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Law > Business and Financial

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Cover Departmental Papers
Navigating External Shocks in Southeast Asia's Emerging Markets: Key Lessons and Challenges in Applying the IMF’s Integrated Policy Framework
Corinne C Delechat
,
Umang Rawat
, and
Ara Stepanyan
As relatively small open economies, South-East Asian emerging markets (Indonesia, Malaysia, Philippines and Thailand or ASEAN-4) are highly susceptible to external shocks—both financial and real—that could induce large capital flows and exchange rate volatility that could lead to foreign exchange market dysfunction. With the exception of Bank Negara Malaysia, ASEAN-4 central banks mostly have flexible inflation-targeting frameworks for monetary policy implementation. Their main policy objectives include medium-term price stability, sustainable economic growth, and financial stability. Central Banks in ASEAN-4 economies have been early pilots in the operationalization of the IMF’s Integrated Policy Framework (IPF) in 2022-23, given their experience in using multiple policy tools besides the monetary policy rate, including macroprudential measures, foreign exchange intervention (FXI), and capital flow management measures, to achieve their multiple objectives. They have welcomed the IPF as a systematic, frictions-based approach to analyze the use of these multiple tools to manage trade-offs across policy objectives. This paper takes stock of the experience from these pilots, both from the perspective of country authorities and of IMF country teams. It aims at distilling key lessons, which could be used to inform broader IPF operationalization. The IPF conceptual framework and a related quantitative model were used to assess policy trade-offs in ASEAN-4 in the event of adverse external shocks. These applications reaffirmed the importance of using monetary policy to address persistent inflationary pressures stemming from real shocks and allowing the exchange rate to act as a shock absorber. However, a complementary use of FXI could improve trade-offs between price, financial, and output stability when economies are faced with large and financial shocks that result in abrupt spikes in uncovered interest rate parity premia resulting in inefficiently tight financial conditions that could hurt growth or risking to de-anchor inflation expectations. The IPF pilots also highlighted some challenges faced when operationalizing IPF principles, notably regarding the assessment of frictions and shocks that might justify the use of FXI. In particular, country teams at times lacked sufficient information to adequately assess the extent of frictions. Moreover, the time-varying nature of IPF frictions and the non-linear effects of shocks make it difficult to assess situations when benefits of a complementary use of FXI would overweigh its costs.
Keywords:
ASEAN; foreign- exchange intervention; Inflation targeting; Integrated policy framework; capital flows; IPF pilot; market dysfunction; IMF country team; IPF model; Policy mix; IMF seminar participant; Currency markets; Exchange rates; Inflation; Southeast Asia; Global
Cover IMF Staff Country Reports
South Africa: Post-Financing Assessment-Press Release; and Staff Report
International Monetary Fund. African Dept.
This paper presents South Africa’s Post-Financing Assessment report. The new government of national unity that took office in June faces significant challenges, including declining real per capita growth, high unemployment, poverty, and inequality, and a rising level of public debt. The new administration has committed to address these challenges by continuing ongoing structural reforms aimed at addressing supply constraints and bolstering inclusive growth, while maintaining fiscal discipline. Monetary policy should carefully manage the descent of inflation to the mid-point of the target range and stay data dependent. The report recommends that policies should focus on bolstering inclusive growth and restoring fiscal sustainability, while managing the descent of inflation to target and safeguarding financial stability. Monetary policy should stay data dependent and rate cuts be considered only after inflation declines sustainably toward the midpoint of the target range. The authorities should continue to monitor financial sector risks, including those related to the bank-sovereign nexus, and enhance supervision and prudential regulations.
Keywords:
U.S. dollar; inflation decline; government operation; per-capita GDP figure; Policy discussion; IMF's transparency policy; IMF team; Fiscal stance; Africa; Global
Cover Selected Decisions and Selected Documents of the International Monetary Fund
Selected Decisions and Selected Documents of the International Monetary Fund
Forty-Third Issue Supplement
International Monetary Fund. Legal Dept.

Abstract

A supplement to the Forty-Third Issue of Selected Decisions and Selected Documents of the International Monetary Fund, incorporating items posted after January 1, 2023.

