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Asia and Pacific > Thailand

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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 Working Papers
A Multi-Currency Exchange and Contracting Platform
Mr. Tobias Adrian
,
Federico Grinberg
,
Mr. Tommaso Mancini Griffoli
,
Robert M. Townsend
, and
Nicolas Zhang
Cross-border payments can be slow, expensive, and risky. They are intermediated by counterparties in different jurisdictions which rely on costly trusted relationships to offset the lack of a common settlement asset as well as common rules and governance. In this paper, we present a vision for a multilateral platform that could improve cross-border payments, as well as related foreign exchange transactions, risk sharing, and more generally, financial contracting. The approach is to leverage technological innovations for public policy objectives. A common ledger, smart contracts, and encryption offer significant gains to market efficiency, completeness, and access, as well as to transparency, transaction and compliance costs, and safety. This paper is a first step aiming to stimulate further work in this space.
Keywords:
Cross-border payments; multilateral platforms; digital money; CBDC; programmability; encryption; exchange-market illiquidity; risk sharing; market design; hedging risk; cross-border payment; Smart contracts; Currencies; Currency markets; Financial statements; Global
Cover IMF Working Papers
A Medium-Scale DSGE Model for the Integrated Policy Framework
Mr. Tobias Adrian
,
Vitor Gaspar
, and
Mr. Francis Vitek
This paper jointly analyzes the optimal conduct of monetary policy, foreign exchange intervention, fiscal policy, macroprudential policy, and capital flow management. This policy analysis is based on an estimated medium-scale dynamic stochastic general equilibrium (DSGE) model of the world economy, featuring a range of nominal and real rigidities, extensive macrofinancial linkages with endogenous risk, and diverse spillover transmission channels. In the pursuit of inflation and output stabilization objectives, it is optimal to adjust all policies in response to domestic and global financial cycle upturns and downturns when feasible—including foreign exchange intervention and capital flow management under some conditions—to widely varying degrees depending on the structural characteristics of the economy. The framework is applied empirically to four small open advanced and emerging market economies.
Keywords:
Monetary Policy; Foreign Exchange Intervention; Fiscal Policy; Macroprudential Policy; Capital Flow Management; Dynamic Stochastic General Equilibrium Model; Small Open Economy; Policy transmission mechanisms; price inflation; scenario assumption; policy rule parameter; policy rule response coefficient; Mortgages; Consumption; Foreign exchange intervention; Inflation; Capital flow management; Global; Africa
Cover IMF Staff Country Reports
Indonesia: Selected Issues
International Monetary Fund. Asia and Pacific Dept
Selected Issues
Keywords:
ISCR; CR; government bond bond yield; IMF staff estimate; loan growth; headline CPI inflation; government bond bond market; Sovereign bonds; Bond yields; Bonds; Inflation; Currency swaps; Global; Australia and New Zealand
Cover IMF Working Papers
Caught in the Crosswinds: The Experiences of Selected Economies Responding to External Volatility with Multiple Policy Levers
Ms. Ghada Fayad
A case study approach is used to assess the multi-pronged policy response of seven small financially open economies with flexible exchange rate regimes to external shocks following the global financial crisis. FX intervention was frequently used— including during outflow episodes to prevent disorderly depreciation and preserve financial stability. Monetary policy often considered both financial and external stability. Capital flow management measures were sometimes calibrated symmetrically over the cycle while macroprudential measures were mostly deployed during inflow episodes. Assessment of the macroeconomic conditions paints an inconclusive picture on the benefits or costs of such policies, suggesting the need for further analysis.
Keywords:
emerging markets; monetary and exchange rate policies; inflation targeting; foreign exchange intervention; capital flows; macroprudential measures.; WP; monetary policy decision; exchange rate volatility; inflation targeting regime; monetary policy independence; FX turnover BIS data; macroprudential measures; inflation expectation; depreciation pressure; Inflation; Exchange rates; Financial sector stability; Depreciation; Central bank policy rate; Africa; Global
Cover IMF Staff Country Reports
Myanmar: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Myanmar
International Monetary Fund. Asia and Pacific Dept
This 2019 Article IV Consultation focuses on Myanmar’s near- and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. These developments have greatly amplified uncertainty and could heighten downside risks around the outlook. The IMF staff is closely monitoring the situation, including related policy responses from the authorities, and will continue to work on assessing its impact in the Myanmar economy. Although long-term prospects remain favorable, near-term growth is likely to remain below potential as the correction in real estate market and continued uncertainty weighs on investor sentiment in the runup to the 2020 elections. Starting FY2020/21, bank deleveraging will further slow credit and constrain gross domestic product growth as borrower’s true ability to repay is revealed with term loans coming due and banks restructure in earnest.
Keywords:
ISCR; CR; CBM financing; financing; CDOT; CBM; headline inflation; FX auction rule; foreign exchange; monetary policy effectiveness; financing option; External sector statistics; Monetary operations; Global; Southeast Asia; Asia and Pacific; Exchange rates
Cover IMF Staff Country Reports
Thailand: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Thailand
International Monetary Fund. Asia and Pacific Dept
This 2019 Article IV Consultation discusses Thailand’s robust policy framework and ample buffers continue to underpin its resilience to external headwinds. The authorities have taken measures to strengthen medium-term fiscal management and financial stability. With respect to the outlook, growth is projected to slow down to about 3 percent in 2019–20 reflecting external and domestic headwinds. On the external side, the projected slowdown in global demand and uncertainty about trade tensions are expected to weigh on exports throughout 2019. Policies should aim at boosting growth, while promoting domestic and external rebalancing and making growth more inclusive. The IMF staff recommends a front-loaded fiscal impulse in FY 2020. Thailand should use available fiscal space judiciously to spur domestic demand and support potential output. Implementation of macro-critical public infrastructure projects would also crowd in private investment. The report also highlights that structural reforms aimed at improving the implementation of public investment, strengthen social safety nets, and raise productivity in an increasingly digital economy, would boost growth and enhance its inclusiveness.
Keywords:
ISCR; CR; U.S. dollar; government; headline inflation; housing loan demand; National Anti-Corruption Strategy; training scheme; Thai baht; condo price; Financial sector stability; Trade balance; Commercial banks; Global
Cover IMF Staff Country Reports
Indonesia: Selected Issues
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper provides an overview of the exchange rate and trade dynamics in Indonesia. Using data on monthly export and import price and volume at the sectoral level, the paper estimates pass-through effects of exchange rate changes to trade price and volume. Results indicate adjustment frictions that depend on the source of the exchange rate fluctuation and the degree of integration in global value chains. Overall, combining price and volume effects, we find that 10 percent depreciation in the exchange rate is associated with a rise in the goods net-exports of up to 1.6 percent of GDP. Results indicate that there is considerable asymmetry and sectoral heterogeneity in the pass-throughs of exchange rate on import and export prices. Import prices adjust well to exchange rate fluctuations with the effects being stronger for appreciation episodes. The price sensitivity of export prices to exchange rate shocks is generally lower than of imports and concentrated over shorter horizons and during episodes of depreciation. The price and quantity results imply that exchange rate changes can have significant effects on the current account, by affecting movements in net-exports of goods.
Keywords:
ISCR; CR; rate; price; market; pass-through; monetary policy report; market rate; monetary policy press releases; monetary policy decision; pass-through coefficient; upside risk; Exchange rates; Corporate income tax; Tax administration core functions; Value-added tax; Medium term revenue strategy; Global
Cover The ASEAN Way
The ASEAN Way
Sustaining Growth and Stability
Ms. Ana Corbacho
and
Mr. Shanaka J Peiris

