro-economic environment internationally and within major industrial countries. It then traces the most salient developments in the banking, securities, and derivative products markets.