Keywords:
MCP decision; Review of the Fund's Policy; payments policy; adequacy assessment framework; fund surveillance; Balance of payments need; Anti-money laundering and combating the financing of terrorism (AML/CFT); Liquidity; Lines of credit; Global
Cover IMF Staff Country Reports
Libya: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper identifies the sources and quantifies the exchange market pressures on the Libyan dinar. The paper highlights that: (1) the cumulative pressure on the exchange rate has been negative; and (2) despite the alternating appreciation and depreciation pressures, foreign exchange reserves have remained relatively stable. The authorities’ toolkit is limited: they strive to maintain the stock of reserves at a high level and to keep the exchange rate peg intact, all without the use of fiscal policy or of conventional monetary policy instruments. Therefore, developing conventional monetary policy tools and making sure that fiscal policy is consistent with the overall macroeconomic objectives would help the authorities achieve their goals without resorting to capital flow measures. While Libya had periods of both depreciation and appreciation pressures, overall, it faced substantial depreciation pressure. In other words, Libya’s policies over the medium term were not in line with the three-pronged macroeconomic objective of maintaining high foreign reserves, a pegged official exchange rate, and a narrow gap between the parallel and the official exchange rates. The findings suggest that additional monetary tools and the use of fiscal policy can help contain the parallel market premium and avoid the use of capital flow measures.
Keywords:
exchange market pressure; EMP index; copyright page; weakening exchange rate; market rate; Currency markets; Exchange rates; International reserves; Depreciation; Eastern Europe; Global
Cover Policy Papers
Review of The Fund’s Capacity Development Strategy—Background Papers
International Monetary Fund. Institute for Capacity Development
This supplement includes five background papers and provides background information on various aspects of capacity development (CD) for the main Board paper, Review of the Fund’s Capacity Development Strategy—Towards a More Flexible, Integrated, and Tailored Model. It is divided into five sections, each consisting of a different background paper. The five sections cover (1) CD Delivery Modalities; (2) Evaluation and Impact; (3) Regional Capacity Development Centers and Field Presence; (4) HR Policies; and (5) Mapping the Fund’s Position vis-à-vis Other CD Providers.
Keywords:
Capacity Development; Technical Assistance; Training; Institution; Priorities; Evaluation; Impact; Field Presence; Regional Capacity Development Training Center; CD Strategy Review; CD department; CD provider; delivery modality; CD staffing model; RCDC CD Delivery; Anti-money laundering and combating the financing of terrorism (AML/CFT); Comparative advantage; Training and development in revenue administration; Global; South America; Asia and Pacific; Sub-Saharan Africa; Maghreb
Cover IMF Staff Country Reports
Maldives: Financial System Stability Assessment; and Press Release
International Monetary Fund. Monetary and Capital Markets Department
This paper presents financial system stability assessment (FSSA) report for Maldives. Maldives is a tourism dependent economy with a small financial sector dominated by state-owned banks. Systemic risks stem largely from a growing sovereign-bank nexus, high dollarization, and a shortage of foreign exchange. The Financial Sector Assessment Program concluded that further strengthening of financial sector policies is needed to improve the resilience of the financial system. The authorities should adopt regulation to address frictions in the foreign exchange market, resume liquidity management operations and develop systemic risk indicators. Priority should also be given to establishing a macroprudential framework along with instruments, publishing a financial stability report, and ensuring full reporting of non-bank payment obligations. The financial safety net and crisis management arrangements should be enhanced by improving early intervention mechanisms, introducing recovery and resolution planning, and enhancing the deposit insurance system. In addition, an effective liquidity assistance framework should be established.
Keywords:
World Bank FSAP mission; risk analysis; IMF FSAP stress test result; MMA central government debt holding; FSAP finding; bank capitalization; Financial Sector Assessment Program; Stress testing; Financial sector stability; Global; Asia and Pacific
Cover IMF Staff Country Reports
Belgium: Financial Sector Assessment Program-Technical Note on Regulation and Supervision of Less Significant Institutions
International Monetary Fund. Monetary and Capital Markets Department
This paper focuses on the technical note on regulation and supervision of less significant institutions in Belgium. The financial sector assessment program (FSAP) undertook a targeted review of Belgium’s Less Significant Institutions (LSI) and third-country branches (TCBs) banking regulation and supervision. The National Bank of Belgium (NBB) and Financial Services and Markets Authority have well-established processes for prudential, product and conduct supervision of LSIs. While NBB’s overall supervisory approach is adequate, the regulatory framework for corporate governance could be enhanced. Internal decision-making processes and the underpinning of certain decision proposal could in some specific instances be enhanced. With regard to NBB’s internal supervisory processes, some fine-tuning and continued attention could be useful. The NBB should continue to ensure adequate staffing for LSI and TCB supervision and continue to carefully consider how to address any supervisory Information Technology risk concerns. Banks’ internal capital target could usefully be added to the NBB’s internal monitoring. A structured approach for conduct risk and consumer protection information sharing with the FSMA and the Ministry of Economic Affairs should be put in place.
Keywords:
Belgium LSI sector; credit institution; market development; LSI sector; NBB governance Manual; Belgium's Less Significant Institutions; Financial Sector Assessment Program; External balance assessment (EBA); Bank supervision; Bank legislation; Global
Cover Shocks and Capital Flows
Shocks and Capital Flows
Policy Responses in a Volatile World