Abstract

The first part of the book examines the evolution of monetary policy and prudential frameworks of the ASEAN­5, with particular focus on changes since the Asian financial crisis and the more recent period of unconventional monetary policy in advanced economies. The second part of the book looks at policy responses to global financial spillovers. The third and last part of the book elaborates on the challenges ahead for monetary policy, financial stability frameworks, and the deepening of financial markets.

Keywords:
BOOK; monetary policy; exchange rate; economy; inflation expectation; transmission mechanism; monetary policy framework; ASEAN economy; Association of Southeast Asian Nations-5; inflation-targeting regime; Macroprudential policy; Financial sector stability; Inflation; Foreign exchange intervention; Global; Asia and Pacific; North America; Southeast Asia; Europe; countercyclical monetary policy; Global financial crisis of 2008-2009; Caribbean
Cover IMF Staff Country Reports
Morocco: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper quantifies the effect of gender inequality in Morocco on growth, compared with groups of faster growing countries. The results highlight the effect of closing the overall gender gap, which would help narrow up to 1 percentage point the difference between Morocco’s GDP per capita and that of benchmark countries in other regions. Simulations also show that gradually closing gender gaps in the labor force participation rate could lead to significant income gains over the long term. Policy recommendations to promote gender equality include investing in secondary education for women and in infrastructure and reforming tax policies and laws that discriminate against women.
Keywords:
ISCR; CR; Morocco; center; GDP; labor force participation; REER elasticity; IMF staff calculation; elasticity of export; value chain; labor compensation; export basket composition; credit demand and supply; Morocco's effort; Credit; Gender inequality; Real effective exchange rates; Women; Gender budgeting; Global; Maghreb; Middle East and Central Asia