Abstract

The high exposure of open economies to shocks makes them particularly vulnerable to volatile capital flows and advanced economy monetary policy spillovers. How should and do domestic policymakers respond? The traditional answer has been to use flexible exchange rates as a shock absorber. But flexible exchange rates may not offer full insulation when financial markets are imperfect. This book brings together recent empirical studies at the International Monetary Fund (IMF) on the effectiveness of different tools in responding to such shocks. The 18 chapters in this volume provide a rich background to the recently launched Integrated Policy Framework by the IMF. They comprise assessments of countries’ actual use of different tools, as well as in-depth evaluations of their effectiveness and side effects, covering macroprudential policies, monetary policy, foreign-exchange intervention, and capital flow management policies. Many of the studies involve new data and methods to tackle the inherently difficult problems in identifying and comparing the effects of policies under different circumstances. As a result, the volume offers the reader a comprehensive, in-depth coverage of the policy-oriented empirical research that has informed the development of a new way of thinking about open-economy macroeconomics at the IMF.

Keywords:
Capital flows; monetary policy; exchange rate policy; foreign exchange intervention; macroprudential policy; capital controls; FX debt; account restrictiveness; exchange rate intervention; IT regime; Exchange rates; Macroprudential policy instruments; Global; Asia and Pacific; Caribbean; Central America; Europe
Cover Policy Papers
Review of the Flexible Credit Line, The Short Term Liquidity Line and the Precautionary and Liquidity Line, and Proposals for Reform
International Monetary Fund. Strategy, Policy, & Review Department
The Fund’s precautionary toolkit rests on the simple proposition that facilitating crisis prevention is far less costly than crisis resolution. Its value increases with systemic risk. Serial shocks to the global trading and financial systems pose significant and persistent headwinds for well-integrated emerging markets. An adequately funded global financial safety net (GFSN) with a suite of precautionary tools allows qualifying members to respond to balance of payments (BoP) shocks, reducing the incidence of crises and limiting contagion. The Fund is the only layer of the GFSN available to all members; other layers vary in their availability and externalities. In this context, the overarching objective of this review of the Flexible Credit Line (FCL), Short-term Liquidity Line (SLL), and Precautionary and Liquidity Line (PLL) is to ensure that the precautionary facilities toolkit (henceforth “the toolkit”) is fit for purpose for the challenges ahead.
Keywords:
Flexible Credit Line (FCL); Short-term Liquidity Line (SLL); Precautionary and Liquidity Line (PLL); Global Financial Safety Net (GFSN); PLL qualification assessment; FCL arrangement; SLL reform package; qualification assessment; FCL user; SLL access; SLL instrument; SLL Arrangements; Balance of payments need; Anti-money laundering and combating the financing of terrorism (AML/CFT); Liquidity; Debt sustainability; Global; Western Hemisphere
Cover FinTech Notes
Capital Flow Management Measures in the Digital Age (2): Design Choices for Central Bank Digital Currency
Mr. Dong He
,
Annamaria Kokenyne
,
Mr. Tommaso Mancini Griffoli
,
Mr. Marcello Miccoli
,
Mr. Thorvardur Tjoervi Olafsson
,
Gabriel Soderberg
, and
Hervé Tourpe
This fintech note looks at how capital flow measures (CFMs) could be implemented with central bank digital currency (CBDC), and what benefits, risks and complexities could arise. There are several implications of the analysis. First, CBDC ecosystems should generally be designed such that they can accommodate the introduction of CFMs. Second, thanks to the programmability of the payment infrastructure given by the new digital technologies, certain CFMs could likely be implemented more efficiently and effectively with CBDC compared to the traditional system. Third, implementing CFMs requires central banks to collaborate on practices and standards. Finally, CFMs on CBDC need to operate alongside traditional CFMs.
Keywords:
Central bank digital currency; Capital flow measures; CBDC implementation; CBDC ecosystem; IMF Fintech Note 2023/009; IMF Library; smart CFMs; fencing CBDC; Central Bank digital currencies; Capital flow management; Capital flows; Foreign assets; Digital wallets; Global